Long road to reopening; Cases rising in Guangzhou and Beijing; Li Qiang speech; Weak trade data; Taiwan

The markets in Hong Kong and the mainland were not sad about the “status quo but with some tweaks” message from the Saturday press conference. A spark of hope is enough to start a market rally it seems.

Keith Zhai of the Wall Street Journal has a story today - China Weighs Zero-Covid Exit But Proceeds With Caution and Without Timeline - that will likely be interpreted by some as bullish and some as bearish. As Keith wrote on Twitter this morning:

Here are some of the key excerpts, interspersed with my comments:

Chinese officials have grown concerned about the costs of their zero-tolerance approach to smothering Covid outbreaks, which has resulted in lockdowns of cities and whole provinces, crushing business activity and confining hundreds of millions of people at home for weeks and sometimes months on end. But they are weighing those against the potential costs of reopening on public health and support for the Communist Party.

As a result, they are proceeding cautiously despite the deepening impact of the Covid policies, the people said, pointing to a long path to anything approaching pre-pandemic levels of activity, with the timeline stretching to sometime near the end of next year…

The measures are strangling the economy, and increasing numbers of local governments can no longer afford to fully implement them. The affordability problem will likely get much worse towards the end of 2022, as migrant workers have to get paid outstanding wages before returning home for the Lunar New Year, which falls on January 22, 2023. And the plan to offload the cost of testing to citizens, who are forced to test by the government, risks causing a lot of anger and resistance.

Domestically, officials have informed retail businesses that the frequency of PCR testing—a staple of China’s Covid regime—could be reduced as soon as this month, in part because of the high cost of mass testing, according to people familiar with the matter. The people said the government is planning to reduce the thousands of PCR testing stations that have been set up across the country as part of the campaign to institutionalize testing, citing the cost…

The fundamental challenge is that the risks of mass illness and death from a relaxation are real, and the social stability and legitimacy problems that could cause may be even worse than the risks from slow economic strangulation. The leadership mismanaged the vaccination campaign and while much higher vaccine rates of high-risk groups would have not been a panacea it would have given the leadership more flexibility:

A combination of new viral variants, an underequipped public healthcare system and the impending approach of winter has left Beijing worried that a potential surge in Covid infections, hospital admissions and deaths could undermine confidence in the ruling Communist Party’s legitimacy…

Any further loosening of measures would be contingent on a boost in the elderly vaccination rate. Beijing is planning to launch a vaccination campaign later this year for vulnerable groups, aiming for 95% of people aged 60 or above to receive two doses, some of the people said. The latest government data, from early November, shows 86% of the elderly population had received two vaccine doses, compared with 90% for the broader population.

Another condition for a full reopening of its economy is to boost access to oral antivirals to treat Covid, the people said.

The new vaccination campaign they may launch will have to be much more persuasive than the efforts to date.

For all the hubbub over the last few days about possible changes to dynamic zero-Covid I am not sure we have much more clarity than we did a week ago. Meanwhile, cases are surging in Guangzhou, and Beijing has now taken some schools back online, and winter is arriving. How will the more optimistic investors react if there is a large-scale lockdown in one of the tier-1 cities?