Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, Chief Asia Economist at HSBC, and I'm joined today by Chief China Economist Jing Liu here in Hong Kong.
Speaker: On the podcast today, a fresh challenge for China as COVID-19 cases in the tens of thousands flare up daily across the country.
Speaker: Officials are fine-tuning their response to the pandemic.
Speaker: We'll be discussing the social and economic stakes involved right here on the Banyan Tree.
Speaker: China's daily COVID cases are edging increasingly close to a record high.
Speaker: At this time of recording, the country is reporting just under 30,000 new infections per day.
Speaker: For context, that's basically the level the country was at when the city of Shanghai, home to 26 million people, went into a two-month lockdown back in April.
Speaker: Officials in many of China's biggest cities are now trying to work out how to control the outbreaks without returning to the sweeping measures we've seen in the past.
Speaker: Cities are now following new guidelines announced earlier this month aimed at minimizing disruptions to people's lives and, of course, to the economy.
Speaker: Jing, help us set the scene here.
Speaker: How does the current flare-up compare to what we saw during the Shanghai lockdown back in the second quarter of this year?
Speaker: Thanks, Fred.
Speaker: So in terms of the number, now is near the record high we saw back during the spring in Shanghai lockdown.
Speaker: But in terms of the spread out of the cases, back then was more concentrated in Shanghai.
Speaker: Now it's spread out in many different cities.
Speaker: For example, the capital city of Beijing is
Speaker: Now see the cases rising both in Chaoyang District and Haidien District.
Speaker: Some of the students are now back to study from home mode again.
Speaker: Further in the West, Chongqing also battling its worst outbreak.
Speaker: And also Guangzhou, you have heard the news about certain districts under lockdown mode for a while.
Speaker: So we have a very wide geographic spread this time around affecting coastal regions, more of the inland cities as well.
Speaker: How has the response been different this time around to what we saw maybe earlier in the year?
Speaker: I think, you know, it's fair to say now is more targeted measures, especially after the 20 calibrated measures were announced in the early November.
Speaker: In particular, in the magnitude of the Guangzhou or Chongqing measures,
Speaker: outbreak.
Speaker: Under the previous policies, we would more than likely to see the lockdowns in those cities already.
Speaker: But this time around, we see much less preemptive lockdown.
Speaker: But in turn, the governments are trying to balance the economic growth and the COVID control.
Speaker: So recently we saw Beijing actually publish 20 specific guidelines to local governments to calibrate really the virus response in China.
Speaker: What are some of these specific guidelines that struck you as being new, as being kind of maybe a change in strategy, if you will?
Speaker: It's definitely more targeted and scientific in the following sense.
Speaker: For example, previously, lots of local governments seem to adopt a one size fit all.
Speaker: So you would see preemptive lockdown and mass testing quite usually.
Speaker: But now they're saying that mass testing should be restricted to areas where the community contingent has been going on for a while without clear source of contingent.
Speaker: And many cases are surging.
Speaker: And at the same time, they also forbid people from doing the testing twice or three times a day, which actually arguably not so much.
Speaker: scientific to start with.
Speaker: And on top of that, I think we also see in terms of the close contact, they are required to have the five days centralized quarantine with three days at home, but they no longer quarantine the close contact of the close contact, so-called the secondary contacts.
Speaker: So that's also an improvement.
Speaker: So we won't see so many people being taken to centralized quarantine facility, for example.
Speaker: So many of these measures you cite are really aimed at reducing the economic and even administrative burden of some of the earlier measures and help the economy to breathe a bit more under what's still a battle against the virus.
Speaker: Now, here, of course, the economic considerations are one thing, but the other consideration is clearly public health and there are risks.
Speaker: See, that's why we have these restrictions in the first place.
Speaker: Do you see any moves recently of perhaps stepped up preparations in China when it comes to dealing with the public health side of the virus?
Speaker: Yes, indeed.
Speaker: We have seen redoubling of the efforts on the ground.
Speaker: For example, in terms of the vaccination, the inhaled vaccines are now being administered in multiple areas, and that one is conceivably easier to do for the elderly group in particular.
Speaker: And also we see these domestically made antiviral treatment drugs being more widely accessible.
