And now China, with Covid, really risks a lot: not so much because of Covid, but because of that masochistic and obsessively pursued policy known by all, known as Zero-Covid policy, which has been translated and is still being translating into lockdowns and restrictions that have already hit financial and economic centers of the caliber of Shanghai and Beijing. All in the midst of the Ukraine-Russia war that saw Xi Jinping’s China take a clearly anti-Western stance days ago. The Beijing government, in fact, reiterated that there is an unlimited friendship with Vladimir Putin’s Russia and that for this reason the strategic cooperation between the two countries will continue. In this regard, it is worth highlighting how, in spite of the United States, Europe and the NATO countries that try to encircle Moscow with sanctions, in these weeks of war it was China, together with India. , to save Russia from economic collapse.
“Russia is not suffering in the way the West hoped for. And the blame largely falls on India and China. No country has taken a position explicitly for or against Russia, neither have both continued to opt for a subtle way of being, while most nations of the world have condemned President Vladimir Putin. They also continued to buy Russian energy, thus indirectly financing the invasion of Ukraine, while effectively maintaining the same trade relations they had before the war began. “
The Chinese mix of politics was Covid-friendship without limits, however, was punished by markets. A CNN article highlights the flight of international investors from China, certainly not limited to yesterday’s session. The leak was certified by data from the Institute of International Finance (IIF), which showed that, in March, outflows from Chinese markets amounted to $ 17.5 billion, a record, the US association, “unprecedented”, especially if we consider that in the period of time considered there has been no similar escape from other emerging markets.
Notably, international investors dumped $ 11.2 billion in bonds, and the rest in equities. Even Beijing was forced to release numbers that confirmed a record flight from its bond market, a trend that has been underway for a few months now. The China Central Depository and Clearing Authority announced that, as early as February, foreign investors had demobilized Chinese government bonds (hence sovereign debt) for a net value of 35 billion yuan (the equivalent of $ 5.5 billion ), to the monthly record. The sell-off accelerated the pace in March, with disposals of 52 billion yuan (the equivalent of $ 8.1 billion).
“The support that China gave to the Russian invasion of Ukraine was clearly the catalyst for capital flight,” said George Magnus, associate professor at the China Center at Oxford University and former chief economist at UBS.
“There is nervousness about China’s ambiguous attitude towards Russia towards the conflict in Ukraine, a factor that increases fears that China could be hit by sanctions in case of aid to Russia,” he said, also questioned by the Cnn, Martin Chorzempa, senior fellow at the Peterson Institute for International Economics, expert in Chinese economics and relations between the United States and China. But there are two other factors, beyond the geopolitical one, which caused the flight from assets made in China. One is the US rate hike launched last March by Jerome Powell’s Fed, as also confirmed by Chorzempa. “Rising interest rates, especially in the US, have made the nominal return associated with Chinese fixed income assets relatively less attractive.”
In addition, the obstinacy with which Beijing is pursuing its fight against the new wave of Covid – the strongest since 2020, since the Wuhan lockdown – is having a significant economic impact, also fueling uncertainty about future growth. of the economy. The effects are already there for all to see: the Chinese economy was hit by a sharp slowdown in March, with consumption falling for the first time in more than a year, amid a jump in the unemployment rate to record values in 31 main Chinese cities, due to the lockdowns that hit Shanghai and other major cities.
Yesterday, China reported 3,266 symptomatic cases of Covid and 20,454 asymptomatic cases. The majority of the new infections have been detected in Shanghai, where 19,445 cases have been reported. Beijing, also yesterday, reported 19, of which 14 were symptomatic. The authorities have ordered the 3.5 million residents and workers of Beijing’s main district, the Chaoyang district, to disclose the results of the three anti-Covid tests they will have to undergo this week, after they have been tested in the area. 26 cases of the 47 in the entire city of Beijing have been detected since last Friday. More than twelve buildings in the Chaoyang area, a district where several international companies and embassies are present, have been placed under lockdown. And, fearing further restrictions, Beijingers rushed to stock up on food and other essentials. The situation is such that several economists have already hurried to cut their estimates on Chinese GDP growth.
In the last few hours, Bank of America has revised its growth projections on Chinese GDP downwards, from + 4.8% to + 4.2%, compared to the economic growth target set by the Beijing government, equal to +5.5 approximately%, while Nomura’s downgrade is from economic growth of + 4.3% to + 3.9%, again in 2022.
In recent days, on the occasion of the spring meetings, the IMF – the International Monetary Fund – also cut the outlook on the Chinese economy from the previous + 4.8% to + 4.4%, citing precisely the risks associated with the severe China’s Zero Covid policy.,
On April 18, China announced that GDP in the first quarter of 2022 rose by 4.8%, more than expected: industrial production and investments in fixed assets were also confirmed better than estimates. But retail sales contracted, much more than expected, by 3.5%, confirming the deterioration of the economic fundamentals that will become clearer when the effects of the lockdowns are known. On the same day, JP Morgn dropped his GDP estimates for this year from + 4.9% to + 4.6%, justifying the worsening of the outlook with expectations of a lower growth in consumer spending and a downgrade. investment forecast of 0.1 percentage points.
The worst outlook is that of UBS economists, who cut the outlook by 0.8 percentage points to + 4.2%, citing “downward pressure on the intensified economy”. In particular, economist Wang Tao, despite promises of further monetary stimulus by the People’s Bank of China – China’s central bank – said he does not believe that institutions will launch “whatever it takes” to allow the economy to center the government target, equal to a growth rate of 5.5%.
Meanwhile, investors’ stampede is also confirmed by the trend of The Nasdaq Golden Dragon index, which tracks more than 90 Chinese companies listed on Wall Street, and which by the third quarter of 202 had already sunk by 31%, reporting the worst performance in its history, to then decline by another -14% in the last quarter of the year; this, compared to + 0.2% and + 11% in the same quarters considered for the S&P 500 and the 8% jump of the Nasdaq Composite in the last quarter of 2021. Chinese equities paid for the crackdown launched by the the Beijing government, which mainly hit Chinese Big Techs such as Alibaba, Baidu, JD.com, Bilibili.