Macroscope | China’s reopening is weaker than expected but still a rare bright spot amid global economic gloom

Is China’s great reopening living up to expectations? At the beginning of the year, The Economist described the unsealing of China’s borders as “the biggest economic event of 2023”.

At the time, many investment strategists and market commentators took a similar view. They predicted that the sudden end to three years of self-imposed isolation would, after an initial period of turbulence, lead to a sharp recovery that would provide a much-needed counterweight to the monetary-tightening-induced slowdown in the United States and Europe.

The abrupt dismantling of draconian restrictions has lost its capacity to move markets. This is partly because it has been superseded by other market-moving events, in particular the banking turmoil in the US and Europe.

Tellingly, searches for “China reopening” on Google Trends, which spiked last December, have almost evaporated in the past several weeks. More surprisingly, Chinese stocks’ performance this year has been relatively lacklustre. The CSI 300 index of Shanghai and Shenzhen-listed shares is up 4.8 per cent, compared with 7 per cent for the benchmark S&P 500 index, despite the fallout from the collapse of three mid-sized US banks.

The renewed escalation in geopolitical tensions – especially across the Taiwan Strait – and persistent concerns among foreign investors about the regulatory regime in China have weighed on sentiment. Moreover, commodity markets have been driven more by fears about a global recession than hopes China’s reopening will boost demand from the world’s largest consumer of raw materials. Even an index of industrial metals, which are more sensitive to Chinese growth, is down 5.3 per cent this year.