(Bloomberg) — China’s worst equity selloff since early 2020 reflects a growing concern about President Xi Jinping: He can’t afford the political costs of shifting from a Covid Zero strategy that is pummeling the economy.
In Shanghai, a weekslong Covid-19 lockdown got even worse, with workers in hazmat suits fanning out over the weekend to install steel fences around buildings with positive cases. In Beijing, the process is just getting started, as authorities on Monday began shutting down a bustling district in the capital to quash fresh outbreaks.
The threat of paralyzing China’s two largest and wealthiest cities with a strategy abandoned by most countries helped push the CSI 300 down 4.9%, the gauge’s steepest one-day drop since the first such lockdown in Wuhan two years ago. The spreading lockdowns have investors worried that Xi is sacrificing the Communist Party’s reputation for pragmatic economic management to defend a political narrative that portrays him as the world’s most successful virus-fighter.
“This Covid situation is really putting China into a very dark moment, perhaps the darkest moment in economic terms for the last couple of decades,” Junheng Li, JL Warren Capital founder and chief executive officer, said of the Shanghai lockdown during an interview on Bloomberg TV. “It’s a confidence crisis in a sense that you’ve got the most affluent city in China with this consensus disappointment and resentfulness towards a very non-sensible policy.”
“People really don’t know, what’s a clear path to get China out of this Covid situation,” Li said.
Pressure is building as Xi prepares for a twice-a-decade leadership reshuffle later this year that’s expected to secure him a precedent-breaking third term in power. Maintaining Xi’s reputation for strong decision-making appears increasingly central to that process, even if it comes at the expense of the economic growth that has helped underline the Communist Party’s legitimacy since China started opening to the world more than 40 years ago.
Economists surveyed by Bloomberg last week lowered annual growth forecasts for China to 4.9%, betting against the government’s official target of about 5.5%. Overseas investors offloaded 4.4 billion yuan ($7 billion) of stocks Monday, taking monthly inflows negative this month. The onshore yuan slumped to its weakest level in 17 months on concerns about rising capital outflows.
China’s outgoing premier, Li Keqiang, has in recent weeks called for a “sense of urgency” in implementing stimulus measures and — according to one local newspaper report — urged entrepreneurs and experts at a forum last month to “tell the truth” and offer proposals rather than talking up achievements. Still, the party has increasingly signaled that “Covid Zero” is not one of the things up for debate, despite the emergence of the more contagious omicron strain.
Ma Xiaowei, director of National Health Commission, credited Xi with “setting the tone” on the country’s anti-epidemic policy in a front-page commentary in the party’s Study Times journal, making it riskier to challenge the strategy. Ma called for “taking a clear-cut stance in opposing the wrongful thoughts of living with virus.”
Over the weekend, Chinese internet users fought to evade censors to spread a six-minute video titled “The Sound of April,” which included a montage of clips illustrating Shanghai’s struggle under more than a month of lockdowns. Some users compared the outpouring of support for the video to the night two years ago when Wuhan doctor Li Wenliang — who delivered one of the first public warnings about a new SARS-like illness — was hailed as a hero after dying of the disease.
For Xi, China’s ability to quash the first coronavirus outbreak in Wuhan provided a powerful response to criticism from the U.S. and other Western democracies, where debates over masks, vaccines and lockdown measures have been blamed for catastrophic virus surges. China has so far acknowledged less than 5,000 deaths, compared with almost 1 million in the U.S., a fact trumpeted daily by diplomats and state media editorials.
But Beijing has yet to approve for use the highly effective mRNA vaccines pioneered by companies such as Pfizer Inc. and Moderna Inc., a step which could be viewed as an acknowledgment of Western scientific victory. China has also failed to vaccinate much of its elderly population, raising the costs of any effort to let the virus circulate.
That risk was driven home by an outbreak in Hong Kong earlier this year that saw the Asian financial hub spiral from a Covid safe haven to the place with the highest death rate of the pandemic. A monthlong Chinese outbreak could result in 31,000 deaths to a quarter of a million deaths, according to Bloomberg Intelligence calculations.
“Even though China has lauded its Covid approach over the haphazard handling of Covid in the United States, China has now also politicized the virus,” said Mary Gallagher, a political science professor at the University of Michigan. “This makes a policy change very difficult because it will imply a previous policy mistake. That is simply something that Xi is unwilling to do in the year that he is potentially up for an unprecedented third term as president and head of the party.”
China has similarly prioritized ideological struggles with the West over short-term economic pressures in its decision to defend President Vladimir Putin’s rationale for invading Ukraine. The position has prompted threats of secondary sanctions from the U.S. and warnings from European officials that Beijing risks undermining its relationship with Brussels.
Last week, Xi defended both his efforts to push back against U.S. “hegemony” and his approach to the virus in a video address to the Boao Forum for Asia. “For humanity to clinch the final victory against the Covid-19 pandemic, more hard efforts are needed,” he said.
A district-level official in Shanghai carried the war metaphor further in an April 15 speech explaining the virus fight. “This is a military order,” Baoshan party secretary Chen Jie said in remarks widely circulated online. “There is no room for bargaining, we can only grit our teeth and fight for victory. It can also be said this is a total attack, a last-ditch battle to reverse the trend of the epidemic.”
Such rhetoric has been used to justify ever-more extreme steps to control people’s movements in Shanghai, which reported 19,000 cases and 51 fatalities Sunday. More than a month into the city’s outbreak, some residents in buildings with positive cases found themselves penned in by green chain-link fences outside their exits, according to photos and posts shared on Chinese social media platform Weibo.
Meanwhile, a surge in cases in Beijing’s Chaoyang district — an area of 3.5 million people, including many expats, the central business district and most foreign embassies — raised concerns that the capital could soon see its first major lockdown. Beijing municipal government spokesman Xu Hejian said late on Friday that the current outbreak was “complex and stealthy.”
Changing policy now would be represent and enormous loss of face for Xi, and could be worse in the short term, as the virus spreads and more people die, said Richard McGregor, author of the “The Party: The Secret World of China’s Communist Rulers.”
“They have been boasting for years that their system is superior to Western democracies, but suddenly, it looks like it isn’t after all,” said McGregor, who’s also a senior fellow at the Lowy Institute in Sydney. “Who is going to dare to tell Xi Jinping that?”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
