China’s Road to Pragmatism

"Lockdowns are likely to ease next month, and a significant stimulus should follow, designed to promote a second-half economic recovery." Andy Rothman, Investment Strategist

Most of the news coming out of China is gloomy, making it easy to feel pessimistic. I remain optimistic, however, because the main problems are poor, short-term policy choices by the government, rather than deeper, structural issues that are harder to correct. Over the last three decades, Beijing has often made poor choices, but has usually changed course to a more pragmatic path, and I expect that to happen again.

COVID is a mess in China, but a political mess, rather than a public health crisis, so easier to fix. Lockdowns and logistics nightmares meant that there was no macroeconomic joy in the first quarter, and April will be even worse. But, the lockdowns are likely to be eased by next month, and a significant stimulus should follow, designed to jumpstart an economic recovery by the fall. A more pragmatic approach towards Putin’s invasion of Ukraine, and the broader relationship with the U.S., is also possible.


COVID is crushing China. Fortunately, the problem is political and bureaucratic, rather than a public health crisis, so solutions are readily available.

Dozens of cities are under full or partial lockdowns, leaving a population roughly the size of the U.S. stuck at home for several weeks, often with limited access to food and medical care.

The personal impact ranges from boredom and frustration to tragic.

The economic impact is, in the short term, dramatic, with factories and shops closed, and logistics slowed to a crawl in much of the country.

There is, however, room for optimism for three reasons.