HONG KONG, Nov 18 (Reuters Breakingviews) – The blistering relief rally underway in Chinese equities is understandable. President Xi Jinping had implemented a mixture of harsh policies targeting Covid-19, technology entrepreneurs and real estate developers that kept equity indexes in the basement and aggravated capital flight – roughly $101 billion was pulled out the country, reading between the lines of official balance of payments data for the first six months of the year. Tentative relaxations on all the main fronts have investors cheering; the Golden Dragon index (.HXC) of New York-listed Chinese companies is up 37% since late October.
Yet biology could ruin this party yet. Most of China’s trading partners have moved on to living with the virus, but Xi still aspires to keep it out. Unfortunately, highly contagious new strains took advantage of the travel surge during the October national holiday week to go on a tour around the country. Surveys by consultancy Dragonomics logged over 200 cities per day reporting outbreaks in November, more than double the number seen during the traumatic lockdown in Shanghai in April.
New cases have officially multiplied from roughly 1,000 per day in October to 25,353 on Thursday. There are reasons to suspect the real numbers are higher. Some cities reported suspiciously low case figures which were belied by severe quarantine polices. Others want to accelerate away from zero-Covid to relieve their local economies, as the city of Shijiazhuang in Hebei tried to do, which could lead to underreporting.