Subtle signs that China may be growing sensitive to the costs of zero covid

Signs are emerging of a fresh rise in covid cases in much of the world.

I don’t think that’s a big problem for markets, even if it further dampens growth in the months ahead.

The big exception remains China, which helped to roil markets at the start of the week by reporting a big jump in covid cases and fresh lockdowns. The government there knows it’s been dealt a tough hand with omicron and dwindling public enthusiasm for social curbs. Today, Xinhua reported that in a Politburo meeting of top officials Xi asked them to minimize the impact on the Chinese economy and people’s lives from  Covid-19  control measures.

That’s a change in tone from the ‘stop covid at all costs’ talk earlier and a tip-toe towards a policy of living with covid. That could come on further signs of a property slump and the recent rout in Chinese stocks (though there was a huge bounce yesterday on signals of support).

In the bigger picture, commodity inflation, the property slump, the transition to a consumer-led economy and worries about the great firewall make it very difficult to be enthusiastic about China, at least until they pivot on covid.