China's Easing of 'Zero COVID' Policy Raises Expectations
Stock Market Rises Reflect Proactive Financial Market Response
Export Slump and Economic Downward Pressure Offset Domestic Demand Recovery
Domestic Demand Recovery in China Could Bring Relative Benefits to Korean Economy
[Asia Economy Reporter Junho Hwang] Expectations are rising that China, one of the two pillars of the global economy, will ease its strict 'Zero COVID' prevention policy. There is growing anticipation that this positive development could thaw the frozen global economy amid a high-intensity tightening stance.
Chinese Stock Market Quietly Rises
According to Shinhan Investment Corp. on the 12th, the Hong Kong Hang Seng Index rose 11.4% compared to the end of October. The Shanghai Composite Index and South Korea's KOSPI also increased by 5.3% and 5.7%, respectively. Meanwhile, the U.S. S&P 500 fell 3.2% during the same period. Securities analysts attribute the underlying cause of the Chinese stock market's upward trend to growing expectations of easing the Zero COVID policy.
Since early this month, rumors have spread in financial markets that Chinese authorities have formed a committee to consider easing COVID-19 lockdowns with a target date of March next year. In response, the Chinese Ministry of Foreign Affairs stated, "We do not know," but did not deny the rumors.
Chinese state media also reported that the National Health Commission (NHC) is moving away from broad controls to minimize the scope of epidemic prevention and is striving for "precision prevention." Additionally, the possibility of easing restrictions in the aviation sector was mentioned. Taiwan's Central News Agency reported that Chinese aviation authorities instructed airlines to prepare for the removal of temporary suspensions on international flight routes where COVID-19 cases had been detected, which had lasted about one to two weeks. However, the NHC officially dismissed the possibility of short-term changes (easing Zero COVID) in China's prevention policy during a briefing.
Impact of Expectations for Zero COVID Easing
The expectation of easing 'Zero COVID' is rooted in the fact that China's economic growth has slowed. China's export momentum has weakened since the third quarter of this year. Exports, which had maintained double-digit growth compared to the previous year until July, declined in October for the first time since May 2020.
The export weakness is leading to a domestic demand slump. In particular, employment, which policy authorities consider crucial for "social stability," is being adversely affected. The urban unemployment rate, which had fallen to 5.3% in August, rose to 5.5% in September. Youth unemployment (ages 16?24) is even more severe. The youth unemployment rate reached 19.9% in July, setting a record high since statistics began.
Due to demographic factors, the number of university graduates has surged, but demand has decreased amid economic contraction. According to the Chinese Ministry of Education, the number of university graduates (including junior colleges and graduate schools) reached 10.76 million, surpassing 10 million for the first time. Although labor supply has expanded, demand is limited, making youth employment vulnerable.
At the National People's Congress in March, the Chinese government emphasized "stability" as its policy direction. It set targets such as GDP growth of around 5.5%, national income growth similar to economic growth, consumer price inflation of 3.0%, 11 million new urban jobs, and an urban surveyed unemployment rate within 5.5%.
However, to maintain 11 million new urban jobs, at least a 4% growth rate must be sustained. To maintain a stable employment market, the Chinese government needs to offset losses in exports with a recovery in domestic demand. For this, easing the 'Zero COVID' policy is urgently needed.
Vaccination and Treatment Distribution
Conditions for abolishing Zero COVID are also being established. The population rate of those who have received two or more vaccine doses is 89%, indicating that most of the population has completed vaccination. Since early this year, booster shots have been administered, with 57% of the total population having received additional doses.
COVID-19 treatments are also being introduced. China's domestically produced COVID treatment Azudine has been on sale since August, and Pfizer has signed a contract with a local pharmaceutical company to produce Paxlovid.
Zero COVID Easing... Korea Benefits
If China eases its Zero COVID policy, benefits are expected to concentrate in Korea and other Asian regions. Korea's exports to China consist of 70% final goods consumed in China, intermediate goods processed in China, and Chinese consumption.
Researcher Ha Geon-hyung of Shinhan Investment Corp. said, "Most of Korea's exports to China are closely linked to China's domestic demand," adding, "Despite sluggish exports to advanced countries, if Zero COVID is eased and the government expands fiscal policies, domestic demand recovery could lead to a rebound in exports to China."
Researcher Ha emphasized, "It is necessary to pay attention to industries with relatively high Chinese demand," explaining, "These industries have experienced weak demand this year, so a base effect can be expected." He identified industries meeting these conditions as computers and electronics, chemicals, furniture, electrical equipment, rubber and plastics, non-metallic minerals, and machinery.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
