China Cuts Bank Reserve Requirements, But Chinese Stocks Drop As Beijing Locks Down Following Latest COVID-19 Outbreak

The iShares China Large-Cap ETF FXI traded lower by another 1.7% on Friday as headlines about COVID-19 lockdowns in Beijing overshadowed China's loosening of bank reserve requirements.

What Happened? Large areas of Beijing were reportedly in a seven-day lockdown on Friday after the city reported more than 1,800 new COVID-19 infections on Thursday. Nationwide, China reported more than 32,000 new infections, a new daily high.

Chinese stocks have been battered all year as China has continued aggressive COVID-19 lockdowns while the rest of the global economy has reopened.

The lockdown news overshadowed an announcement from the People’s Bank of China on Friday that it is cutting the reserve requirement ratio (RRR) for Chinese banks by 0.25%, freeing up an additional $70 billion for banks to stimulate the country's sluggish economy.

Why It's Important: Bank of America economist Helen Qiao said Friday the RRR reduction is a positive, but the China bull case at this point is all about COVID-19.

"Without allowing people to resume a normal life style, additional fiscal stimulus and monetary easing will only generate very little impetus for demand recovery," Qiao said.

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She said investors should watch the Central Economic Work Conference around and Politburo Standing Committee meeting in December for insight into China's economic policy outlook in 2023.

Here's how several top Chinese stocks reacted to the news in a holiday-shortened session on Friday:

• JD.Com Inc JD was down 5.3%.
• Trip.com Group Ltd TCOM was down 4.2%.
• Alibaba Group Holding Ltd - ADR BABA was down 3.8%.
• Baidu Inc BIDU was down 3.7%.
• Nio Inc - ADR NIO was down 3.6%.

Benzinga's Take: China's so-called zero-COVID has been a complete economic disaster for what was one of the world's largest and fastest-growing economies prior to the pandemic.

It will be very difficult for China to ease its COVID-19 policies anytime soon without seemingly admitting that it took the wrong approach to the pandemic compared to the rest of the world, so lockdowns may be the new normal in China for the foreseeable future.

Photo via Shutterstock.