Medical staff are working on the sixth round of the Covid-19 test since the end of July in Nanjing, east China’s Jiangsu Province, on Sunday, August 8, 2021.
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China has tightened Covid-19 measures to combat a surge in daily cases – a move that could curb the country’s economic growth and hurt its stock markets, veteran strategist David Roche said.
Investor sentiment towards Chinese stocks was dampened by Beijing’s regulatory crackdown on sectors such as technology and after-school tutoring.
“The markets have gotten into the mindset that Covid is very … bad, but the economic recovery is picking up locks, removing social constraints – this is something of the world recipe right now,” said Roche, President and Global Strategist, Independent Strategy. said CNBC’s Street Signs Asia on Tuesday.
“Well, it is not the world recipe in China for good reasons, and so markets have to accept that it has an economic cost not just within China but globally,” he added.
I think China is about to end its great recovery story from Covid …
David Roche
President and Global Strategist, Independent Strategy
The country’s National Health Commission reported 143 new Covid cases in mainland China on Monday – the highest number of daily infections since January, according to Reuters. Chinese state media attributed the recent infection resurgence to the highly transmissible Delta variant.
Chinese authorities ordered mass tests last week in Wuhan city – where the coronavirus was first discovered – and imposed sweeping restrictions on movement in large cities like Beijing.
Some economists have raised concerns about China’s “zero tolerance” approach to Covid, which refers to the country’s aggressive crackdown on relapses in Covid cases. The approach, which includes rigorous lockdowns and mass testing, helped China keep previous outbreaks under control before the recent resurgence.
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But the Delta variant is more contagious and could be more difficult to contain – and that could hurt China’s economic recovery, economists warn.
“If lockdowns and vaccination advances do not allow local economies to reopen by mid-August or early September, we will have to rethink our GDP forecast of 8.8% for 2021,” wrote economists at Australian bank ANZ in a report on Tuesday.
China effect on the world economy
Any disruption in the Chinese economy could affect global economic growth, Roche said.
The strategist stated that wider lockdowns across China could disrupt global supply chains – many of which are in the country.
This could affect international trade, increase the cost of some goods, and raise inflation expectations around the world, he added.
Roche expects China’s year-over-year growth to slow to 2% to 3% in the third quarter, after growing 7.9% in the second quarter.
In the longer term, China’s economic growth will level off at around 5 to 6%, according to Roche.
“I think China is about to end its great recovery story from Covid, which of course is ahead of the world … and is now converging on a long-term growth path that is much, much lower than what people are used to after China,” said he.
