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China - Economic Consequences of Zero Covid Policy


Viking
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Can anyone please explain to me what China is thinking with its zero covid policy? Is it not pretty much a scientific certainty that it is doomed to fail? This was predicted back when Omicron got rolling, and picked up steam with variant 2 (that China’s zero covid policy would fail). Omicron-variant 2 is simply too contagious to stop. 
 

Most importantly, what will the impact of this policy have on the Chinese economy in 2022. Shanghai has been in lock down for close to 5 weeks. Are we witnessing a slow moving train wreck in China that will just keep playing out for the rest of 2022 and after? As long as the zero covid policy stays in place? 
 

Clearly, the zero covid policy will result in lower economic growth in 2022. If Omicron continues to spread, and what we are seeing in Shanghai plays out in other large cities in China, how low will economic growth in China be? Lower economic growth will result in less demand for commodities - and this will affect the current bull case. We will also see significant supply chain disruptions - and this will affect inflation in the rest of the world. 
 

Or do investors view what is going on in China as being a big nothingburger?

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I also wonder if this policy, if it continues, will not do significant damage to the credibility of the Chinese Communist Party? They clearly feel they will lose credibility if they now reverse the zero covid policy. But is the alternative better? What am i missing?

 

 

Edited by Viking
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I don’t think China’s zero COVID-19 policy matters much, unless you invest in China. It’s doomed to fail and at some point the Chinese will probably abandon it. I think one reason the Chinese are doing it is because they know, but not admit, that their vaccines don’t work.

Edited by Spekulatius
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Posted this at end of last year……and continue to watch the China situation closely…….maybe the CCP have everything in hand or maybe we are watching the beginning of something unravel. Whats happening in Shanghai is very very curious and I haven’t seen a satisfactory answer anywhere why they are doing what they are doing. I’ve heard all the various explanations and they just dont stack up fully for me. The most compelling is dumb pride as @Spekulatius says & not being willing to admit that for alls China’s copying of the trappings of modernity, the West is still 20 years ahead in terms of fundamental technological innovation in life sciences (clearly) and semiconductors to name two areas.

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I might think that the mess in Shanghai is a result of political game.  This year is a critical year of so called "election“ for CPP cabinet. 

 

Apparently, "zero covid" policy is supported by those Xi supporters, while "coexistence with Covid" policy is supported by liberals in CPP. 

 

Due to higher education and higher income, and much openess to foreign cultures, Shanghai is historically a place for liberals. 

 

Shanghai's contribution of tax to the central government is the highest, and their local governors acutally have a strong saying in the cabinet. 

 

Right now the central government is shifting to more and more conservative. By nature, there is a strong conflict between Shanghai local goverment and central government.

 

In the initial stage, the Shanghai local government would like to follow the suit of Hongkong and Signapore to co-exist with Omicron, that's why they do not use the drastic measure to contain it in the very beginning. (Be noted that Shenzhen at the same time chose to a fast lockdown, and realize a zero Covid in a very short time)

 

However, the central government seems not happy about that, and then tried to push the policy to "zero covid" policy again. Then it is a mess.

 

To be honest, if simply analyzing China and CCP as a similar USSR communism party and only information from Western media, this already created a strong bias. 

 

China and its policy are not perfect, probably it is not as good as propaganda by Chinese main stream media, also it is not as drastically evil as propoganda by Western main stream media.  And people over there are just as normal as people in other countries, they know what is good with the system, and they also know what is bad with the system.  When the benefits of people have been damaged and threatened by the policies of the government, people over there will fight.  There are so many Chinese and Western people traveling btw China and Western countries, somebody choose to stay and sombody choose to leave, (just check the international flights).  Are they stupid? No, I do not think so. 

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1 hour ago, crazyjsj said:

I might think that the mess in Shanghai is a result of political game.  This year is a critical year of so called "election“ for CPP cabinet. 

 

Apparently, "zero covid" policy is supported by those Xi supporters, while "coexistence with Covid" policy is supported by liberals in CPP. 

 

Due to higher education and higher income, and much openess to foreign cultures, Shanghai is historically a place for liberals. 

