How Does Japan's Yield Curve Control Work?

Central Bank

Summary:

The Bank of Japan's yield curve control (YCC) is under fierce market attack, as investors test the bank's commitment to capping bond yields with inflation above the BOJ's target.

The BOJ's ultra-easy policy targets some short-term interest rates at -0.1% and the 10-year government bond yield at 0.5% above or below zero, in an effort to sustainably achieve 2% inflation.

Here is how Japan's YCC works and its potential pitfalls.

Why YCC?

Although the market is testing the upside of the BOJ's bond yield target now, when the bank adopted YCC in 2016, it was trying to stop interest rates from falling too low.

After years of huge bond buying failed to fire up inflation, the BOJ cut short-term rates below zero in January 2016 to fend off an unwelcome yen rise. The move crushed yields across the curve, outraging financial institutions that saw returns on investment evaporate.

To pull long-term rates back up, the BOJ adopted YCC eight months later by adding a 0% target for 10-year bond yields to its -0.1% short-term rate target.

The idea was to control the shape of the yield curve to suppress short- to medium-term rates - which affect corporate borrowers - without depressing super-long yields too much and reducing returns for pension funds and life insurers.

How does it work?

The BOJ chose a rate regime because it was reaching the limit of quantitative easing, where it bought targeted amounts of bonds to push down yields, hoping to stoke inflation and economic activity.

When the central bank had gobbled up half the bond market, it was hard to commit to buying at a set pace. YCC allowed the BOJ to buy only as much as needed to achieve its 0% yield target.

The bank has tapered bond buying in times of market calm to lay the groundwork for an eventual end to ultra-easy policy.

Why the target band?

As stubbornly low inflation forced the BOJ to maintain YCC longer than expected, bond yields began to hug a tight range and trading volume dwindled.

To address such side-effects, the BOJ said in July 2018 the 10-year yield could move 0.1% above or below zero. In March 2021, the bank widened the band to 0.25% either direction to breathe life back into a market its buying had paralysed.

Under attack from investors betting on a rate hike, the BOJ doubled the band in December to 0.5% above or below zero and ramped up bond buying to defend the ceiling.

Investors broke the 0.5% cap on Friday, spurring expectations the BOJ would have to take more drastic steps.

Pitfalls?

YCC worked well when inflation was low and prospects for hitting the BOJ's price target were slim, as investors could sit on a pile of government debt that ensured safe returns.

But with inflation eroding those gains, investors have sold bonds, pricing in the chance of a near-term rate hike.

The BOJ has ramped up buying, including through offers to buy unlimited amounts of bonds, to defend its yield cap. That has been criticised by analysts as distorting market pricing and fuelling an unwelcome yen plunge that inflated the cost of raw material imports.

Tipping point?

Haunted by a history of political heat for dialling back stimulus prematurely, the BOJ wants to avoid raising rates until it is clear inflation will sustainably hit the bank's 2% target, backed by higher wage growth.

But markets may force the BOJ to relent, breaching the 10-year yield cap on Friday - before massive BOJ bond buying brought the rate back down. Investors may continue shorting Japanese government bonds this week in anticipation of a near-term rate hike.

If the market attack continues, the BOJ may further widen the band around its yield target or take bolder steps such as raising or abandoning the long-term rate target altogether, some analysts say.

Source: Reuters

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Samantha Luan

Do Malaysians really understand what is happening with inflation, beyond the pain inflicted by rising prices? This is important because public perceptions influence political choices and policymaking.

Before the US mid-term elections in early November, 87% of likely voters said inflation was extremely or very important in deciding their vote. In Malaysia, too, electoral support for Perikatan Nasional is said to reflect public appreciation for pandemic relief measures during its truncated tenure at the helm.

The US government has since released the November data for the Consumer Price Index (CPI-U). The headline number was 7.1%, down from 7.7% in October, but still considered very high for the US.

The phrase "highest levels since the early 1980s" has accompanied much of such commentary in recent months. And undoubtedly, prices measured by the CPI-U in November were 7.1% higher than a year before. But the impression created has been overtaken by more recent developments and, hence, is out of date, even misleading.

The US inflation rate has been coming down in the last five months (July until November). For economists worrying about inflation, it is not accelerating, but decelerating.

Annualised inflation in the last five months has been only 2.5%. To be clear, 2.5% is not the increase in prices from July to November, but the price rise if inflation over the last five months continued for a year.

