We now have a firm date for the re-coronation of Chinese President Xi Jinping. The top brass of the Chinese Communist Party will gather starting Oct. 16 in Beijing for the 20th National Congress, a stage-managed gathering of 2,300 delegates who get together to agree on everything. Dissent is never expressed.
The once-in-five-years conclave, expected to run for a week, will shuffle the top ranks of the Chinese Communist Party. Xi has made sure he alone stands at the heart of the party, with his philosophy of Xi Jinping Thought even written into party's constitution at the last version of this event, in 2017. He has no rivals, but equally no successor. He is Emperor for Life. We will see which courtiers he deigns to permit in his presence.
The thing we don't have is a date for China to roll back its stringent anti-Covid measures, which are sorely disrupting the world's second-biggest economy. The central city of Chengdu is the latest to be locked down, with 21.2 million people in the urban area asked not to leave their homes as of Thursday at 6 p.m. There's no end for the lockdown set yet, but through Sunday everyone in the city must conduct Covid testing. One person can venture out once per day for groceries, and that's about it.
What has prompted the shutdown of such a large city? Swimming. At least, the detective work of local health authorities has tracked "multiple cases" to a swimming pool and a water park, according to the state-run Global Times newspaper. The day before the city shut down, it tallied 157 new cases of Covid-19. The cumulative tally of 766 cases equates to an infection rate of 0.004%.
I've just returned to Hong Kong from Europe, with stops in Portugal, England, Scotland and the Netherlands. All my family was struck by the lax attitude toward the virus compared with the overreaction here in Hong Kong and in mainland China. With vaccination rates up high in Europe and the Omicron variant not producing many serious cases of illness, the countries we visited are just getting on with life. Masks are optional, even when they are "mandatory" on public transport. People wear them if they're concerned for their immune system, but otherwise everyone treats Covid like another disease they must manage. There's a lot of talk about the virus and about vaccinations, but not too much concern.
Stark contrast in Covid reactions
We're all pretty sure we picked up Covid while on our travels. Only my wife ever tested positive, prompting her to stay in our apartment for three straight days. I had a cough and sniffles for a week, but RAT tests always came back negative. My three BioNTech vaccine shots meant I never developed a full-blown case.
Although Chinese vaccines are less effective, the same pattern is occurring in China, too, where hospitalizations and deaths due to Covid remain rare. Of the current 6,188 confirmed Covid cases in China - where only people who show symptoms count as positive - only 31 are "severe." Yet China has 269,779 people in medical isolation and is conducting expensive, time-consuming contact tracing with 5.4 million people. Not only people who test positive but also their relatives and contacts can be dragged off to state-run isolation facilities, while it only takes proximity to positive cases on your mobile-phone app for your code to turn color and require you to stay home.
How long can these debilitating lockdowns continue? Chinese citizens may be frustrated and moan about the disruption, but they're putting up with it. Protests are short-lived, snuffed out and censored. Sichuan Province around Chengdu and Guangdong Province just across the border from me here in Hong Kong are currently experiencing the highest new-case count, with "China's Silicon Valley" in Shenzhen also under heavy restriction. The Shenzhen authorities have shuttered shops, shut down the world's biggest electronics market and suspended most service on the subway system.
Nomura has dubbed the destructive spiral of cases leading to lockdowns, which then lead to factory shutdowns, and thus lead to paralysis the "Covid Business Cycle." And it is getting worse, the Japanese investment bank notes in a new report, with Shanghai, Tianjin and Wuhan -- all megacities of more than 10 million people -- imposing newly tightened Covid containment measures.
"We believe markets still underestimate the severity of this round of downswing of the CBC," Ting Lu and his China economics team state in the research note. The Nomura team thinks China watchers are far too optimistic in their assessments that China will ease up on the zero-Covid approach once the Communist Party Congress is done and dusted.
Lu and his crew view it as likely that zero-Covid will remain the approach through March 2023 at the earliest, because that's when the leadership changes agreed upon in October will conclude. It's at the National People's Congress each March that the Chinese Communist Party sets out the economic agenda for the year, normally setting a target for growth.
The bull's eye on growth of "around 5.5%" for this year has never seemed smaller and harder to hit. Most economists expect China to produce growth of half that at best, with risks to the downside. Every time you shut down a city such as Chengdu -- home to factories for the likes of Intel (INTC) , Toyota Motor (TM) and Volkswagen (VWAGY) -- there's a knock-on effect to the cities that Chengdu supplies. But above all, no one in China can feel confident about making long-term plans. Just ask the millions of people locked down on Hainan Island, China's island-resort getaway destination, where holiday-makers were forced to extend their stay for weeks when the island was put into isolation last month.
Xi faces a dilemma, because he has made "beating" the virus a central part of his platform. The irony is lost on nobody that China experienced the first mass outbreak of Covid, fared better than the vast majority of nations in containing it, saw life get back to normal - and is now paralyzed by the disease once again.
The official rhetoric around zero Covid "has been hyped too much to be quickly unwound," Nomura notes. What's more, the disease typically worsens in winter. People will be disappointed if China doesn't ease up on its approach after the October meeting, but the Chinese authorities equally are terrified there would be a widespread outbreak, particularly because there's little in the way of natural immunity developed among a population that has been overprotected against Omicron.
Xi will win re-election, as the constitution was rewritten to allow him to stand as many times as he wants. But he must still garner enough support behind the scenes for the procedural vote to push through as planned.
But with Xi putting so much stock in zero Covid, it would be a painful admission of defeat should he suddenly announce a "live with Covid" strategy. Officials in Hainan Province as well as Tibet have recently been fired for allowing Covid outbreaks to develop. There's no way for Xi to suddenly change course and keep face.
There was a recovery mid-year in Chinese stocks when it appeared its economy was getting back on track. The CSI 300 index of the top stocks in Shanghai and Shenzhen rallied 18.9% between late April and late June. It's now on its way back down, as it has surrendered 10.4%.
There's little cause for optimism on the markets or on the ground in China. With zero Covid here to stay, likely well into next year, there's further ground to give.