The Covid-19 pandemic first appeared in China and affected global markets worldwide. As a result, China’s markets struggled to maintain consistency and growth until recently, when the lockdowns dissipated, assisting in re-emerging the world’s second-largest market.
The acceleration of the opening of the Chinese markets could trigger numerous events, including an uptick in the stock markets, real estate markets, bond markets, and various other global markets.
China’s Lockdown
On January 23, 2020, the central government of China implemented a lockdown in various cities, including Wuhan and Hubei. The lockdown remained in place for seventy-six days. The lockdowns at the time were implemented to help contain an unknown flu-like outbreak, causing many citizens to show up at Wuhan and Hubei hospitals. The symptoms included breathing difficulties, coughing as well as high fevers.
Since China’s initial lockdown in January 2020, the country has had multiple lockdowns in various cities. The use of vaccinations to contain the virus has yet to be successful and falls behind many other industrialized nations. China’s number one method of deterring the spread of the virus has been the use of and implementation of lockdowns.
Pressure on the Chinese Government and Xi Jinping’s Decision to Reopen China
Many consider Xi Jinping’s rule as the leader of China to be one of the greatest in the country’s long history. The “zero Covid” policy was becoming more difficult for him to convince the Communist party Congress that the three-year initiative was achieving the desired goals. As a proud ruler, it was difficult for Xi Jinping to reverse his stance on his policy.
In November 2022, numerous protests and the urging of government officials assisted in Xi Jinping’s reversal of his “Zero Covid” policy. The abrupt shift in policy left China’s healthcare systems at the mercy of Covid-19. There was little time to waste with no advanced warning.
The Covid-19 Vaccine and China
China struggled to implement a consistent Covid-19 vaccination plan. The country has roughly an 89.7 percent vaccine rate; however, many of the 200 million elderly and vulnerable are not sufficiently vaccinated. The lack of sufficient vaccination could lead to additional variants appearing. In addition, the immediate shift from “zero Covid” to “Living with Covid” has put China’s elderly population in jeopardy of possible massive death rates.
Another factor affecting China’s population from Covid-19 and executing the “Living with Covid” policy is Xi Jinping’s unwillingness to accept western vaccines like mRNA vaccines that have proven to be more effective in preventing severe illness than other Covid-19 vaccines.
Supply chain disruptions and Lockdowns
China’s “Zero-Covid” policy has caused numerous supply chain disruptions. The lockdowns, which have been prevalent and directly correlated to supply chain disruptions, have occurred often and with little notice.
Residential and commercial properties have often been shut down at the drop of a dime, forcing Chinese residents to be trapped in the area where the lockdown occurs. Some lockdowns have gone on for months, leaving citizens in a predicament. In addition, entire cities can be locked down with very little notice. Cities that have been shut down are Shanghai, Shenzhen Xian as well as Tianjin.
China’s most significant exports affected by the lockdowns and causing supply chain bottlenecks are cell phones, semiconductors, lighting products, computers, and textiles. The slowdown in exporting these products increased supply chain issues and put pressure on global economy economics.
Lockdown Protests
Due to China’s “Zero Covid” policy, lockdown protests exploded throughout China. Once vaccines were introduced, many countries eased their strict Covid lockdown policies; however, China continued to implement strict lockdown policies, including closing its borders and massive electronic tracking of Chinese residents. These actions angered many Chinese citizens, who took to social media and the streets with dissatisfaction.
China’s economic growth
China’s GDP growth rate in 2020 decreased from 2019 by 3.71 percent, leading to volatility in forex trading. China’s average GDP growth rate was 9.05 percent from 1989 to 2022. China took a massive hit in its GDP rate in the first quarter of 2020, a record low of -6.8 percent.
China’s Reopening
On January 8, China officially reopened its borders and abandoned quarantine policies that it had in place for three years. The country now believes that the best way to deal with Covid-19 is to learn from and live with the virus.
Not all is gloomy for the global economy now that China has reopened. Positive signs show that global inflation is easing due to China returning and supply chains functioning better.
Although an increase in the output of goods and capital can push inflation downward, the demand for energy which the second largest economy craves, and the country which consumes one-sixth of the world’s oil consumption, it’s possible that oil prices shoot above one hundred dollars per barrel in 2023.
China’s reopening will also spur foreign talent, which has been waiting for the country to reopen. It has been estimated that up to one hundred thousand foreigners have been waiting to return to the country, including teachers and others who help the counties infrastructure.
Spending and pent-up consumer demand will help drive China’s economy and the world’s demand for goods. Unlike the US, which received government assistance through stimulus checks, Chinese citizens have been hoarding cash during the pandemic.
One of the largest industries to benefit from China’s reopening is tourism, which will help the aviation, hotel, and retail sectors. Before the pandemic, the Chinese tourist population was nearly twenty percent of global tourism spending.
The absence of Chinese tourists left a large hole in the travel sector, but there are signs that with the reopening of China, this hole will soon be filled again, boosting the tourism industry. The areas that will benefit the fastest are those closest to mainland China, such as Hong Kong and Thailand.
Chinese equity markets will benefit from China’s “Zero-Covid” policy easement. With a full reopening, there is speculation that an additional two trillion dollars can flow into the Chinese stock markets. Typically, when Covid restrictions are easing, the equity markets react favorably. In addition, the opening of China will fuel economic growth, which will fuel companies’ bottom lines with more robust earnings.
Global investors are eying the Chinese stock market and investing in various blue chip stocks, including financial and consumer staple equities.
With the trading activity that has recently taken place, the CSI 300 Index has risen to its highest level within the last five months. However, it should be noted that even though the Chinese stock market is on a recent tear, it would take an eighty percent outperformance of the market compared to the S&P 500 to bounce back to the levels it was at in early 2021.
The United States and Travel Restrictions
With the lift of the “zero Covid” policy, Chinese citizens and business partners will be looking to travel to the United States. Therefore, on December 28, 2022, the United States CDC implemented requirements that starting on January 5, 2023, all travelers from China into the United States provide proof of a negative Covid-19 test within two days before flying.
Also those individuals will have to provide the airline with which they are flying proof before boarding the plane. The tests can be either an antigen self-test or a PCR test.
The Bottom Line
With the reopening of China and lifting of the county’s lockdown policy of “zero Covid,” China is beginning its path back to a consistent global economic powerhouse that exported 3.36 trillion dollars worth of export goods in 2021. Numerous factors will be in play in 2023 that will either accelerate China’s comeback or prevent a quick recovery.
Removing “zero Covid” will continue to be a hurdle for the Chinese economy. Suppose the country can succeed with herd immunity by allowing many Chinese citizens to contract the disease without slowing down productivity. In that case, the country can continue its growth and expand its markets.
However, if Covid-19 variants continue to plague the country and its elderly population continues to perish, these factors will possibly affect the potential growth China is looking to achieve. Also, if Chinese residents become ill, the labor force will be significantly strained.
China’s population and ability to remain healthy and minimize Covid-19 outbreaks will invariably provide either a positive or negative outcome to global markets and its own markets (which go hand in hand).
With a herd immunity outcome, China will be able to reestablish itself as a global force, including tourism, textiles, computers, integrated circuits, and telephone equipment, along with numerous other exports. The global economies rely on China to provide these exports to decrease bottlenecks and the supply chain cycle.
The markets will be keeping a close eye on how China can function without having to revert back to a “zero Covid” policy. If China can keep its exports flowing, we could see its stock markets continue to climb in 2023 and bounce back to all-time highs.
James Thompson