Markets are optimistic as China relaxes Covid rules, but experts warn of danger ahead | China

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Global stocks and prices of some commodities rose on hopes that easing strict measures imposed by China to prevent the spread of the Corona virus would help reduce inflation, even as some experts warned that the country was not ready to live with the disease.

On Wednesday, the Chinese government announced a major shift toward living with the virus. People with Covid-19 with mild or no symptoms can self-quarantine at home, while officials have been instructed to stop triggering temporary lockdowns. The test will no longer be required for “trans-regional immigrants.”

Chinese Premier Li Keqiang was quoted by state media on Thursday as saying that China’s economic growth will continue to accelerate with the implementation of newly announced anti-COVID adjustment measures.

Shares of US-listed Chinese companies rose, while the Hong Kong stock market index rose more than 3% on Thursday. The price of copper rose on the promise of increased demand from China, its largest consumer. Analysts hope that the easing of Covid measures will help restore global supply chains, and thus reduce inflation.

“Recognizing that China is going to get back online and produce products will help bring down inflation and that’s a good thing. If inflation can come down, the Fed can step aside and pause,” said Tim Gresky, senior investment analyst at Inverness Counsell in New York. , referring to the recent interest rate hike by the US Federal Reserve.

In signs that global supply bottlenecks are already beginning to ease, freight costs have dropped dramatically over recent months. In January, it cost $20,000 to send one container from China to the United States. In December, that cost was about $2,000.

The decline in global demand has helped the improvement in global supply chains. US spending on manufactured goods has fallen over the past three quarters, according to the US Department of Commerce, likely due to higher borrowing rates initiated by the US Federal Reserve.

US inflation fell from a peak of 9.1% in June to 7.7% in October, but remained well above the Fed’s 2% target.

US Treasury Secretary Janet Yellen said on Thursday that as supply bottlenecks improve, the US may be able to avoid a recession.

The global drop in demand for commodities, along with China’s strict Covid policies, had a severe impact on Chinese manufacturing in November.

The value of the country’s exports declined by 8.7%, compared to the same period last year. Experts said restrictions, such as the one that disrupted work at the world’s largest iPhone factory in Zhengzhou last month, were responsible for much of the decline in China’s exports.

Yellen said China faces a “very complex problem” in adjusting its Covid policies, which have slowed growth. She added that a positive change in the Covid situation in China could lead to a “rebound” in growth.

The lifting of some Covid restrictions has revived demand for travel and some other services in China, but economists have warned that the promise of an economic recovery next year is uncertain, with the country’s fragile healthcare system and low vaccination rates leaving it ill-prepared for a large wave of infections, which It can lead to labor shortages and make consumers more fickle.

“Compared to other developed countries, China’s medical resources are somewhat insufficient,” said Ni Wen, a Shanghai-based economist at Hwabao Trust, which cut its growth forecast for China for the first quarter of 2023 to 3.5-4%, from 5%. % previously.

He noted that there is a particular risk of a Covid virus outbreak when China celebrates the Lunar New Year holiday in January, which is a popular time for travel among the country’s 1.4 billion people.

Economists and analysts were confident that overall reopening was more positive for growth.

“Lockdowns mean people can’t travel, people can’t consume, they can’t work,” said Rich Nozoom, chief global investment strategist at Mercer.

“It’s not humane to say it that way, but the GDPR impact of the lockdowns is far greater than the GDPR impact of allowing the virus to work.”

And some experts have warned that reopening could lead to an increase in inflation, which could hurt the global economy as well as China itself.

“The potential reopening could bring inflationary challenges to China,” said Bruce Pang, chief economist at Jones Lang LaSalle.

As cases rise, “increased demand, especially accelerated household consumption, and short-term disruption to labor supply, production and supply chains,” Pang said, could lead to inflation.

Reuters and the Associated Press contributed to this report

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