By contrast, annualised inflation from February to June 2022 was 11.8%. Although the Fed's target was arbitrarily set at 2%, most serious macroeconomists would not be distressed about 2.5% inflation.

Unsurprisingly, they have less alarmist views than those of the general public, including politicians and financial investors with strong vested interests in minimising inflation to maximise the value of their financial assets.

The inflation spike over the last year or so was mainly due to "external [supply] shocks", including the new Cold War, the Covid-19 pandemic, the Ukraine war and retaliatory sanctions, especially for fuel, food and fertiliser prices.

Inflation has been driven higher by supply disruptions, and shifting demand, due to the pandemic, and then recovery, followed by credit tightening.

There has been little evidence of any self-reinforcing or accelerating factors, such as a "wage-price spiral", with higher prices causing workers to demand higher wages, further driving up prices, and changing consumer or investor expectations.

The data also show that despite the difficulties inflation inflicts on many people, tens of millions of Americans are economically better off than they were before Joe Biden was elected over two years ago.

This is especially true for those who got the record 10 million jobs created since then. Also, wages for lower paid workers rose faster than inflation.

Over the past five months, wages for all production and non-supervisory workers have risen at a 4.1% annualised rate. Wages of such hotel and restaurant workers rose 3.8% more than inflation since the pandemic began.

Misunderstanding inflation and the economy influences politics and policymaking. Such misapprehensions can influence not only elections, but also the most important economic policy decisions governments make.

The US Federal Reserve itself has caused most US recessions since World War II by changing interest rates pro-cyclically, rather than counter-cyclically. It may well raise interest rates yet again in the coming months, potentially throwing millions out of work in the US and all over the world.

This would almost certainly have serious political consequences. Such a tragic mistake would be much less likely if publics had better understanding of economic reality, especially current inflation, as well as available choices and their consequences.

As inflation has been coming down in the last five months, the Fed should not have continued earlier interest rate hikes, thus hastening the next recession. Fed vice-chair Lael Brainard had urged a more moderate approach, but appears to have been overruled by Jerome Powell, a Trump appointee and Paul Volcker fan.

Her approach would have been a much better choice than the current course which is more likely to drag the whole world into recession. Inflation has already been coming down for many reasons, largely unrelated to the Fed's interest rate hikes.

With the notable exception of the Bank of Japan under governor Haruhiko Kuroda, most other major central banks have followed the Fed's interest rate hikes, hastening a world economic slowdown.

Developing country central banks try, often in vain, to stem the outflow of capital from their economies to Western safe havens offering higher interest rates.

Although they are not required to, they have opened their capital accounts, hoping for more capital to flow in than to flow out. As a Malaysian economist quipped long ago, this is like hoping for more birds to fly into, rather than out of an open birdcage.

Thus, ill-advised economic policies of earlier regimes now limit what the government can do in the short term in response to the looming crisis.

Promisingly, Indonesia has just boldly amended its law to broaden its central bank's mandate to include sustaining growth. Earlier, together with the Philippines, the two neighbouring island nations had used "monetary financing" of its fiscal deficit to better fund government efforts to cope with the pandemic and other challenges.

Source: The Edge Malaysia

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Devin

Commodity

Energy- European gas falls

The upward move in oil prices seen at the end of last week and at the start of this week has run out of momentum with ICE Brent falling more than 2.3% yesterday. This is the largest daily decline since the first week of this year. There is little in the way of clear fundamental drivers behind the recent weakness.

Overnight, the API released US inventory numbers, which showed that US crude oil inventories increased by 3.38MMbbls over the last week. Market expectations were for an increase of around 1.5MMbbls. Cushing crude oil stocks also saw further increases over the week, growing by 3.9MMbbls. The increase in Cushing inventories continues to put downward pressure on the prompt WTI spread. On the refined product side, gasoline stocks increased by 620Mbbls, whilst distillate inventories fell by 1.9MMbbls. The more widely followed EIA report will be released later today.

Market chatter about next week’s OPEC+ meeting has started and unsurprisingly, suggestions are that the group will keep output targets unchanged. There are still plenty of uncertainties for the oil market. These are centred around the Chinese demand outlook and Russian supply. For the latter, we should get more clarity in the coming weeks, with the EU ban on refined products coming into force in early February.

There could be further disruptions to refined product flows in France this week as workers are scheduled to go on a 48-hour strike from 26 January. Earlier strikes disrupted the delivery of fuel from refiners. This week's strike is the latest in a series of strikes from the CGT union, and action will get progressively more severe with a 72-hour strike already planned for 6 February.

