Covid-zero: Investors no longer see Communist Party as "pragmatic," New US Hikvision sanctions to affect 180 countries, & China’s support of Russia tilts EU to Japan, India -- China Boss News 5.09.22
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Covid-zero fallout: Investors no longer see Communist Party as pragmatic
The "Communist Party’s reputation for pragmatism has been damaged by [President Xi Jinping’s] strategy to contain the pandemic," economist Diana Choyleva last week said in an op-ed for the Financial Times.
Choyleva, FT:
For a long time, foreign investors’ favourite adjective for the Chinese Communist party was “pragmatic”. The CCP would not do anything that would harm China’s economic interests, the argument went, and so short-term glitches in policy would always be ironed out before they made a durable dent in growth.
But in Xi Jinping’s China politics overrides everything else. This extends even to the battle against Covid-19. The supreme leader has staked his personal reputation on China’s success in taming the pandemic, and avoiding the deaths and overwhelmed hospitals suffered elsewhere.
“Foreign investors have begun to realise that China is willing to take a significant economic hit rather than relinquish its commitment to its dynamic zero-Covid strategy or roll out the mRNA vaccines developed in the west,” she added.
In the U.S., disgruntled investors might stick around for an election cycle or two before withdrawing from the market. But in China, what Xi says will be policy for the rest of his time in office, which could be much longer than that, especially if the Chinese leader receives the CCP stamp of approval at the next Party Congress in November, something most experts anticipate.
An advisor to policymakers in Beijing told Financial Times:
FT:
“People are telling Xi the lockdowns are a concern but I don’t think they’re saying how big a concern it really is,” the adviser said. “He’s just so proud of China’s accomplishments fighting Covid that I don’t think he worries about the economy.”
“I don’t think Omicron is going to be contained but this is what the big leader said, so people are making decisions based on this assumption,” he said, adding that the situation in China was now worse than when Covid first spread in early 2020.
Recent FT reports also revealed that “European business leaders in China have warned that Beijing’s zero-Covid policy is threatening foreign investment,” and that Vice-premier Liu He’s assurances that Beijing can steer the economy toward calmer seas while imposing draconian lockdowns seem to be falling on deaf ears.
FT:
Twice as many European businesses are weighing a shift of investment out of China than were doing so at the start of the year, according to a late-April flash survey published on Thursday by the EU Chamber of Commerce in China.
Around 23 per cent of the 372 European companies that responded to the survey said they were considering a move out of China, the highest level in a decade, said the chamber’s president Jörg Wuttke. Around 78 per cent said China was now less attractive for investment because of its Covid-19 policies.
“Zero tolerance doesn’t work because the world has learned to live with Covid and China has to change strategy,” said Wuttke. “We are trying to tell the Chinese government that if you don’t change, we will vote with our feet.”
Public statements “have not led to detailed follow-up measures, and leaders’ room to change monetary policy is limited by concerns about inflation and capital flight as US interest rates rise above that of China,” the news staff said.
Several worrying signs of a loss of business confidence in China have begun to appear in the past few weeks.
“A Chinese planning official told the Financial Times that some senior leaders, sceptical of data compiled by the National Bureau of Statistics, were increasingly turning to their own personal networks to quiz bosses at state-owned enterprises and private sector companies about the true state of the economy,” FT analysts said, and major international corporations - like Starbucks, Apple, Dupont, Estee Lauder, Yum China - warned in quarterly reports that "the drag from China’s Covid controls will hit their entire business," and there was an “overall decline in corporate sentiment,” according to CNBC analysts.
CNBC:
Starbucks said Tuesday same-store sales in China fell by 23% in the quarter ended April 3 from the same quarter last year. That’s far worse than the 0.2% increase analysts expected, according to FactSet.
Finally, China’s “sudden currency plunge” stoked memories of the “2015 devaluation [which] roiled global markets and spurred an estimated $1 trillion in capital flight,” Bloomberg analysts said, and Australian Financial Review’s Michael Smith reported that “China is making it harder for its wealthy citizens to apply for investment migration visas in a bid to head off potential capital outflows via residents looking to escape the country’s prohibitive “COVID-zero” policies.”
But President Xi last week doubled down on keeping Covid out “in a major speech to the country’s senior officials that also warned against any criticism or doubting of the policy,” The Guardian said.
The Guardian:
Addressing the seven-member politburo standing committee, China’s highest decision-making body, specifically about the Shanghai outbreak, the president said China’s response was “scientific and effective”. He told officials to “unswervingly adhere to the general policy of dynamic zero-Covid”.
“We have won the battle to defend Wuhan, and we will certainly be able to win the battle to defend Shanghai,” he said, according to a translation by Sinocism’s Bill Bishop.
For the rest of Choyleva’s op-ed in Financial Times, China’s zero-Covid stance is a warning to investors, click here. For FT’s news update, European businesses warn China over zero-Covid policy, click here. For a look at how Chinese officials are handling Xi’s Covid-zero policy, Zero-Covid pride of China’s ‘big leader’ Xi Jinping threatens economic fall, click here.
For CNBC’s report, From Estee Lauder to Apple, big companies say China's Covid restrictions are hitting business, click here. For Bloomberg’s yuan devaluation update, China’s Sudden Currency Plunge Raises Risk of a 2015-Style Panic, click here, and for Michael Smith’s report in AFR, China extends capital controls to emigration, click here.
For the Guardian’s report, Xi Jinping attacks ‘doubters’ as he doubles down on China’s zero-Covid policy, click here. For Bill Bishop’s translation in Sinocism, Standing Committee doubles down on "dynamic zero-Covid" and calls for struggle against doubters, click here.
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