China’s Covid plan will become a market card for 2022

The author is an economist at the Bank of Singapore

How long will China last? zero-Covid process? The decision Beijing is making is one of the biggest wild cards of 2022.

The agreement is that China’s performance will improve after the Cold Olympics in February. This could boost spending and economic stability following its sharp decline last year. But Beijing needs to keep its modern approach to closing and closing borders until the end of 2022. China’s strong influence will continue to affect global financial markets.

To find out why, consider the Chinese calendar of major events. This year, the holiday season begins in early February. Beijing will then host the Cold National Olympic Games before next month. If the Omicron epidemic ends in late March, the government will have a clear window to help fight the epidemic and reopen the country abroad.

Reducing these early restrictions could help Beijing’s efforts to boost the economy. Last year China also experienced a resurgence of V-shape and household items that could be increased by about 8 percent in 2021. But since summer, growth has slowed dramatically. Domestic use has been hit hard by the closure of new Covid-19 cases. Industrial production has been hurt by the reduction of electricity. Property sales have been reduced legal restrictions on housing, and operating costs have been reduced due to the gradual lending of local governments.

In December, the People’s Bank of China responded by cutting the reserves of commercial banks to release cash. One-year benchmark loan prime rate collapsed for the first time in almost two years and the government’s Central Economic Working Conference pledged financial assistance. The early end of China’s zero-Covid policy could help boost employment at the moment, enabling the economy to have a significant annual growth rate of 5.5% by 2022.

But Beijing should not abandon its path after the National People’s Congress in March. Instead, China should retain its position until the 20th National National Congress convenes in November.

The last conference is a very important event in China, which takes place every five years. This year’s event will be even more important because it will determine whether President Xi Jinping will work the third time.

It would be surprising if Beijing could be in danger of lowering its stakes before November. Its approach has made mortality very low but low visibility has little protection among the Chinese people. In addition, Omicron coronavirus may test the effectiveness of the Chinese vaccine Covid. If Beijing abandons its approach in the next few months, it could spark the Covid spread before the National Party Congress.

As a result, investors need to plan for tensions and closed borders in China to continue throughout the year. The impact of global markets can be huge.

First, consumption remains limited in China. GDP growth in the country could slow down below 2022, reducing demand. The absence of Chinese expatriates could also affect tourism-dependent economies throughout the Asia-Pacific region.

Second, China’s trade deficits could remain at a profitable level in renminbi. During the epidemic, China’s exports have been driven by strong demand for exports while exports have been reduced and are slowly being used at home. In 2022, developing countries are expected to face a strong dollar as the Federal Reserve manages to shrink and anticipate raising interest rates to curb rising inflation. But the renminbi, backed by Chinese foreign residues, needs to be more resilient against the greenback.

Third, the recovery of Chinese trade residues should help keep global yields low. This will be the most important economic event in 2022.

Stock markets have risen sharply during the epidemic because yields have plummeted. But investors now fear that bond markets could fall if inflation does not fall. Surprisingly, Beijing’s zero-Covid approach could benefit from the risk factors here. By banning exports and exports and keeping the proceeds of impending sales, China’s current position allows its financial institutions to continue to buy US assets, reducing government yields abroad.

Some advertisers hope to soon emerge from China’s virus control system. But global markets could do surprisingly well if officials did not change until the end of the year.