European gas prices came under significant pressure yesterday with TTF falling by 11.7%. This is on the back of forecasts of a return of milder weather next week, following the current cold spell. European gas inventories have fallen at a quicker pace in recent days with storage now around 77% full, down from 81% a week ago. That still leaves storage at the top end of its 5-year range. Also adding to yesterday’s weakness were reports that Freeport LNG in the US has finally completed repairs at its plant following a fire last summer. Freeport is looking to partially restart operations, although the company will still need to obtain approvals before it resumes activity. We may still need to wait a bit longer for the resumption of LNG exports.

Metals - Nornickel cuts output of nickel, cobalt

Nornickel plans to cut nickel and cobalt output due to delayed plant repairs and a fire at a refinery. The producer will likely lower nickel output in the region of 4% to 5% from 2022 levels of 219,000 tonnes as it carries out maintenance that has been delayed since last year. Cobalt production will be less than half what it was before September’s Kola site fire.

For copper, Las Bambas copper mine in Peru, controlled by China Minmetals Corp., is operating at a reduced rate due to blockade-related supply challenges. Despite lower mining rates, production of copper concentrate continues at full capacity, the company said.

Article Source： ING

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Kevin Du

Cryptocurrency

With most people still recovering from their Christmas lunches and all the resolutions and empty self-promises for 2023 starting to take priority, I decided that now might be a prudent time to look at the promises bitcoin held back in 2021, and whether it was also just an empty promise, like most of the New Year's resolutions people promise themselves.

Back then (in 2021), I compared the writing of an article for or against bitcoin to the equivalent of sticking your head in a beehive and hoping you don't get stung. Indeed, I did, from all resorts. I received a lot of flak to dare and warn people against the volatility and risks of putting your money into something such as bitcoin. After all, there were people who made millions out of bitcoin and other crypto assets.

Sure, but perhaps these same people should send Sam Bankman-Fried a message to make sure he is doing okay today. If you are unsure what I am referring to here, read the entire FTX story. People lost money. Millions.

And if you are still in doubt, perhaps give Johann Steynberg from MTI a call.

Anyway, this is not the point of this article. Scammers pop up left, right, and centre. In and outside the crypto sphere.

What I would like to achieve in this article is to confirm whether bitcoin was, indeed, a store of value or fool's gold.

What is a store of value, and what should it achieve?

Up until the rise of bitcoin, gold was initially regarded as a safe store of value. For most people today, gold is still used for the aforementioned. Gold is a safe haven asset, protecting capital in volatile markets and hedging your money against a drawdown in other asset cases, i.e., equities and bonds.

But, as expected, a lot of investors started to see bitcoin as the new store of value. They felt that bitcoin was the new safe haven asset.

But indeed, it was not. Here is why: Bitcoin: Store of Value or Fool's Gold?_1

Bitcoin: Store of Value or Fool's Gold?_2

Compared above is the five-year figure for the following assets:

1. Bitcoin;

2. S&P 500 (equities);

3. andGold price.

Over this period, the biggest drawdown across all three assets was found in bitcoin. This drawdown was 75% from the peak of the bitcoin price in November 2021. So much for a safe haven asset? Currently, bitcoin is still down 75% since the peak in price of $64 000.

The biggest drawdown in the S&P 500 in a five-year period was 30%, which happened in March 2020 at the initial lockdowns. Once again, proof that this asset does not hold up in volatile macroeconomic environments.

The purpose of a safe asset is to protect investors against volatile markets, and if the macro-economy is shaken up, to still bring some form of foundation in your portfolio, something bitcoin never has done.

The extremely volatile nature of bitcoin simply does not make for a base case for a solid investment. If bitcoin is part of your portfolio at all, you should understand that this should be regarded as part of a high-risk allocation in your portfolio.

Further to the volatile nature of crypto, is the fact that it is also not yet regulated in South Africa and many other countries. This makes any crypto investment even more susceptible to fraudsters and scammers, as there is no foot for the investor to stand on when you have been taken for a ride.

Crypto investments should most definitely be done with extreme caution and the right advice where possible. Crypto investments are NOT safe haven assets. Do not fall into this trap, as this could lead to significant capital losses which in most cases, will never be recovered again.

