China Reopens Only To Shut Down Again. The Virus Is Winning.

No doubt readers have been following the see-saw of Chinese lockdowns and reopenings of various cities in response to COVID pandemic outbreaks.

In the past six months, these lockdowns have been imposed in Xi’an, Ningbo, and other cities. More recently, the two biggest cities in China – Shanghai with 26 million residents and Beijing with 22 million residents – have been subject to extreme lockdowns, quarantines, and massive testing.

These policies go under the name Zero Covid, although recently, the policy has been renamed Dynamic Zero Covid as if to suggest there’s something flexible or intelligent about it – there isn’t. These approaches have been far more intrusive than equivalents in the U.S., Canada, and Australia (which included arrests and beatings of non-compliant citizens).

China will shut down entire sections of cities, force everyone to remain indoors, arrest violators on sight, and relocate tens of thousands to off-site COVID concentration camps for forced isolation. Testing centers are set up on almost every corner, and tests are required every several days. Transportation links are severely limited, and citizens have to show a QR code on their digital phones that indicate whether they have a “green pass” (allowed to travel) or a “red pass” (not allowed to travel).

Recently, China has announced that some of these lockdowns are over. Chinese stock markets rallied on the news.  There’s only one problem. The lockdowns don’t work and never will.

The omicron variant of SARS-CoV-2 is highly contagious. The virus goes where it wants. Nothing can stop it except herd immunity, but you never get to herd immunity if you keep locking people inside. So, the Dynamic Zero Covid policy is doomed to fail.

Proof of this can be seen in this story. No sooner did China announce the “reopening” of Shanghai than authorities started a new shut down because of new outbreaks.

Investors should not expect things to get better. Don’t be fooled by the occasional “reopening” announcement. China can’t stop the virus. Their efforts to pretend otherwise are just one more factor dragging Chinese stock markets lower.

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