Newsletter 118 - June 11, 2022
Welcome to the 118th edition of Trade War.
Beijing is hit by a Covid cluster while Shanghai does mass testing and panic buying. Pandemic controls costs rise while professor warns of new unemployment surge. And this newsletter author explains why China’s economic numbers are especially inaccurate this year.
After getting blocked at the beginning of Beijing’s tech crackdown, the Ant IPO may be back on. It is a sign of a new go easier on tech policy? More likely, it’s a temporary move in hopes of generating jobs, argues Bloomberg Opinion columnist. And outspoken tech investor talks of the “survivor’s instinct” of entrepreneurs in Xi’s lockdown China.
Beijing Covid cluster; Shanghai tests
A Covid outbreak at a popular bar has slowed Beijing’s plans to loosen pandemic restrictions and delayed the reopening of the city’s Universal Studios theme park, reports the Wall Street Journal’s Liza Lin.
“A wild night of partying in Beijing has thrown a wrench into the city’s attempt to ease Covid-19 restrictions, barely days after restaurants and offices had reopened,” writes Lin.
At least 29 residents tested positive as of Friday afternoon, up from just eight cases a day earlier. All but three of the new cases were tied to people visiting the popular nightspot Heaven Supermarket Bar in Beijing’s bar district of Sanlitun. And at least 4,000 people had since been identified as close contacts.
Universal Beijing Resort wrote on its official WeChat account Friday evening that it had been contacted by health officials and would cooperate with Covid-control measures, reports the Journal. The theme park originally closed on May 1 after a flurry of cases were discovered in China’s capital.
“While both Beijing and Shanghai have lifted many of the restrictions that had kept residents indoors or factories closed in recent weeks, the specter of new infections shows how difficult it can be to return to normalcy,” reports the business paper. “On Thursday, Shanghai, which just came out of a two-month citywide lockdown, ordered more than half of its 25 million residents to undergo Covid-19 testing this weekend.”
“All [Shanghai] residents will be placed under fengbi guanli, or “closed-off management,” until all tests are completed, Zhao Dandan, a deputy director of the Shanghai Municipal Health Commission, said Thursday.
Panic buying in Shanghai
“Panicking buying resumes in Shanghai as half of the city goes back into lockdowns,” writes SupChina’s Chang Che in a tweet thread showing emptied supermarket shelves.
Social, economic costs of restrictions mounting
The human and economic cost of China’s zero-Covid strategy is mounting, writes the Financial Times’ James Kynge
Even though the latest lockdowns will likely be temporary, “for some Chinese, though, all this amounts to just another iteration of digital dystopia by a government sworn to contain the spread of Covid at almost any cost,” writes Kynge.
“This is so much bullshit. When is it going to end?” says a bar owner in Beijing to the Financial Times. “[The government] is ruining us to save their face. What a bunch of posers! Why don’t they just lift the controls?”
A survey of 16,500 small and medium-sized enterprises by Peking University, MYBank and Ant Group found that 40 percent did not have enough money to last just one month. And China may not be able to simply stimulate its economy out of trouble this time - thus also boosting the global economy - as it has in years past.
“The big, structural drivers of Chinese growth over the past two decades are now close to tapped out. The local governments that fueled the world’s biggest infrastructure boom are drowning in debt, much of which they keep hidden from their superiors in the central government,” writes Kynge.
“I don’t think China can manage a big stimulus even for its own sake, let alone to save the rest of the world,” says May Yan, managing director at UBS in Hong Kong.
Unemployment could soar again, says Peking U prof
A Peking University professor is warning that unemployment could rise to levels last seen in mid 2020, or up to 12 percent of the working population, if strict pandemic controls continue, report the South China Morning Post’s Amanda Lee and He Huifeng.
“Official jobless numbers began trending down as the economy gradually recovered in 2020, but [a study by Peking University and Tencent Cloud] estimated the number of unemployed could have [reached] as many as 92.66 million – meaning 12 per cent of the working population,” reports the Hong Kong-based paper.
“Today we need to learn from what happened in 2020,” Zhang Dandan, a professor at Peking University’s National School of Development, said in a seminar. “It could mean that the jobless situation could reach a similar size.”
Long-term unemployment could also lead to mental health problems including depression, a “social instability” issue, Zhang said.
Dodgy econ stats get dodgier
“If there was ever a year when politics was likely to skew China’s notoriously dodgy economic statistics, 2022 is it. Beijing’s COVID-zero policy has squelched vast amounts of business activity, even as President Xí Jìnpíng 习近平 reportedly has told top finance officials to ensure the country grows rapidly and doesn’t lag behind the U.S.,” writes Dexter Tiff Roberts (also known as the author of this newsletter) in SupChina.
“Some 25 years after China jettisoned its old Soviet-style planning era economic counting system and announced it was entering the modern world of fact-based statistics, huge questions remain about the veracity of Chinese economic indicators.”