Source: Moneyweb

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Cohen

Economic

THE world is in strategic flux and in the midst of an intensely unsettled period. Looking ahead at key geopolitical trends and challenges in 2023, their overarching aspect is uncertainty and unpredictability. This at a time of power shifts in an increasingly fragmented international system with multilateralism under growing stress. Rising geopolitical tensions and global economic volatility are keeping the world in an unstable state.

The most significant strategic dynamic in the year ahead will be the course of relations between global powers. The disruptive economic repercussions of war in Ukraine will blight prospects of global economic recovery and is already compounding a cost-of-living triggered by the coronavirus pandemic.

Most annual assessments of key global trends in the year ahead by international think tanks, investment firms and others see unpredictability as the 'new normal'.

The Economist's 'The World Ahead 2023' report succinctly describes the world today as being "much more unstable, convulsed by the vicissitudes of great-power rivalry, the aftershocks of the pandemic, economic upheaval, extreme weather, and rapid social and technological change".

The principal geopolitical risk that will dominate the coming year is intensifying competition between the US and China and its ramifications for global geopolitics and economy. The first in-person meeting between Presidents Jo Biden and Xi Jinping in November did promise de-escalation of tensions.

Both leaders pledged to improve relations that had sunk to a historic low, raising international concerns about the advent of a new Cold War. But their meeting did not narrow differences between them on the contentious issues that divide them — Taiwan, trade disputes, technology curbs and military postures.

The outlook is uncertain, especially as Washington's policy of containing China, reaffirmed in the Biden administration's national security strategy, and an assertive Chinese pushback, will keep relations on a tense track. Tech de-coupling will accelerate, military competition will intensify and Taiwan will remain a dangerous flashpoint in relations.

Control Risks, a global consulting firm, sees the US-China relationship as the greatest geopolitical risk in 2023. Other assessments rule out conflict. But Southeast Asian countries worry about an accidental clash in the fraught Asia-Pacific region — the strategic theatre of the US-China stand-off.

The course of the Ukraine war is another critical area to watch in the coming year. Russia's invasion of Ukraine marks a geopolitical fault line, which the annual Strategic Survey by the London-based International Institute of Strategic Studies says has political and economic consequences that are reshaping the global landscape.

The IISS survey argues the "war is redefining Western security, may change Russia profoundly, and is influencing perceptions and calculations globally". Although the conflict shifted the West's attention from its strategic priority in the Asia Pacific, it underlined that Europe's security remained the West's 'core interest'.

The Survey argues the two theatres — Euro-Atlantic and Indo-Pacific — are mutually dependent as the first arena's "fracture would make any more external security commitments unviable" while its "successful defence would lend credibility to any Indo-Pacific tilt". Whether or not one agrees with this, there is little doubt that if a negotiated end to the war is not achieved and continues to be stalemated it will destabilise the world beyond Europe.

The year ahead will see rising geopolitical tensions and nations struggle with economic challenges.

Nothing illustrates this more starkly than the war's economic fallout. Its disruptive impact has thrown global supply chains and commodity and energy markets into chaos, with volatility contributing to recessionary pressures in major economies and beyond.

The conflict has given rise to soaring food prices and intensified global inflation. Dealing with these challenges will consume most nations' energies in the coming year but will hit poorer, debt-burdened economies especially hard. Food insecurity will be a key challenge in 2023, while the energy crisis will test global financial stability.

Fitch rating company describes the present economic phase as "arguably the most economically disruptive period since World War II" due to the outcome of three shocks — the global trade war, the Covid-19 pandemic, and the Ukraine conflict. In October, the IMF warned the worst is yet to come for the global economy and many countries will see a recession in 2023.

The US-China rivalry, Ukraine war and global power shifts have already led to new formal alignments and reinvigorated previous alliances. Examples include Quad and AUKUS — part of America's Indo-Pacific strategy to counter China's rising power.

China's use of geo-economic strategies by its Belt and Road enterprise, that has enhanced its influence across the world, is expected to accelerate. Newer alignments are also indicated by growing China-Saudi Arabia ties.

In the prevailing geopolitical environment, nations will pursue hedging strategies to protect their interests and buffet them from the headwinds of big power rivalries. Another emerging trend also reflects how countries may respond to a more multipolar world — seeking issue-based 'alignments' with likeminded countries or joining ad hoc coalitions on specific issues.

What kind of world order will emerge from all this remains an unresolved question because the international system is at present so fractured. Ian Bremmer, head of the political risk firm EuroAsia Group, makes a compelling argument that "Tomorrow's geopolitics will be based not on a single global order, but on multiple coexisting orders, with different actors providing leadership to manage different kinds of challenges".

