It has been a long time coming, but China has finally signaled the importance of the elderly being vaccinated.
National Health Commission officials said in a press conference at the end of last month that people aged 60 and above, especially those aged 80 and more, are one of the three groups who have a high risk of becoming severely ill from Covid and should get vaccinated as soon as possible.
The Joint Prevention and Control Mechanism of China’s State Council also issued recently new guidelines to promote senior citizen vaccination.
The elderly will get easier access to vaccines through special priority services and mobile vaccination vehicles.
Importantly, the gap between the second dose and booster shot for the elderly will also be reduced from six months to three months.
The timing of the press conference, and the message conveyed, was an unacknowledged response to the demonstrations against Covid suppression that occurred in many Chinese cities over the weekend of 25-27 November.
As a result, the Chinese stock market’s positive response to the press conference, with the CSI 300 up 3.1% and the MSCI China up 5.8% on 29 November, was entirely understandable.
China CSI 300 Index and MSCI China
Source: Bloomberg
For the concern was that President Xi Jinping might react to the challenge to his authority posed by the protests, the most overt against the central government since 1989, by a renewed aggressive enforcement of Covid suppression in order to assert his authority and save face.
Instead there is now evidence that China is pursuing a policy of what might be called closet Covid easing even as cases surge.
For it has become apparent in recent weeks that China has essentially lost control of Covid, in terms of the efforts to contain the spread of infection at source.
Indeed the extraordinary point is that the mainland authorities were able to contain the spread for so long.
But from a market standpoint that has only served to extend the pandemic cycle and increase the economic damage.
Now the market can focus on the positive that closet Covid easing will lead in due course to a de facto re-opening in 2023, even if there are likely to be many twists and turns in the immediate months ahead, as local government officials face the almost impossible task of seeking to mitigate the worst impact of the pandemic while avoiding harsh lockdowns.
In this respect, the demonstrations have raised a potential threat of social instability which Beijing will strive to avoid.
Serious Cases in China Remain Low, Giving Authorities Some Breathing Room to Reopen
In the meantime, the good news for the Chinese authorities is that serious cases remain relatively low, for now at least, based on official data.
There are now “only” 276 serious Covid cases in China, compared with the previous high of 659 reached in early May and the record 11,977 back in February 2020.
China daily new confirmed Covid cases
Source: National Health Commission
Note: Not including asymptomatic cases which China has stopped reporting since 14 December.
The Elderly in China are the Big Risk to Reopening
Meanwhile, the focus on putting pressure on the elderly to vaccinate is long overdue because, while China is not as badly positioned as Hong Kong was when it lost control of Covid in March in terms of vaccination rates of the elderly, there is still a significant vulnerability.
Back in March only 26% of Hong Kong’s population aged above 60 had taken a booster dose, whereas the equivalent figure in China now is 70%.
Hong Kong is certainly the example to avoid. The current Hong Kong death rate for Omicron (1,466 per 1m population), the highest in the world, translates into 2.07m deaths in China if adjusted for the mainland population.
China serious Covid cases
Source: National Health Commission
As for the current vaccination rate of seniors in China, Chinese health officials revealed in a press conference last week that 228.6m people aged 60 and above, or 86.6%, had completed full vaccination of two shots as of 13 December, while 184.2m or 69.8% had taken a booster shot.
As for those aged 80 and above, 23.8m people (66.4%) had completed full vaccination while 15.2m (42.3%) of the group had accepted booster shots. But the problem is that there are still 8.1m people, or 22.5% of the seniors aged 80 and above, who have not even taken a single dose of vaccine.
Chinese Covid vaccination status: Seniors aged 80 and above
Source: National Health Commission
Meanwhile, China’s failure to prioritise vaccination over testing this year, and the related failure to put pressure on the elderly to vaccinate, is one of the most extraordinary miscalculations this writer has ever seen.
It is doubly amazing since the Chinese government is not normally reluctant to impose on its population what it thinks is good for them.
The policy has also been the opposite of “pragmatic”, a term which until this year was usually associated with the PRC leadership.
As discussed here previously (see Can China Afford To Lose Control Of Covid?, 2 June 2022), by not adjusting Covid suppression for the practical realities of the highly infectious Omicron, Xi has been taking two risks this year.
First, that the economy would suffer major collateral damage and, second, that the authorities would lose control of the virus anyway.
Both these risks have now materialised.
Chinese Stocks are Through the Worst of the Pandemic Cycle
Still the good news is that the policy has now changed, both as regards to the residential property market and as regards to the pandemic.
Meanwhile the spectacle of surging cases, and the authorities’ indirect acknowledgement that they can no longer contain the surge, means from a market standpoint that investors can now start to look forward to the end of the pandemic cycle and the potential for earnings upgrades in 2023 for Chinese companies, even as earnings downgrades remain the big risk for the US stock market next year.
The consensus of analysts is looking at 14.5% earnings growth in 2023 for companies in the MSCI China Index.
While recent trough valuations, with the MSCI China Index trading at its low at the end of October at the lowest level since October 2011, mean that the worst has likely already been priced in.
MSCI China Index
Source: Datastream
China Needs Housing Buyers to Come back to Reaccelerate Growth
Meanwhile, as discussed here last week (see China Is Entering A New Era, 16 December 2022), it will be critical to see in the coming months whether Chinese middle-class buyers will be willing to buy property again from private developers.
This writer’s base case is that they will, though it will be reassuring to see concrete evidence that this is indeed happening.
For now the latest property data in November remains negative but the central government package injecting liquidity into private developers only became public knowledge on the weekend of 13 November, three weeks after the conclusion of the National Congress of the Chinese Communist Party in October, as also discussed here last week.
Residential floor space sold declined by 32.5% YoY in November.
China residential floor space sold %YoY
Source: National Bureau of Statistics
In this respect, President Xi did not waste much time after securing his absolute political control in moving to shore up the property market.
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