 

Shanghai's contribution of tax to the central government is the highest, and their local governors acutally have a strong saying in the cabinet. 

 

Right now the central government is shifting to more and more conservative. By nature, there is a strong conflict between Shanghai local goverment and central government.

 

In the initial stage, the Shanghai local government would like to follow the suit of Hongkong and Signapore to co-exist with Omicron, that's why they do not use the drastic measure to contain it in the very beginning. (Be noted that Shenzhen at the same time chose to a fast lockdown, and realize a zero Covid in a very short time)

 

However, the central government seems not happy about that, and then tried to push the policy to "zero covid" policy again. Then it is a mess.

 

To be honest, if simply analyzing China and CCP as a similar USSR communism party and only information from Western media, this already created a strong bias. 

 

China and its policy are not perfect, probably it is not as good as propaganda by Chinese main stream media, also it is not as drastically evil as propoganda by Western main stream media.  And people over there are just as normal as people in other countries, they know what is good with the system, and they also know what is bad with the system.  When the benefits of people have been damaged and threatened by the policies of the government, people over there will fight.  There are so many Chinese and Western people traveling btw China and Western countries, somebody choose to stay and sombody choose to leave, (just check the international flights).  Are they stupid? No, I do not think so. 


@crazyjsj  Super interesting post… thanks for taking the time to share your thoughts.

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1 hour ago, crazyjsj said:

Right now the central government is shifting to more and more conservative. By nature, there is a strong conflict between Shanghai local goverment and central government.

 

1 hour ago, crazyjsj said:

However, the central government seems not happy about that, and then tried to push the policy to "zero covid" policy again. Then it is a mess.

 

To be honest, if simply analyzing China and CCP as a similar USSR communism party and only information from Western media, this already created a strong bias. 

 

China and its policy are not perfect, probably it is not as good as propaganda by Chinese main stream media, also it is not as drastically evil as propoganda by Western main stream media.

 

Interesting. Xi is a die hard fan of Mao and it seems Xi and the CCP are to some degree copying the strategy from Mao's "War on🐦🦟🐀🪰".

 

IMO, the outcome depends on how authoritarian China is. Will the CCP adapt (let go of control) when/if they learn that the war on the coronavirus cannot be won, or will they double down on CCP's strategy to save CCP and Xi from humiliation? I guess we know the answer to that already. I hope they adapt, but wouldn't they for example have distributed other "unnameable" vaccines instead of Sinovac if this was the case? It's very interesting to see how each country's history and culture shines through in the way they handle the coronavirus (and the war in Ukraine). The more things change, the more they (culture, humans) stay the same (thanks to mindviruses like capitalism and socialism).

Edited by formthirteen
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2 hours ago, crazyjsj said:

I might think that the mess in Shanghai is a result of political game.  This year is a critical year of so called "election“ for CPP cabinet. 

 

Apparently, "zero covid" policy is supported by those Xi supporters, while "coexistence with Covid" policy is supported by liberals in CPP. 

 

Due to higher education and higher income, and much openess to foreign cultures, Shanghai is historically a place for liberals. 

 

Shanghai's contribution of tax to the central government is the highest, and their local governors acutally have a strong saying in the cabinet. 

 

Right now the central government is shifting to more and more conservative. By nature, there is a strong conflict between Shanghai local goverment and central government.

 

In the initial stage, the Shanghai local government would like to follow the suit of Hongkong and Signapore to co-exist with Omicron, that's why they do not use the drastic measure to contain it in the very beginning. (Be noted that Shenzhen at the same time chose to a fast lockdown, and realize a zero Covid in a very short time)

 

However, the central government seems not happy about that, and then tried to push the policy to "zero covid" policy again. Then it is a mess.

 

To be honest, if simply analyzing China and CCP as a similar USSR communism party and only information from Western media, this already created a strong bias. 

 

China and its policy are not perfect, probably it is not as good as propaganda by Chinese main stream media, also it is not as drastically evil as propoganda by Western main stream media.  And people over there are just as normal as people in other countries, they know what is good with the system, and they also know what is bad with the system.  When the benefits of people have been damaged and threatened by the policies of the government, people over there will fight.  There are so many Chinese and Western people traveling btw China and Western countries, somebody choose to stay and sombody choose to leave, (just check the international flights).  Are they stupid? No, I do not think so. 

