Xi Jinping’s Renewed Commitment to China’s Covid Zero Rattles Markets

Xi Jinping reaffirmed his commitment to China’s controversial zero Covid strategy, warning against “any slackening” in the effort and pledging to clamp down on criticism of the policy despite signs of damage to the economy.

The comments were carried by state media after a Thursday meeting of the Standing Committee of the Communist Party’s Politburo, the country’s most influential political body chaired by the president.

“Our prevention and control policies can stand the test of history, our measures are scientific and effective. We have won the battle to defend Wuhan, we can also win the battle to defend Shanghai,” the statement said.

The direction given by China’s top political body comes against mounting domestic and international criticism amid a series of lockdowns that have confined tens of millions to their homes across the country in a bid to stop the spread of the Omicron variant.

Ting Lu, Nomura’s chief China economist, noted that the political bureau “did not mention” reconciling China’s focus on eliminating the virus with economic growth or minimizing damage. to the economy, unlike previous meetings.

Xi’s high-profile endorsement of zero-Covid has deepened the market downturn, with global investors selling stocks on worries about the impact of future rate hikes by the US Federal Reserve.

Chinese tech stocks which are heavily exposed to domestic consumer activity were among the hardest hit, with Alibaba falling more than 7% and Tencent more than 5%.

China’s CSI 300 index of stocks listed in Shanghai and Shenzhen lost as much as 2.5%, while in Hong Kong, the benchmark Hang Seng index fell as much as 5.5%.

“Market sentiment is still fragile,” said Dickie Wong, head of research at Kingston Securities. “The pandemic, the situation in Shanghai, it’s not over yet – although the Chinese government is doing everything it can to support the national economy. »

The renminbi also lost ground, losing 0.3% to around Rmb 6.68 per dollar and leaving the currency down almost 5% for the year to date.

The market moves came a day after April data showed China’s services sector suffered its second-worst contraction since the start of the pandemic, with lockdowns limiting movement in the world’s biggest consumer market. .

Data from Goldman Sachs showed that the proportion of cities whose neighborhoods are considered at medium to high risk of lockdown contributed about 10% of China’s gross domestic product.

Vaccination rates, meanwhile, have fallen to around 1.5 million doses a day over the past week, from 5 million in recent months, as health officials have been forced to divert staff and resources. toward mass testing campaigns, Goldman said.

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