In a speech about where the world is headed in 2023, he said the global security order would be US-led, global economic order will depend on China's trajectory, the global digital order would be driven by giant tech companies while the global climate order is already "multipolar and multi-stakeholder".

2023 will see continuing challenges to democracy. This has international implications. When polarisation and searing divides make democracy dysfunctional, which is happening in many countries, domestic weakness affects their foreign policy conduct and ability to act effectively in the global arena.

Right-wing populist leaders who display intolerance and violate democratic norms at home also tend to pursue disruptive policies abroad that undermine multilateralism.

The coming year will see a world of geopolitical tensions, economic insecurity and multiple other challenges including climate change that will test the resilience of nations as well as the international community's ability to take collective action on shared problems.

Source: Dawn

To stay updated on all economic events of today, please check out our Economic calendar

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Kevin Du

Cryptocurrency

Bitcoin is undeniably one of the most well-known virtual currencies that operates on blockchain technology. By removing the need for banking institutions or other governing bodies to become involved, this technology makes Bitcoin transactions completely decentralized. The ideal use of blockchain technology would enable users to directly transfer payments to other users, without any middlemen. You should check out bitcoin evolution if you're interested in trading bitcoin.

As of right now, Bitcoin is developing ever-increasing popularity all over the world, and many analysts claim that this trend influences the economy in a variety of different ways. In addition to this, Bitcoin is gaining significance all over the globe at an alarming rate. This peer-to-peer system was developed by Satoshi Nakamoto in order to preserve crypt proof. It enables parties to engage in direct transactions with one another without having to rely on a third party.

The distinctions between Bitcoin and traditional currencies are readily obvious, and traditional financial institutions are already beginning to feel the effects of the absolute best BTC casinos growing usage and acceptance. Here are some of the ways that Bitcoin influences the economy.

Economic Disruption

Bitcoin is a game-changing technology that has the potential to completely overhaul the existing financial system. In an ideal world, this invention would bring about a shift in the way that financial institutions and banks carry out their daily business. At the moment, transactions between banks and other middlemen may be made easier with the use of this digital money.

Every transaction is recorded on the blockchain network in the form of digital data blocks, which then function as ledgers. The system will generate a new block after an existing one has been completely filled. A linear history of the blocks and hashtags is used to build the blockchain, and each new block uses this chronology to link to the block that came before it.

In essence, the blockchain keeps a digital record of each and every Bitcoin transaction, which ensures a very high degree of security. In the same vein, this technology does not disclose the identity of the individuals involved in a transaction in the real world. When individuals change digital currency into physical currency, then is the only moment that authorities will be able to follow the monies that are being transferred. Bitcoin is revolutionizing the global financial industry because it enables individuals to conduct their own transactions without the need for middlemen. In addition to this, it puts in jeopardy the economic power that governmental entities and banking organizations have had for many years.

Financial Inclusion

There is no question that the proliferation of cryptocurrencies might eventually contribute to greater financial inclusion. Through the use of cryptocurrencies and the blockchain, individuals will be able to move money to one another in a manner that is both more cost-effective and time-efficient. This has the potential to greatly enhance their quality of life for them. Restaurants, grocery stores, and clothing stores are just some of the types of establishments that have begun accepting cryptocurrency as a form of payment in recent years. The adoption of cryptocurrency as a form of payment has been driven in large part by the growth of the online gambling industry.

In addition, the majority of cryptocurrencies have a fixed supply and operate without a central authority, which makes them resistant to the effects of inflationary pressures. In addition, this indicates that there is no centralized authority that dictates how much money has to be printed each year in order to maintain the value of the current currency units in the face of inflationary pressures, which would cause those units to lose value over time.

Changing Placement of Investments

Throughout the years, traditional assets have been the primary focus of many investors' portfolios. However, recent investors are beginning to diversify their holdings by purchasing Bitcoin for their portfolios. It's possible that this is due to the fact that Bitcoin may have a beneficial effect on investors' investments even when inflation and other variables have a negative impact on the value of traditional assets.

However, the possibility of Bitcoin failing or collapsing, which would trigger a crisis in the global financial system, has been raised by a number of experts. Despite this, there are investors who see Bitcoin as a potentially useful hedge against inflation. Because of this, they include it in their various investment portfolios.

