Shanghai covid cases leave the market struggling for answers


The most important political event of the decade in China is coming in the autumn and President Xi Jinping faces has largest challenge with covid.

The 20th National Congress of the Chinese Communist Party will be where Xi attempts to solidify his place in the party, essentially elevating him to Chairman of the Chinese Communist Party, which was the highest position held by Mao Zedong.

This is also the best opportunity for his rivals to unseat or weaken him until 2027.

He faces a critical question: Continue to fight for ‘dynamic covid zero’ or concede a tactical retreat. Cases continue to accelerate in Shanghai and locked down residents are running out of food.

Today, Shanghai declined 7565 areas ‘low risk’, which would allow people to move about and shop in areas with zero cases for 14 days. That might end being a double-edged problem as it could help the virus to spread.

Shanghai composite April 11

The European Union Chamber of Commerce in China today urged China to move towards living with covid, much like the rest of the world. Lockdowns are snarling supply chains

“The
Omicron variant is posing new challenges that seemingly cannot be
overcome by applying the old toolbox of mass testing and isolation, and
the social and economic costs of applying increasingly stringent
measures to achieve this are rapidly mounting,” chamber president Joerg
Wuttke said in the letter obtained by the South China Morning Post.

“This
is also having an unfortunate impact on China’s image to the rest of
the world, while eroding foreign investors’ confidence in the Chinese
market.”

That kind of pressure makes Xi’s choices more difficult.

The best possible scenario is that — somehow — covid is quickly brought under control again and China improves vaccination and therapeutic access before fully opening later.

The worst-possible scenario is that China continues the harsh lockdowns in a losing and neverending battle that badly damages growth.

In between are dozens of variations but at the heart of it is the question: What’s worse for Chinese political leadership? Ongoing lockdowns or a Hong Kong-style spread that would kill 5 million people in the country (based on global mortality rates)?

The market is looking for answers and it doesn’t like what it’s seeing.



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