I don’t think anyone expected COVID to spread this rapidly

CHINA FINANCIAL - Report 16 Dec 2022 by Michael Pettis

Special points to highlight in this issue:

* COVID is spreading so rapidly in Beijing and throughout China that I think everyone was caught by surprise. There is a rising consensus that government officials mishandled the opening up, and there are several explanations for what happened, and why that may have been the case.

* November’s economic data was terrible: not only has the supply-side of the economy (exports, industrial output) performed badly in spite of a great deal of stimulus and subsidies but also, probably to no one’s great surprise, the demand side of the economy (retail sales, imports) performed even worse. China’s imbalances continue to deteriorate at a rapid pace, which will make the ultimate adjustment all the more costly.

* It seems that Beijing is planning to set a 5 percent GDP growth target for 2023. They should achieve this quite easily, as part of 2022’s horrible performance on the demand side is reversed and some of the residual supply side stimulus measures flow through to 2023. But while this will almost certainly set off a feelgood “China is back” story, the impact will have dissipated before the end of the year.

Now read on...

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