Euro am Sunday: China: Get out of the blockade | News


Emmeran Eder, Euro on Sunday

The recovery on the DAX after the crash was briefly interrupted by new bad economic data from China at the beginning of the week. This shows how important the Middle Kingdom has become for the export-oriented German economy. It is one of the most important markets, with DAX companies achieving roughly the same high turnover in the Asia-Pacific region as in Germany itself.

China stands out as the dominant economic power in Asia. The Middle Kingdom is economically very important for the sports goods and chemicals sector, but even more for the car companies VW, Mercedes-Benz and BMW. “When China coughs, German car companies catch a cold,” is a saying that industry experts like to trade. Three German industrial giants sell between a third and 38 percent of their vehicles in the world’s most populous country.

In this case, however, it is not the usual cough, but the Omikron corona variant that causes problems for the Chinese economy. To limit their spread, an extremely restrictive blockade was imposed in Shanghai and other major cities from the end of March. Millions of people in metropolises such as Changchun and Jilin Province have not been allowed to leave their homes for weeks. In Beijing, many neighborhoods are closed. Most shops and many businesses are closed. Millions work from a home office.

The economic impact of Covid’s zero-policy policy is now visible. According to the Beijing Bureau of Statistics, industrial production fell by 2.9 percent in April compared to the previous year. Retail sales fell by 11.1 percent. – more than analysts predicted. In addition, unemployment in China is rising rapidly. In April, the unemployment rate was 6.1 percent. “The economic data for April shows that the Chinese economy has suffered a severe blow from the viral lockdown,” says Hao Zhou, an economist at Commerzbank. “The effects are much wider and deeper than expected,” write Chang Shu and Eric Zhu in an analysis by Bloomberg’s financial service.

growth slows down

Chinese management has set a growth target of 5.5 percent for this year. That should be hard to achieve by now. The International Monetary Fund expects only 4.4 percent. UBS and Citigroup are even more pessimistic, expecting only 4.2 percent. GDP growth.

Nevertheless, the country does not deviate from Covid’s zero strategy. There are several reasons. On the one hand, good experiences were made with the pandemic in February and March 2020. The state mastered the virus relatively quickly and the economy started working again. President Xi Jinping praised himself for this propaganda. No country has been as successful in fighting the virus as China. For ideological reasons, he does not want to depart from this policy now, and also does not want to allow foreign vaccines. However, their own is clearly not good enough to protect the population.

Back to normal

Whatever the ideological reasons, China’s health care system has serious deficits. According to estimates, up to 1.5 million people in China may be at risk of dying from the coronavirus, which is why the party elite believes there is apparently no alternative to zero Covid. Now the situation seems to have improved. The number of people infected with Omicron is rapidly declining. In 15 of Shanghai’s 16 districts, there were no further cases of corona discharges outside of quarantine areas. Supermarkets, malls and pharmacies have reopened, and schools are expected to gradually start teaching in the classroom. Gradually, restaurants can also serve guests again. However, travel restrictions will initially be in place to prevent the risk of a re-outbreak. According to the government, by June 1, Shanghai should gradually return to normal. However, in Beijing, the blockade is still in force in some neighborhoods.

Bad start to the year

The prospect of a return to normalcy in Shanghai could also be the reason why the Chinese stock indices reacted poorly to the publication of poor economic data. Apparently, the bad news is priced up now. Mainland China’s CSI 300 index has fallen 17 percent since the start of the year. The shares are trading below the 15-year average in terms of both the P / E ratio and the price to book value.

The national statistical office spreads confidence. The agency said the impact of Covid is temporary and the economy is expected to stabilize and recover. But there should be a lot of hope. Because in addition to the pandemic, the country is also suffering from the real estate crisis. In April, home sales were the lowest in 16 years. The government is now taking steps to counter this by lowering mortgage rates for first-time buyers. But this may not be enough, more measures are needed.

Market observers expect the central bank to cut interest rates later this year to stimulate the economy against the global trend. As inflation is currently only 2.1%, it has room for maneuver. Andy Rothman, investment strategist at financial services firm Matthew Asia, expects the government to launch an important stimulus package “designed to support visible economic recovery.”

Cheap consumer and car titles

Better prospects could also revive the stock market. “If the blocking measures are further relaxed, sentiment is likely to change quickly,” says Gerhard Heinrich, emerging markets analyst at Zukunftsmarkte. “Almost all stocks that are driven by domestic demand are relatively cheap now. This includes classic consumer stocks, but also stocks from the Chinese auto sector, ”he says. Especially since these sectors have long-term potential as Chinese policy is aimed at reviving the domestic economy.

Risk-minded short-term investors speculate that the stock market will rebound. Long-term investors can take advantage of cheap quotes to bet on a market that offers potential and growth. But the situation remains difficult. Corona, political risk and a shaky real estate market – China is not for the faint of heart.

Information for investors


CHINA ETF
Broad focus on China


The ETF refers to the CSI 300 stock index. This reflects the development of prices on the two largest stock exchanges in mainland China, Shanghai and Shenzhen. The price index is made up of the 300 largest and most sold A-shares in mainland China. The barometer is quoted in the Renminbi, so there is currency risk. It has dropped 24 percent in the last 12 months and is only slightly above the low point at the start of the Covid crisis in mid-March 2020.
The Hong Kong-based company with approximately 20,000 employees supplies the Chinese market with non-alcoholic beverages. It offers a wide range of juices, soft drinks, teas and mineral waters. It also manufactures and sells Coca-Cola products in China. Shares that are cheap after a fall in prices should benefit from the opening of restaurants and bars. Defensive stocks pay a heavy dividend.

UNEMPLOYMENT
Extremely tall


The unemployment rate in China rose to 6.1 percent. in April 2022. This figure is just below the historic record of 6.2 percent of February 2020 at the start of the koruna pandemic. this youth unemployment now it is even higher than it was then.
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