The last two months have been an uphill battle for china and the worst wave of covid it has to deal with to date. 1st June some places are about to reopen but there is still no clarity to what extent. The larger populated cities are still reporting cases and all have eyes on Beijing now.
There is no way the zero covid policy or such level of restrictions will continue without damaging the economy. There has already been some stoppage to national-level data releases but if the globally available data is looked at then it is for sure the worst case scenario being played out.
The government has provided some relied measures and some measures to boost consumer demand but given the extent of lockdowns and the impact, it would most likely not help in containing the damage.
The bigger problem becomes when the local government can generate enough cash flow and the bonds start to mature that need to be paid. The local governments have two main cash flow sources one is land sales to developers and consumption taxes. Both these are down by 30-40% and the longer the restrictions stay the harder will be the landing.
If China falters in the growth of the economy then it would not only impact locally but cause another major global recession shock as the liquidity measures will restrict or even risk offshore defaults start to pile up.
China has already witnessed large outflows that are adding to currency weakening and in turn making essential livelihood even more expensive. There is a need for reversal in a big way before it turns ugly.
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