China-Originated COVID Shock Hits Market Directly...Criticism of "Politicization of the Virus"

Chinese Stock Market Plunges Most Since Early COVID-19 Spread in February 2020
Yuan Value Also Plummets, Delivering a Direct Blow to the Market

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyun-jung] As China's 'Zero COVID' policy is expected to prolong, the stock prices and the value of the yuan are falling, delivering a direct blow to the market. Some Western media have expressed concerns, calling it the 'politicization of the virus.'

On the 25th (local time), the Wall Street Journal (WSJ) reported that with Shanghai's lockdown entering its fifth week and the possibility of lockdown in the capital Beijing, China's economic growth and corporate profits are under pressure due to the strict Zero COVID policy.

On this day, the Shanghai Composite Index and the CSI300 Index plunged 5.1% and 4.9%, respectively, marking the largest drop since the COVID-19 pandemic in February 2020. The yuan-to-dollar exchange rate, which had been stable since the Ukraine war, surpassed 6.60 yuan in the Hong Kong offshore market during trading hours, reaching its highest level since November 2020.

Regarding this, Jason Liu, Deutsche Bank's Asia Head, explained, "The market recognizes that China's economic recovery is delayed due to the Omicron situation, and especially in the short term, uncertainty may increase." He added, "The market is beginning to realize that China's overall economic stimulus measures may be weaker than expected, particularly in terms of monetary policy, which could be significantly delayed." Patrick Liu, portfolio manager of global equities at Neuberger Berman, said, "With China's consumption already weakened, city lockdowns have further exacerbated vulnerabilities, fueling stock sell-offs."

According to the WSJ, international investors reduced their holdings of Chinese bonds by $15 billion (approximately 18.7 trillion KRW) last month, and through trading programs with Hong Kong, Chinese stocks were net sold by about $7.1 billion. Xuan Wei, Chief Strategist at China Asset Management based in Beijing, analyzed, "COVID-19 related restrictions may have a greater impact in the second quarter than in the first quarter."

There are also criticisms that China is taking reckless measures ahead of the Party Congress scheduled for October. Bloomberg quoted Mary Gallagher, a political science professor at the University of Michigan, saying, "China is politicizing the virus," and "policy reversals implying that existing policies were wrong are very difficult." She added, "Policy reversals would be something President Xi Jinping would not want to do in the year he becomes an unprecedented third-term president." The news agency also evaluated, "Even when deciding to support Vladimir Putin's rationale for the invasion of Ukraine, China prioritized ideological struggle over short-term economic pressure."

This content was produced with the assistance of AI translation services.