China’s grand reopening may come too late for many businesses

Brian Bergey and his wife Ruixi Hu’s culinary tourism business has endured three years of strict COVID-19 restrictions in China.

But just as excitement mounts in global financial markets that the world’s second-largest economy may finally emerge from isolation next year, the pair pack their bags.

“I remain quite pessimistic about the citation-unquoted reopening of China,” Bergey said. Her company Lost Plate, which has hosted food tours in several Chinese cities since 2015, will veer to Southeast Asia instead.

China, the last of the major countries not to treat COVID as endemic, this month unveiled 20 new steps relaxing its strict anti-COVID policies.

That propelled Chinese stocks, bonds and the yuan currency higher, and a wide range of assets from Asia to Europe and Latin America rallied.

When China reconnects with the world next year, investors theorize its economy will recover from the worst slowdown in decades, and with it the prospect of a global recession in 2023 could also fade.

But this exuberance contrasts with the grim economic reality in China.

Many businesses, particularly those that are customer-facing, fear they might not survive into next year: China is still grappling with some of its biggest outbreaks yet, while shocked consumers – whose lives have been cut short by the government’s tough anti-COVID measures upside down – doing it holding on to their cash.

“The biggest thing will be in February and March to see who actually made it through the winter,” said Shanghai-based American entrepreneur Camden Hauge, who owns a cafe, bar, several matcha kiosks and an events company in the city.

The 25 million people in Shanghai who were traumatized by two months of confinement in their own homes earlier this year, often without access to basic necessities, will continue to avoid crowded venues regardless of the rules, she expects.

“People aren’t going to flip a switch and go back to their former lives,” Hauge said.

SHOCKED CONSUMERS

China’s economy is expected to grow by around 3% this year, falling short of its target of around 5.5%.

A raft of economic data for October fell short of already weak expectations: exports fell. Inflation slowed. New bank loans collapsed. The downturn in the real estate market deepened. Retail sales fell for the first time since the April-May lockdown in Shanghai.

As COVID outbreaks worsen, China’s economy is unlikely to shift into higher gear in the short term.

JPMorgan earlier this month estimated that cities with more than 10 new COVID cases accounted for 780 million people and 62.2% of GDP — about triple the levels at the end of September.

Vaccination and booster rates remain relatively low across China, particularly among vulnerable populations such as the elderly, so authorities are wary of tapering off before the population is better prepared.

As a result, the new COVID rules were not implemented uniformly. Local authorities in some Chinese cities eased restrictions while others tightened them.

In several cities, officials came out to reassure residents that the tweaks didn’t mean slacking off their vigilance.

Faced with mixed messages, some nervous households have taken matters into their own hands. Posts on social media showed that many parents, afraid their children might get COVID, are using excuses such as a toothache or an ear infection to pull them out of school.

These families won’t be going out for dinner or shopping anytime soon, economists warn.

“The new measures to ‘tweak’ COVID containment appear to be causing chaos on the ground as local governments try to interpret the guidelines,” analysts at Gavekal Dragonomics said.

“This represents an economic uncertainty that is likely to further dampen consumption and property sales in the near future.”

At its core, the problem reflects the authorities’ failure to prioritize the interests of consumers, who are often the punching bag in China’s investment-driven economy.

Take China’s transport data: Road, rail and water throughput in the third quarter was about the same as in the pre-COVID third quarter of 2019, according to an analysis by Fitch Ratings.

In comparison, passenger turnover using the same modes of transport was only half or even a third what it was three years ago, suggesting that people’s lives have been far more disrupted than industrial logistics.

That doesn’t bode well for customer-centric companies.

Yao Lu’s Shanghai-based Bar Union Trading Company was a staple of international “Best Bar” lists until this year, when it operated for just 50 days between COVID closures.

“What we’ve learned this year is that whatever plan you have for the future doesn’t really matter,” Yao said. “We’re just trying to live day by day.”

© Thomson Reuters 2022.

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