Over the past month, many cities in China have loosened the epidemic containment measures of the COVID-19 outbreak and gradually restored to the ordinary life. They have adjusted their nucleic acid testing (NAT) regulations, changing from “all should be tested” to “no testing if not necessary”. NAT results are no longer required while taking public transportation vehicles in many cities. Business activities are also resuming gradually. Supermarkets, food markets, barber shops and other places are back in business, and cinemas, libraries, gymnasiums, restaurants, and other places reopen in an orderly manner.
One stone arouses billows. The huge Chinese economy is shifting into the sea, how big a billow will it trigger in the sea of global economy? Capital markets are the most sensitive. Let’s look at the response of the foreign exchange market first. On Dec. 2, the offshore market’s USD-Renminbi (RMB) exchange rate touched 7.0176. The week from Nov. 28 to Dec. 2 saw a cumulative maximum gain of nearly 2,000 basis points. From November 1, when market rumors said epidemic containment measures would relax, the Renminbi exchange rate appreciated from above 7.35 to 7.01 against USD on December 2, a jump of over 3,000 basis points.
China’s stock market is leading the world in terms of gains over the past month, with the Hang Seng Index of the Hong Kong Stock Exchange soaring from the close of 14,597.31 points on October 31 to 18,675.35 points on December 2, up nearly 28% in the last month or so. The previous pessimism was swept away, and bullish remarks abounded.
In addition, the Chinese government has introduced a series of policies to promote domestic investment and consumption, the most important of which is the introduction of policies for the development of the real estate sector, a large industry that accounts for nearly one-third of China’s GDP weighting has received unprecedented attention. The market is reminiscent of the stimulus measures launched in China after the global financial crisis in 2008. The capital market responded immediately. The international futures price of 63.5% iron ore, which China needs to import for infrastructure and real estate investment, also bottomed out on November 1, rising by more than 30% in the past month. International copper futures price also has a similar trend, up more than 12% over the same period.
The smell of capital is the most sensitive and will react in advance to what is going to happen. This year, China’s economy has been suffering from repeated and strict epidemic containment measures, with China’s gross domestic product (GDP) growing 3% year-on-year in the first three quarters with only 0.4% in Q2 2022. Prior to the pandemic, China’s GDP growth rate was above 6%. As China continues to ease its epidemic containment measures, the Chinese economy is expected to rejuvenate.
The current capital market expects the U.S. economy to enter a recession period next year, and Europe is already in a recession now. A recovery in China, one of the world’s three largest economies, would undoubtedly be a boon to global economic prospects. If China’s economic growth rate recovers from 3% to 6% (pre-pandemic level) next year, it will be a huge increment. The demand for investment and consumption released from this recovery will be a furnace in the global economic winter, so we will see how it goes.