China's economic growth has plummeted under the nation's "Zero Covid" policy, with industrial production and consumer spending dropping to their lowest levels since the pandemic began. Unemployment has also surged to its second highest level on record, as lockdowns and other restrictions have left many people out of a job. Shehzad Qazi, Managing Director of China Beige Book International, breaks down what the data means for China's economy moving forward.

Opening Bell

China Posts Worst Economic Data Since 2020

and here to discuss more. Shehzad Qazi, managing director of China Beige book International thanks so much for joining us. What does this data tell you about the economic impact of china's lockdown so far? Yeah, the overnight data were absolutely no surprise to us. You know when we put out our China beige book April notes a few weeks ago to clients, the sentence up top said these are the worst economic numbers that we have seen come out of China since the initial lockdown 2020. Um every sector was in a pain, every key economic indicator was hurting. So the fact that we're getting these numbers in terrible retail sales, terrible industrial production data. Absolutely no surprise at all. This is absolutely the direct result of china's strict lockdowns and zero Covid policy and the pain that began in March has not translated very, very severely into april. So clearly the pain is going to continue as long as this Zero Covid policy is put in place. But meanwhile Shanghai is showing signs of reopening, allowing restaurants and malls and some other businesses to begin that gradual process. Do you think this signifies some sort of bright spot um in the data, the biggest problem is that even when you get some openings and some relaxation of zero Covid, they are susceptible to a very very quick reversal because the larger policy under which this all this is being done remains very strict. So this could be a bright spot. But really what we have to continue to watch for is what is happening with the number of cases and the outbreaks and how quickly authorities might want to clamp down and reverse some of these openings. This is why the biggest problem domestically for Beijing right now is that it really cannot rely on the consumption sectors to drive economic growth. Whether it's the retail side of the services side, uh it remains so incredibly susceptible to zero Covid that you know, this may all be reversed soon. It's too early to take positive note, positive note from it as yet. And we also know china is working toward its annual growth targets during this time, expected to take on even more debt. How would this impact the country that is already struggling with the Zero Covid policy but also how does it have a ripple effect internationally? Yeah, this is obviously the biggest problem again is supply chain something that we've been dealing with since the onset of Covid and with the support on ports operating under very limited capacity throughout this time and sometimes also being shut down. Uh you know, we are probably going to see a knock on effect on supply chains here in the United States. We know for a fact that because of the various amounts of issues and supply chains due to monopolization, price gouging etcetera. Us consumers will most likely be hit. And that of course raises the other question of how does that shape the view of the Fed as far as interest rates etcetera are concerned in the US. So very serious consequences for the U. S. Economy as well, Especially if if these lockdowns continue to persist over the coming month, month and a half. And she said it's a common conversation that we're having here on cheddar news about how these lockdowns affect global supply chains. But what is the data telling us about how these lockdowns are affecting the global supply chains on what levels are we seeing that? I think we're going to probably start to see some of the the impacts of that in our may data here in the U. S. And so forth. I don't think those numbers have been become that obvious just as yet to us here, we haven't yet felt the response. But if you look at china we already see the signs right. We're seeing that there's a massive decline in car production. Car manufacturers are complaining about you know, slowdown in production. They're also already complaining about slow down in order. So because existing orders aren't getting fulfilled, so there's got to be that delayed effect that will feel probably maybe even in the summer as it relates to auto parts, car parts as it already relates to the electronics, especially the high end electronics or laptops, cell phones etcetera. Uh so so they're already is anecdotal evidence of of some of those things are starting to affect the U. S. Consumer. You already mentioned the dynamic at play when we talk about reopenings and kind of the very small bright spot that it offers in the data. Um but are there any other bright spots in terms of maybe other cities adopting similar reopening measures moving forward? So I think, you know, we need to see what happens in Beijing in the coming days now. Beijing is basically under a de facto lockdown. Uh So you know, we we, what we want to see is how do these big cities reopen what happens to Guangdong and the surrounding areas which are incredibly important for global manufacturing? The reality however, is economically speaking, the picture is looking pretty bleak for china right now. There's no such thing as doing a big stimulus in china, the big stimulus system coming, you can't do fiscal stimulus for shutting the economy down. So in terms of bright spots there are very few and far between if they exist. The real question is to what degree do we see flexibility and the implementation of zero? Covid the farther and farther you get out from Beijing. One of the things that has been absolutely clear in cbb data is the closer you are to the capital, the stricter the lockdowns are, the stricter the implementation is but when you get away from those important regions uh then perhaps the implementation of the local level is a little bit more flexible, which of course helps economic activity. So if there were to be one bright spot, I would pick. That would be it. So it doesn't sound like there are very many strategies that China does employ in terms of boosting the economy very dissimilar from here in the US last question for you, Jpmorgan analysts have recently upgraded a number of Chinese text talks including 10cent and Alibaba after initially calling them un investable in March. Do you think this bodes well for china's overall recovery when we talk about this? Covid surgeon? Also this zero covid tolerance policy, quite frankly, Jpmorgan's gotten seriously punished in china by the authorities. I think in many ways for calling their stocks on investable. So we don't know how much of this is just simple backtracking. I think we have to look at what's going on within the economy at the ground level, that is going to be the determining factor. Um I think we need to see how, you know, credit policy evolves, how the reopening of the economy evolves and what it says for consumption, a lot of these companies, the biggest players, Alibaba, Tencent etcetera, they ultimately live on and thrive on domestic consumption. But if the chinese consumer is not confident, well then you're not going to, you know, see these companies do terribly well, that's what we need to be watching more than quite frankly what any of these investment banks are currently coming out and saying just because they've been really badly wrong in recent memory. I really appreciate this info that Shehzad Qazi, managing Director of China Beige Book International.