Yes that's interesting. The lockdown-stuff etc. could also be a form of sanctions against the west?!

 

 

Edited by Aurel
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1 hour ago, Aurel said:

Yes that's interesting. The lockdown-stuff etc. could also be a form of sanctions against the west?!

 

 

I would not think so. if checking Shanghai's GDP, nobody would risk it if they want to manage China.   "ecomomic growth" is really the super important basis for CCP to manage China.  In late 1980, China chose to do both economic reform and political reform.  Ecomomic reform is successful so far, that's why it is hiding other issues in the system. People can see their living standards are improving.  The political reform (at least the direciton was to approach Signapore-like system) has a strong setback starting from the "Tiananmen Sqare" event. Since then, the political reform is very slow, now, even shifting to a more and more conservative direction (which is sad).  But with the living standards of people improve, people would start to demand more to have a say in politics. 

 

With such a conflict there, and if economic growth of the nation has some serious problems, then CCP will have problems (People's tolerance will be gone).

That's why we see a lot of companies are allowed to operate again in Shanghai.

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Pushing us down the inflation cliff.

 

Then why is gold falling for the last four days?  That signals deflation (rather than inflation).   Something else is going on as the US dollar is on a rampage since the beginning of last week.

 

Bill

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It is hard to see a giant unraveling in a glacial pace, even when you squint real hard. I am with the view is that all these hard measures have more to do with Xi’ elevation for a third 5-year term as party boss. And that 2023 will be different.  Westerners get obsessed with Xi extending his presidential term (few years ago) that is mostly titular, being the party boss counts. 

George soros the contrarian even went as far as saying the 2022 election might not results in Xi’ favour. 

 

unrelated, here is article. Not sure it appears 90 degree to the right 
01FA6BD5-2EDC-4AD9-9704-15E8094227AB.thumb.jpeg.f95ec0492707c9c25774423e1d8f1a44.jpeg

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4 hours ago, wabuffo said:

 

 

Then why is gold falling for the last four days?  That signals deflation (rather than inflation).   Something else is going on as the US dollar is on a rampage since the beginning of last week.

 

Bill

I am a novice when it comes to this topic, so this is genuine question. Isn't Gold prices just a proxy correlate for inflation? Inflation by definition is general increase in price and falling of purchasing power of fiat as far as I understand. So why can't Gold price movement not follow the usual observations when it comes to inflation?

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Year of Xi's re-election -> desire for 'stability' in China.

 

Chinese hospital system is not great -> keep COVID 0 even in face of Omicron to at least slow spread of COVID amongst population without natural immunity, bad vaccines, and a elderly population that is relatively unvaccinated.

 

This will likely follow the path of Hong Kong where there is a sharp peak, and then it declines.

 

Overall, after this latest amount of lockdowns China probably will have been less locked down on average since 2020 than many Western countries. COVID 0 gets relaxed going forward.

 

image.thumb.png.7803192ab0bfe1e9bc04b94089ecd177.png

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4 hours ago, patience_and_focus said:

I am a novice when it comes to this topic, so this is genuine question. Isn't Gold prices just a proxy correlate for inflation? Inflation by definition is general increase in price and falling of purchasing power of fiat as far as I understand. So why can't Gold price movement not follow the usual observations when it comes to inflation?


perhaps gold has already priced in inflation (look at a 10 year chart) and the decline last week is due to the Fed communicating that it will really really really raise rates.  A lot.  Sometime in the future.  Best not to rush these things.

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On 4/25/2022 at 1:12 PM, wabuffo said:

Pushing us down the inflation cliff.

 

Then why is gold falling for the last four days?  That signals deflation (rather than inflation).   Something else is going on as the US dollar is on a rampage since the beginning of last week.

 

Bill

 

https://app.truflation.com/

 

It looks like inflation to me.

It's a war and the supply chain is a strategic target.

Edited by Dave86ch
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