China shakes up markets with zero COVID economic data


These influences are yet to be fully felt by China – exports to the United States rose 9.4% in April and its trade surplus with the United States rose 14.7% year-on-year. above – but will add to the challenges facing the Chinese economy. and in turn will exacerbate the threat to global growth.

Chinese Premier Li Keqiang warned over the weekend of the “complicated and serious” situation facing employment in China and vowed to step up efforts to stabilize the labor market.

Authorities have announced more infrastructure spending and other stimulus while Xi appears to have suspended efforts to clamp down on the bulk of the tech sector. Some restrictions on leveraged property companies appear to have been eased and the broader onslaught on private capital appears to have eased, a sign of the depth of authorities’ concerns about the direction of the economy.

It’s a threatening new world for investors unaccustomed to an inflationary environment or a central bank that has pledged to tighten monetary policy after nearly a decade and a half of ultra-loose and comforting policies ( for investors).

Despite the darkening economic clouds, Xi remains committed to zero COVID, even as it is difficult to reconcile solid economic growth with a policy that has such a disruptive and negative impact on growth. Earlier this month, while pledging to meet China’s economic targets, he also made it clear that he would not budge from the harsh approach to the COVID outbreaks.

China’s export performance has sparked further selling in global equity markets, including China’s, where Shanghai’s CSI300 index has now fallen 21.5% since the start of this year. In the US, the S&P 500 fell another 3.2% and the Nasdaq index 4.3%.

The US market has now recorded five consecutive weeks of declines – its worst performance in more than a decade – and is now down nearly 17% year to date. The Nasdaq, bloated with technology stocks, lost about 26.5% of its market capitalization over the same period.

With Treasury yields soaring (and prices falling, which have an inverse relationship with yields), investors have nowhere to hide. The yield on US 10-year bonds has doubled since the start of the year and is now trading above 3%.

The main influence on US markets is the Fed’s change in monetary policy – ​​raising interest rates and withdrawing liquidity – in response to an 8.5% inflation rate, but the energy shock, the war in Ukraine, supply chain issues and a rapidly strengthening US dollar are also contributing to high risk aversion.

It’s a threatening new world for investors unaccustomed to an inflationary environment or a central bank that has pledged to tighten monetary policy after nearly a decade and a half of ultra-loose and comforting policies ( for investors).

It is also a threatening new environment for Chinese policymakers after decades of extraordinary growth.

A series of political decisions have caused an implosion of the real estate sector, destabilized its technology sector and produced COVID-related chaos in logistics even as the external environment threatens the export engine that fuels its long-term growth.

Wall Street has recorded five consecutive weeks of decline.Credit:PA

The trade data also provided insight into China’s response to the war in Ukraine and sanctions from the West. China’s monthly imports from Russia hit record highs – 56.6% higher in April than a year earlier. Its exports to Russia (not surprising given the state of the Russian economy) fell by 25.9%.

There is no breakdown of this data, but the obvious assumption is that China benefited from the impact of sanctions from the West.

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While Russia’s oil and gas haven’t been directly sanctioned (yet), financial sanctions have hit demand for its energy and created an opportunity for China, which relies heavily on imported energy, to d to buy Russian oil and gas at a significantly reduced price compared to the world market. energy price. He seems to have taken it.

This is probably the only consolation that the authorities can draw from the deterioration of their trade and economic prospects.

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