Return of lockdowns send Chinese shares tumbling

The re-imposition of draconian lockdown measures in one of China’s main technology and manufacturing hubs to tame an outbreak in Covid-19 cases sent shares in Beijing and Hong Kong tumbling yesterday.

China’s top index, the CSI 300, tumbled 4.57 per cent yesterday, taking total losses for the year to date close to 20 per cent.

The SSE Composite dropped nearly five per cent, sending losses for the year to over 15 per cent.

The selloff was triggered by Beijing seemingly reverting to its zero-Covid tolerance policy after a sharp uptick in cases in a region that includes the city of Shenzhen, one of the country’s technology and manufacturing linchpins.

The re-emergence of tough Covid-19 control measures has the potential to feed inflationary pressures already spiking Western economies if they restrict China’s production and exports.

Less severe responses to rising virus transmission in recent months had indicated Beijing was moving away from using the toughest curbs on people’s lives to manage Covid-19.

China reported a surge of around 3,500 new cases yesterday after Chinese officials had already plunged several cities into lockdown.

Concerns about the negative shock the tough response could deal the country’s economy prompted investors to ditch stocks, causing Beijing’s top indexes to drop.

The risk off sentiment spread to Hong Kong, with the Hang Seng clocking a near six per cent decline.

A looming regulatory crackdown by Chinese authorities on technology and education firms also steered investors to dump stocks. News also emerged on Monday that Tencent, one the country’s top tech firms, could be hit with a record anti-money laundering fine.

“Chinese authorities have been placing increasing stringent limits on Chinese technology and education firms in recent months,” analysts at Forex.com said. 

A ramping up in expectations that the US and other Western countries could launch sanctions against Beijing if it remains close to Moscow has dampened the outlook for China’s economy.

Steep falls in stocks came despite a slew of data illustrating the Chinese economy is in good health.

Retail sales jumped 6.7 per cent, boosted by the Winter Olympics taking place in the country, while industrial production, an engine of output in the country, climbed 7.5 per cent, beating expectations.