Renewed COVID-19 lockdowns are weighing heavily on China’s business activity, consumer confidence and financial markets.ALY SONG/Reuters
Chinese policy-makers pledged on Wednesday that growth was still a priority and they would press on with reforms, helping further boost stock markets buoyed by hopes that Beijing will ease off on its strict COVID-19 measures.
The policy-makers’ comments came in an apparent bid to soothe fears that ideology could take precedence as Xi Jinping began a new leadership term and strict COVID curbs exact a growing toll on the world’s second-largest economy.
Even though case numbers are rising and disruptive lockdowns continue with no clear exit strategy in sight, investors latched on to hope that China may ease its strict COVID policy in the coming months.
“We believe China could soon fine-tune its COVID restrictions, with a more targeted approach, less restrictive quarantine guidance and the more balanced assessment of the virus,” Morgan Stanley analysts said in a note.
China and Hong Kong stocks ended higher for a second session on Wednesday, and U.S.-listed Chinese stocks rose in premarket trading.
On the ground, however, there were no signs of an ease up. Renewed COVID lockdowns are weighing heavily on China’s business activity and consumer confidence.
In the latest fallout, electric vehicle maker NIO said it suspended production in the eastern city of Hefei amid rising COVID-19 cases and Yum China, operator of the KFC and Pizza Hut chains, said it was temporarily closing or reducing services at over 1,000 of its restaurants in China.
Luxury goods companies Estee Lauder Cos Inc and Canada Goose Holdings Inc also cut their full-year forecasts, blaming a hit from persistent COVID-19-related lockdowns and store closures in China.
Xi secured a third term as general secretary at the ruling Communist Party’s twice-a-decade congress last month, when he urged the party to brace for hardship and strengthen national security, and renewed his support for the zero-COVID policy, despite the fragile economy.
In pre-recorded interviews for the Global Financial Leaders’ Investment Summit in Hong Kong, senior officials from China’s central bank, securities and banking regulators assured their audience via a video link that China would keep its currency and property markets stable, and remained committed to a pro-growth economic strategy.
“International investors should read more carefully about the work report that President Xi delivered” at the congress, said Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC).
“There, he re-emphasized the centrality of economic growth in the entire work of the Party and the country, and that’s very significant,” showing China is fully focused on growth, he said.
Fang also criticized international media coverage, saying that a lot of reports “really don’t understand China very well” and had a short-term focus.
As foreign funds head for the exits, Chinese investors have been snapping up cheapened shares of mainland firms, betting that outside views of China have been excessively negative.
Yi Gang, governor of the People’s Bank of China (PBOC), said China will continue to deregulate its markets.
“Reform and open-door policy will continue,” Yi said.
Apparently seeking to ease worries over the impact of COVID lockdowns and a property market crisis, Yi said “the Chinese economy has remained broadly on track despite some challenges and downward pressure.”
“I expect China’s potential growth rate to remain in a reasonable range,” Yi said, citing the country’s “super large” market, a rising middle-class, technological innovation and a high-quality infrastructure network.
Separately, in a book entitled “A Supplementary Reading of the 20th Communist Party Congress Report” and cited in local media on Wednesday, Yi said China is in a position to maintain “normal” monetary policy and “positive” interest rates.
Global interest rate hikes have pressured yuan assets, and it is impossible for China to keep cutting interest rates in the long run, Wang Jun, director at China Chief Economist Forum, told Reuters.
While other countries have been tightening policy to battle rising prices, China has implemented an accommodative monetary policy to shore up sputtering growth, raising concerns about capital flight. The yuan has weakened roughly 13 per cent against the dollar this year.
But Yi said the yuan has appreciated against other major currencies, “maintaining its purchasing power and keeping its value stable.”
Noting China’s property crisis, and the sector’s links to other many other industries, Yi said, “We hope the housing market can achieve a soft landing.”
With China’s zero-COVID policy expected to remain in place through at least the winter, or longer, its near-term growth outlook is bleak.
Fears of renewed disruptions to global supply chains are resurfacing.
On Wednesday, a Chinese industrial park that hosts an iPhone factory belonging to Foxconn announced a fresh lockdown.
“We expect Beijing to maintain its zero-Covid strategy at least until March 2023,” according to Nomura.
After surprisingly high gross domestic product growth of 3.9 per cent in the third quarter, Nomura expects growth to drop again, with zero or even negative sequential growth from the previous quarter.
“We maintain our GDP growth forecast of 2.8 per cent year-on-year for the fourth quarter with a corresponding sequential growth forecast at 0.0 per cent.”
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
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