“Real GDP has always been a useless number to track. We see it is still useless,” says Andrew Polk, a founding partner of economic research house Trivium China, responding to Beijing’s earlier announcement that the Chinese economy grew 4.8 percent in the first quarter.
Ant IPO back & tech crackdown easing?
Chinese officials are discussing the possibility of resurrecting Ant Group’s IPO which could signal an easing of the tech crackdown in China, reports Bloomberg News’ Lulu Yilun Chen.
“Chinese financial regulators have started early stage discussions on a potential revival of Ant Group Co.’s initial public offering … one of the clearest signs yet that authorities are dialing back a crackdown on the tech industry that began with the scuttling of the world’s biggest listing almost two years ago,” reports Bloomberg.
“While the timeline for an Ant license and its potential listing would hinge on approvals from senior Chinese leaders, evidence of progress on both fronts is likely to reinforce investor optimism that the worst is over for the country’s embattled private sector,” writes Chen.
“Chinese tech stocks have soared in recent weeks, buoyed by a report that authorities are preparing to wrap up a probe into Didi Global Inc. and restore the ride-hailing company’s main apps to mobile stores.”
Beijing supports both domestic and overseas listing of so-called platform businesses that follow regulations, China’s premier Li Keqiang said last month.
“China's central leadership has given a tentative green light to Jack Ma's Ant Group to revive its initial public offering in Shanghai and Hong Kong,” Reuters reported Thursday.
Tencent in Top 10 (Alibaba #26)
“Congrats to Tencent for returning to [the] Top 10 companies in [the] world by market cap. Let’s see if it sticks. Alibaba is currently #26,” tweets Rui Ma, a China tech investor and analyst.
All about jobs, not pleasing investors
Beijing’s move to ease up on tech companies isn’t aimed at pleasing investors, but instead an attempt to boost employment, writes Bloomberg Opinion’s Shuli Ren.
“In recent days, China accelerated the approval of new video game titles, ending an eight-month freeze in the world’s largest mobile-entertainment market. Meanwhile, regulators are preparing to lift a ban on new users at ride-hailing giant Didi Global Inc., according to the Wall Street Journal,” writes Ren. “Will China boost investor confidence before the much-anticipated 20th Communist Party congress later this year?”
Calling it “wishful thinking,” Ren argues that instead the regulatory easing aims to create jobs, “a key component of the ‘stability’ that President Xi Jinping seems to be promoting amid frustration over Covid lockdowns.”
“The government is relenting — a bit — only to ensure a smooth economic ride toward the all-important party gathering, when Xi is expected to be anointed to a third-term. The government’s many objections toward tech companies, from antitrust to data security, have not changed. Their business models are still on shaky ground,” warns Ren.
Forced to look beyond China or ‘passive globalization’
“Entrepreneurs have good survivor’s instinct,” says outspoken tech entrepreneur Zhou Hang in an interview with the New York Times’ Li Yuan. In the face of Covid lockdowns, “they’re forced to look beyond China,” Zhou says, calling it “passive globalization.”
“Even if your company is a so-called giant, we’re all nobodies in front of the bigger force,” he said. “A whiff of wind could crush us,” adds the 49-year-old Zhou who left China hurriedly for Vancouver, British Columbia in late April.
“We’re all nobodies who could be sent to the quarantine camps, and our homes could be broken into,” he wrote in an online article that was quickly censored, shortly after arriving in Canada. “If we still choose to adapt to and put up with this, all of us will face the same destiny: trapped.”
“Autocratic political systems such as China’s create an incentive for strongman leaders to adopt a strategy of building ‘coalitions of the weak,’ where politically compromised or inexperienced officials are favored for positions of power as a way of guarding the top leader from challengers,” write the Washington Post’s Christian Shepherd and Eva Dou, citing a new book by University of California at San Diego political scientist Victor Shih.
“But doing so could mean promoting inexperienced officials incapable of tackling acute economic and foreign policy challenges. Xi faces a trade-off between choosing competent leaders who might later challenge him or taking a “safe route, which is what Mao did, to ultimately have a coalition of officials who are highly dependent on him.””
“Everyone is talking about an outburst of violence against female customers at a Tangshan BBQ restaurant that happened on Friday morning,” writes What’s on Weibo’s Manya Koetse. (contains disturbing images)
“The case is still trending on Chinese social media. Gender, misogyny, bystander effect, morality, gang violence, rule of law, public security, and media bias are all themes that come up in online discussions.”
“Chinese domestic economic policy, including crackdowns in the technology and education sectors, are dampening prospects for China’s long-term growth,” says CSIS scholar Scott Kennedy in this ChinaPower podcast.
“China’s Zero-Covid policy and the Russian invasion of Ukraine have adversely shaped business sentiment in China … [while] China’s current economic difficulties could make it a more unpredictable and volatile actor on the world’s stage.”
A bear I encountered on a recent evening.