Unlocking Shanghai

The official line today from Shanghai is that the City is now into its third day of no “cases in the community” i.e. outside the quarantine camps. According to the Deputy Mayor, the government aims to reopen the City more broadly and allow “normal life” to resume from 1st June. There have been other announcements declaring the City’s epidemic under control whilst reiterating that the objective of preventing a rebound in infections outside quarantine areas remains paramount so that some restrictions will remain in place.

I think it is fair to say that zero Covid has cost President Xi some of his political capital. Although it seems likely that a third term as president will be awarded at the 20th National Congress of the Chinese Communist Party to held in October, there is dissatisfaction with recent policies on business regulation and Covid which are widely seen as costing the country economic growth. It remains to be seen what impact this will have on Xi’s policies both internally and externally.

However, if the experience proves chastening and causes a reining in of the more assertive approach we have seen over the last couple of years this will go some way to repairing the negative views toward China. As we have written in the past, a succession of recent policies aimed at stimulating the economy have gone by largely unnoticed by investors – wasted measures foundering in the face of widespread lockdown. If easing of the lockdown continues, then this may well be an important catalyst for both economic growth and investor sentiment.

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