China may have ‘passed the point of no return’ as Covid infections soar

“China might have already passed the point of no return, as it’s unlikely to achieve zero Covid again without another Shanghai-style hard lockdown,” Macquarie’s Chief China Economist Larry Hu said in a report Tuesday.

What does this mean for the second biggest economy in the world and the biggest manufactures. How will the markets react?

Chinese authorities imposed more restrictions on Wednesday to rein in a rapid rise in COVID-19 infections, adding to investors' worries about the economy just as fresh unrest at the world's largest iPhone factory highlighted the social and financial toll of these curbs.

Across China, cities including the capital Beijing and financial hub Shanghai have closed malls and parks, and imposed limits on the movement of people arriving from elsewhere as infections neared record highs last seen in April.

The measures are darkening the outlook for the world's second-largest economy and dampening hopes that China would significantly ease its outlier coronavirus policy any time soon.

"While there is little prospect of the authorities opting to step back from the zero-COVID policy during the winter, there is a significant risk that containment efforts fail," analysts at Capital Economics wrote in a note. Such a failure could result in more lockdowns which would cause unprecedented damage to the economy, the analysts added.

Investors who last week were hopeful that China would ease restrictions soon have now grown worried that the latest wave of infections could slow the economic reopening. Many analysts say a significant reopening is unlikely before March or April.

"The next few weeks could be the worst in China since the early weeks of the pandemic both for the economy and the healthcare system," said analysts at Capital Economics.

Workers have had enough.

Hundreds of workers at Apple’s main iPhone-making plant in China clashed with security personnel, as tensions boiled over after almost a month under tough restrictions intended to quash a Covid outbreak. Workers at the Foxconn Technology plant streamed out of dormitories in the early hours of Wednesday, jostling and pushing past the white-clad guards they vastly outnumbered, according to videos sent by a witness to portions of the protest. The rare instances of violence at the plant in the central city of Zhengzhou reflects a build-up of tensions since the lockdown began in October. Many among the vast workforce of more than 200,000 at “iPhone City” have been plunged into isolation, forced to subsist on spartan meals and scrounge for medication.

How do markets react?

On the 11th November, Risk appetite for Chinese assets surged after Beijing unveiled the biggest pullback in its strict Covid Zero playbook yet, triggering a rally in stocks and sharp gains in the country’s currency.

Today, whilst Asian shares mostly rose on Wednesday oil and the dollar slipped as rising COVID-19 cases in China raised fears of fresh lockdowns that could slow the reopening of the world's second-largest economy.

"The biggest story for investors in Asia is still the China reopening," said Suresh Tantia, Credit Suisse's senior investment strategist in Singapore.

"We had seen China markets rally up to 20% but those expectations are being dialled back, we think a reopening will be a slower process and will not be done in a hurry. That means a lot of investors are trimming their exposure, cutting their losses or booking any profits they might have made on China."

So in conclusion, when we hear about the ending of restrictions and lockdown in China, the global markets rally strongly, when we hear of further continued lock downs , oil and Gold and other commodities fall, as the demand for manufacturing is deemed to fall.