Speaker: At the same time, the authorities are building COVID-specific hospitals with an aim to assign about 10% of the beds as ICU,
Speaker: And they will have this tiered system in treatment, being the COVID-specific hospitals, the makeshift facilities, and also the clinics dealing with people with COVID-like symptoms.
Speaker: All right.
Speaker: Thank you very much, Jing.
Speaker: In part two, we'll discuss the impact of China's COVID measures on services and manufacturing, plus how all of this links to the recent headlines on China's volatile housing market.
Speaker: Welcome back.
Speaker: So Jing, when it comes to the type of containment measures we're seeing in China, it's really all about trade-offs.
Speaker: Where have we seen the biggest negative impact?
Speaker: Yes, I think similar as other economists, basically the containment measures have restricted social interaction.
Speaker: So as you can imagine, the service sectors, including retail sales, have taken a big blow.
Speaker: And on top of that, the small and medium-sized enterprises, due to their size and also most of them are in the service sector, they also get a big hit from the COVID outbreak and containment measures.
Speaker: Now, on the other side, manufacturing is still the backbone in many ways of China's economy.
Speaker: What's been the impact there?
Speaker: Because there were efforts to really contain the impact on manufacturers.
Speaker: That's right.
Speaker: I think many factories have adopted the so-called closed loop operation in a hope to minimizing the drag on economic activity.
Speaker: And there has been improvement on logistics running smoothly, especially after the hiccup we saw during the Shanghai lockdown.
Speaker: For example, recently, there's a report a big Apple supplier onshore actually saw the outbreak in its factories, which led to the disruption to their production.
Speaker: However, there's concerted effort to bring back labor and resume production.
Speaker: So we see, to some extent, successful measures to protect manufacturing, and it's now really going forward about restoring services demand, restoring consumer spending as a driver for the economy.
Speaker: How do you see the situation evolve over the coming year?
Speaker: Yes, I think with the gradual relaxation of the COVID restrictions going into 2023, we should see consumption to rebound.
Speaker: At the same time, even for production, like the investment and other things, which arguably got less impact from the COVID restrictions, we will see the improved sentiment on the ground can help boost the investment as well.
Speaker: And does that also then include the housing market?
Speaker: We know that the housing sector, of course, was a major drag on economic activity now.
Speaker: There's been some efforts to restore confidence there.
Speaker: How do you see the interplay between more targeted virus control measures of the coming year and efforts to stabilize the housing market?
Speaker: I would say the efforts to stabilize housing market together with this calibrated measures on COVID policy are the most important policies we've seen.
Speaker: With that, we can see from the demand side, there should be improvement when people can go out again with less concern on the COVID or
Speaker: less restriction on COVID policies, people can think about buying a new home again.
Speaker: At the same time, we see in this housing stabilization plan that can help boost the demand side of the housing market and also make sure the property developer can run as a going concern.
Speaker: They get the funding support from credit supply, bond issuance, and equity issuance basically cover all the basis of the funding sources.
Speaker: So the way you describe this is we've seen a major flare-up in recent weeks in China, which is geographically much more spread than perhaps in previous episodes, which is a risk to the economy.
Speaker: On the other hand, we have really a new approach when it comes to rolling out virus control measures, which is more targeted and really aimed at restoring services and consumer spending in the country and helping the housing sector as well.
Speaker: How do you think that will play globally?
Speaker: How optimistic are you then about China delivering growth over the coming year and how much is that, do you think, of global significance?
Speaker: Indeed, this year we have seen China probably will miss its growth target, but next year the rebound can push it to grow by at least 5% according to our forecast.
Speaker: And China's recovery will go a long way as a growth driver to the world's economy and also to boost the investor confidence dragged by the slowdown of China in 2022.
Speaker: Well, thank you very much, Jing, for sharing your insights.
Speaker: And it strikes me that we are here at a critical juncture for China.
Speaker: On the one hand, you have seen rising cases, and of course that makes the headlines everywhere.
Speaker: But also we see the redirection of the approach that China is adopting, much more targeted.
Speaker: And that should allow then for a general recovery in consumer spending services and even spillover possibly into a housing market for coming year.
Speaker: There is a positive message in here, Jing.
Speaker: So thank you very much for joining us.
Speaker: And thank you, ladies and gentlemen, for joining us under the banyan tree.
Speaker: And we'll be back again, same time next week.
Speaker: Thank you, Vra.
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Speaker: We hope you enjoyed the discussion.
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