Letter From Shanghai No 988 - Within Policy Objectives

Although the delayed data from the Chinese when published yesterday was mixed, the Chinese exchanges had a very poor day. The Hang Seng dropped 6.36% to its lowest close in 13 years. The onshore Shanghai Shenzhen CSI 300 Index dropped 2.93%, the lowest level since 2019. At the same time, the onshore RMB fell to its weakest level in 15 years. The offshore RMB is trading at 7.325 this morning, the lowest level since trading began in 2011.

It's difficult to find a single theme to explain this move. Following the end of the 20th Congress of the CPC and the announcement of its new top administrators, perhaps international investors began to realise that China is not about to change. There is no moment when the current zero-Covid policy will be rolled back. What will prompt that decision? The US has lost 1 million lives to Covid and making the crudest of generalisations that would convert in similar circumstances to 3-5 million in China. That is 3-5 million people walking around today who otherwise may not; of course, the country is going to pay that price.??

Community health in China is run by hospitals the size of city blocks. There is no distributed health care in terms of community doctors similar to the neighbourhood system you see in the UK. Should Covid be unleashed, the hospitals will quickly be overrun by the very ill, the not-so ill and the frightened. In the absence of alternatives, streetside testing and community lockdown keeps the hospitals functioning.??

Secondly, perhaps international investors have begun to realise what domestic investors have known for some time: the mantra that some must get rich first has been replaced by concerns for national security and common prosperity. Capitalism in China is not about only making money, there are wider community targets. Beijing policymakers want chips, not games.

If you want to make money in China, then it is best to do so in businesses that are within policy objectives.???????????

Have a good day,

John