China stocks, yuan slide as Beijing doubles down on ‘zero COVID’
Market jitters follow Beijing warning against any questioning of its controversial pandemic strategy.
China’s stock markets and the yuan slumped on Friday, after the country’s top decision-making body warned against criticism of its controversial “dynamic zero-COVID” policy.
The CSI300 index fell 1.7 percent to 3,943.61 by 01:48 GMT, while the Shanghai Composite Index lost 1.4 percent to 3,024.49. Hong Kong’s Hang Seng fell 2.5 percent to 20,277.17.
China’s yuan also weakened sharply against the dollar in morning trade, sinking to its lowest point in 19 months.
The slump also tracked a fall in global stocks driven by fears that central banks’ efforts to tame inflation by raising interest rates could smother economic growth.
The Politburo’s supreme Standing Committee on Thursday said it would fight against any speech that “distorts, questions or rejects” Beijing’s pandemic strategy, state media reported.
The zero-tolerance approach, which depends on draconian lockdowns and mass testing, has weighed heavily on the economy and disrupted supply chains key to international trade.
“Unlike previous similar meeting, the politburo did not mention ‘reconcile zero-COVID strategy (ZCS) with growth’ and maximize the effectiveness of COVID-19 containment measures at the least cost, and minimize the impact of the pandemic on the economy,” financial services company Nomura said in a note.
“The Politburo stated that they will not abandon zero COVID any time soon,” Carlos Casanova, senior economist for Asia at UBP in Hong Kong, told Al Jazeera.
“The economy remains vulnerable to any future outbreaks so investors are recalibrating their risk exposure.”
Casanova said the market jitters also reflected interest rate increases by the US Federal Reserve and US financial regulators’ addition overnight of more Chinese firms to its list of entities facing possible delisting.
“We expect that the market will remain under pressure until the second half of the year,” he said. “Stronger economic activity in Q1 means a bigger pain threshold in Q2. However we expect that macro conditions will improve in H2 – most likely after October – on the back of policy easing, a more adaptive approach to zero-COVID policy implementation and increased visibility regarding China’s endgame for the tech and housing sectors.”
Jeffrey Halley, senior market analyst for the Asia Pacific at OANDA, said the “dynamic zero-COVID” policy was one of a number of headwinds dragging down markets.
“Recession nerves are rising in the rest of the world as well,” Halley told Al Jazeera. “I don’t believe the COVID-zero policy will crush China’s economy, but I do believe there are risks now that China’s growth could fall below 4 percent in 2022. China will hit the stimulus button if things get out of hand.”