Asia tries to live with new wave of Covid

The Omicron variant of Covid-19 is still having a negative impact in Asia. More stimulus is coming in China, but Beijing is wary of creating excess inflation as seen in the West.

| 5 min read

There has been a surge in new cases of Covid-19 in Hong Kong, Singapore, South Korea, Thailand and parts of mainland China. Hong Kong and some other Chinese cities have been in lockdown once again.

Vaccination programmes have not been as comprehensive and as successful as in the leading western countries. Doctors have been concerned about administering vaccines to elderly, vulnerable patients – leaving them more exposed to the damage the virus can do. Some thought it better to rely on lockdowns to protect people.

The closure of leading cities on the mainland worried markets about interruptions to supply of components to manufacturers and added to the congestion and difficulties in Chinese ports. President Xi Jinping understands his people are losing patience with severe lockdowns and is trying to ease the policy response with more reliance on vaccines, medicines and testing – and less on comprehensive lockdowns for regions or large cities.

Today, the talk is on progressive relaxation in Shenzhen. Hong Kong is discussing a timetable for the removal of many of its restrictions on social contacts. Markets have responded by hiking the oil price again, which was said to have fallen back from its war highs on news that China was in partial lockdown, which meant it was likely to use less energy for industry and transport.

Beijing eases clampdown

The Chinese government recently became worried about the collapse of the stock market and made reassuring noises. It withdrew the immediate threat of rolling out the property tax to more cities. Early experiments in Shanghai and Chongqing have been limited in scope so they hit just the rich and at low rates of tax. The fear is that an annual tax on all residential property geared to its value may be introduced.

Markets have shot up in relief, expecting monetary relaxation.

The authorities have now promised some support for the market to ensure orderly adjustment to the changes in property, technology and general business regulation. They said their regulatory moves against technology companies would be calmed. Markets have shot up in relief, expecting monetary relaxation.

So far, there has been modest liquidity applied and no interest-rate cuts. The official line remains that money growth in line with nominal GDP is desirable and they wish to avoid the kind of inflationary spike the west is currently seeing, thanks to easier money last year. The course of common prosperity never ran smooth. China still awaits its universal property tax to penalise excessive property ownership and speculation. Measures taken so far have driven property prices down and created financial difficulties for leading property companies. Mortgage rates remain high by western standards.

The wider region

In Japan, the central bank has forecast more inflation and lower growth. As official inflation is still only 0.9%, it looks forward to it rising later this year to its 2% target, a rare event. Whilst the Bank of Japan will let this happen, it is concerned that it is largely the rise in the cost of imported energy and food causing the increase, where they would prefer some wage inflation stoking rising domestic demand. The inflation rate, which has been depressed by falling mobile phone charges, will see that feature drop out of the figures later this year when the base catches up with the price falls.

China does not wish to end up with more US-led sanctions against it because it is allied with Russia.

South Korea saw a fall in exports in its latest figures, reflecting tougher global trade conditions. The central bank raised rates a further 25 basis points, the third rise since August, taking the rate to 1.25%. The Bank of Korea expects inflation to stay above the 2% target and be above 3% for some months, but also expects growth to be around 3%.

China continues to urge a peaceful settlement of the Russia’s war in Ukraine, and to keep a low profile over the amount and type of support Beijing is offering to Russia. China does not wish to end up with more US-led sanctions against it because it is allied with Russia, which is pursuing an ugly policy that has united the Western world in opposition.

China will doubtless be looking at what assets and trade contracts it can gain from a Russia which much reduced commercial options in a world with many enemies. The combination of Covid-19 and war dislocation means supply chains remain fragile and subject to sudden changes of policy and events.

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Asia tries to live with new wave of Covid

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