The Chinese Covid Surge is also harming its economy.

China’s economy was already having trouble before the restrictions were eased, with consumer spending in a recession that was becoming worse and industrial output expanding at its slowest rate since the spring lockdowns.
The major Covid-19 outbreak swept throughout China in December, causing activity to decline as many people stayed at home to try to avoid getting sick or to recuperate.
According to Bloomberg’s composite index of eight early indications, activity declined in December from an already slow pace in November, and the prognosis for the new year is bleak.

The virus had already infected every province prior to the conclusion of thorough and ongoing testing, even though there are currently no solid statistics on the infection’s current level of dissemination or the number of sick and dead. The virus can now spread freely because practically all domestic controls have been lifted.
China’s economy was already having trouble before the restrictions were eased, with consumer spending in a recession that was becoming worse and industrial output expanding at its slowest rate since the spring lockdowns.
Retail sales in the city fell by over 18% in November as both the number of cases and the number of restrictions rose in the capital, Beijing, making the situation much worse for stores and eateries there than it was for the entire country.
High-frequency data on subway and road usage show that despite the fact that people are now free to move around, there hasn’t been much of an increase in movement so far this month.

According to BloombergNEF, the 3.6 million journeys taken on the Beijing subway last Thursday were 70% less than they had been on the same day in 2019, while the amount of traffic on the city’s streets was only 30% more than it had been in January 2021. Similar declines are being observed in Chongqing, Guangzhou, Shanghai, Tianjin, and Wuhan, among other large cities.

Home and automobile sales, which declined in the first two weeks of this month, appear to be suffering as a result. Car sales, which last year’s consumer spending was buoyed by government subsidies, started to decline last month as customers started to cut down. As a result, industrial output was negatively impacted. For the first time since May, when numerous plants were forced to close, vehicle manufacturing decreased.

Contrary to the spring, when the Covid Zero policy led to a scarcity of auto components and the closure of several plants, output is currently being impacted by the virus itself as a result of employers having to deal with more employees falling sick.
The initial excitement witnessed in the stock and commodity markets at the reopening has been dampened by the virus’s spread throughout China. The Shanghai Composite Index has been declining for the previous two weeks and is now back close to the position it was in just before authorities began easing restraints on Nov. 11.

A rise in Covid cases obscured the near-term demand outlook and lessened the impact of recent pledges of help for the real estate sector, which meant that the price of iron ore was also on track for a minor weekly decline. Guangfa Futures noted that statistics from an industry group showed output declining and stocks rising in the middle of this month, indicating that Chinese steel mills are now cutting production.
The decline in markets is a reflection of the low level of small business confidence, which, according to Standard Chartered Plc, was in contractionary territory for the third consecutive month in December. The major indexes showed smaller enterprises were still pessimistic about the present and the future, despite a little improvement from November.

According to the firm’s economists Hunter Chan and Ding Shuang, the manufacturing sector had some improvement in November, with an increase in new orders, sales, and production that “likely reflects the favourable impact of the loosening of Covid regulation.”

However, they said in a research published last week that “services SMEs continued to experience challenges from negative consumer sentiment amid mounting Covid instances.”

There isn’t much good news for Chinese businesses operating abroad because, according to early Korean data, the decline in global commerce continued into December. China’s exports could therefore decline for a third consecutive month.

The nearly 27% decline in Korean shipments to China in the first 20 days of this month demonstrates the waning Chinese market for semiconductors, which has been declining as a result of a decline in both domestic and international demand for smartphones and other gadgets.

Early Warning Signs

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By combining a three-month weighted average of the monthly changes of eight variables, which are based on company surveys or market prices, Bloomberg Economics produces the overall activity reading.

Major onshore stocks: Shanghai or Shenzhen-listed A-share stocks in the CSI 300 index (through market close on the 25th of the month).
Total floor space sold in the four Tier-1 Chinese cities (Beijing, Shanghai, Guangzhou and Shenzhen).
Rebar steel in stock for use as reinforcement in construction (in 10,000 metric tons). Rising demand is indicated by declining inventory.
Spot price for refined copper on the Shanghai market in Yuan per metric tonne.
Exports from South Korea – exports during the first 20 days of every month (year-on-year change).
Bloomberg Economics’ factory inflation tracker for Chinese producer prices (year-on-year change).
Small and medium-sized business confidence: Standard Chartered survey of businesses.
Sales of passenger vehicles: A monthly result derived from information on the weekly average of sales provided by the China Passenger Car Association.