Letter From Shanghai No 1007 - They Need Time

It would seem the lacklustre US markets are preparing for the release on Wednesday of the Fed minutes, followed by the US Thanksgiving closure on Thursday, followed by the Black Friday shopping event on, well, Friday. With nothing in the China data diary until next week, these notes for the next few days from a Chinese perspective are going to be necessarily short. But, that does not mean nothing is happening. The Wall Street Journal reported that OPEC+ would discuss an increase in oil production by up to 500,000 barrels per day at their December 4th meeting, which immediately forced a 6% drop in prices. Saudi Arabia denied it, and prices recovered to close almost unchanged. Brent is trading at $87.80 as I write. A tough day in the office for energy traders, but in the end, nothing happened.

In Beijing, policymakers continue to roll out supportive initiatives across the spectrum of the economy, but none of them is headline-grabbing news. However, the international media seems to speculate that the recent “20 measures” that outline a lighter touch in the management of Covid may be wound back as infection rates have risen, and several cities have locked down at-risk districts. Clearly, these commentators have not yet read this morning’s People’s Daily. An article signed by Zhong Yin stresses, “it is necessary to adhere to the ninth edition of the prevention and control plan and implement the 20 optimisation measures.” Although perhaps there may be two steps forward and one step back, there will be no overall retreat.

The national infection rate as of midnight was 27,899 new cases, still climbing, but slowing down as Guangdong added 30% of the total, some 8588 new cases. Perhaps China has come to realise that the focus on containment intervention has obscured prevention and infection management and that China is less able to loosen current controls than it thought. Should China fully reopen, we should expect a surge of infections, in which case, as Chinese healthcare depends on large hospitals serving whole districts, we could expect the hospitals to be significantly challenged by the sick, the not so sick and the plain frightened. In China, Covid has the reputation of being a killer. Although in its latest iteration its lethality is similar to an inconvenient flu, its effect could be devastating to those in frail health. However, whereas England was once described by Napoleon as a nation of shopkeepers, China can certainly be described as a nation of production engineers. And the current weaknesses in vaccination rates, ICU beds, and medicines will be addressed. But they need time, and Covid does not respect that.

Have a good day,

?

John