The New or Up-and-Coming Market

Bitcoin has given rise to a new market that does not have a single governing body to oversee it. In a perfect world, individuals would be able to trade, sell, or acquire Bitcoin without the involvement of any bank or other financial organization. A number of individuals believe that in the not-too-distant future, cyberspace will evolve into an institution that will oversee, control, and deal with this volatile market.

This new market could be gaining popularity because the transaction costs are so low that they are almost nonexistent. Bitcoin is seen by some as a preferable alternative to traditional currencies, particularly when it comes to dealing with international transactions. In addition, the new market is still in the infant stage at the moment.

The Wall Street Journal

Additionally, Bitcoin has had an indirect impact on the stock markets. Bitcoin and associated technologies are dealt with by some public corporations that are traded on the stock exchanges. Additionally, Bitcoin has made its debut on stock markets, where it has shown considerable value rises since its debut. Bitcoin is a kind of virtual money that has a variety of effects on the economy, despite the fact that certain nations, such as China, have outlawed it owing to its volatility.

A Few Parting Thoughts

Bitcoin has many characteristics with conventional currencies and traditional assets such as gold. The fact that it is a digital asset, on the other hand, indicates that it is more readily available and less complicated to transfer than traditional money. In addition to this, it is not under the supervision of any government or other centralized body. And it is precise because of this quality that it is favored by a large number of users and investors. As a result of this, a number of economic experts believe that Bitcoin has the potential to significantly benefit the state of the Nigerian economy. There are even others who believe that Bitcoin might stimulate economic development in regions where people do not have access to financial services or money.

The website, which gives back part of the money spent on shopping is now available in Nigeria

Source: Nigerian Tribune

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Alex

Economic

Last month, China ended its zero-Covid policy, bringing a tumultuous end to restrictions after nearly three years. The suddenness of the move surprised nearly everyone. The process could have been much more gradual, with a slower shift from mass forced lockdowns to more flexible policies, such as voluntary self-quarantine and social distancing. Instead, the government has effectively thrown caution to the wind.

As a result, China is now having one of the worst outbreaks seen anywhere since the start of the pandemic. Hundreds of millions of people have been infected in the space of just a few weeks, and many experts now expect the death toll to exceed one million. Chinese social media are being flooded with harrowing accounts of personal loss and images of overwhelmed hospitals. While the exact infection and mortality figures are unclear, the big picture is undeniable: the Chinese people are fighting to survive.

The situation is reminiscent of what many other countries experienced in the first weeks of the pandemic. But, unlike in most developed economies, key features of China's social and economic structure make it especially difficult for ordinary households to grapple with the virus.

Reducing infection rates in high-risk populations, for example, requires self-distancing, which is why the elderly in advanced economies have voluntarily reduced interactions with their children and grandchildren. But China's elderly cannot self-isolate so easily, because many are their grandchildren's primary caregivers.

In 2013, the Shanghai Municipal Population and Family Planning Commission reported that 90% of the city's young children were being cared for by at least one grandparent. The rates are lower in other cities, but still much higher than in the US. More than 50% of all Chinese grandparents provide care for their grandchildren, whereas only 3.8% of American grandparents do.

This difference is partly a result of tradition. Many Chinese elderly live with their adult children, and retirement homes in the country are still rare. But economic conditions also play an important role. In urban areas, parents increasingly need grandparents to help them with child rearing, owing to the taxing 9-9-6 work schedule (9am to 9pm, six days per week) and a brutally competitive education system.

Moreover, China has experienced a tripling of grandparent-grandchild (skipped-generation) households since 1990. Because the hundreds of millions of Chinese who migrate to cities for work are prohibited from bringing their families with them, some 60 million children remain in rural areas with grandparents and other relatives.

Many urban parents, too, have left their children behind. In cities, children often live with grandparents who own property in city centres, where one finds the best schools and other amenities. Today's urban elderly were grandfathered into these sought-after locations, having been assigned housing by their work units before the reforms of the mid-1990s transferred ownership from the state to the occupants. As urban housing prices have skyrocketed, the beneficiaries' adult children have been forced out to more affordable suburbs. In Shanghai, where real estate prices are the third highest in the world, grandparents are the sole caregivers of 45% of the city's young children.

When Chinese do become infected or fall dangerously ill, they seek emergency care as a last resort. But their access to effective care is much more limited than in higher-income countries. As of 2021, China's per capita GDP was just US$12,556 (RM55,171) — less than one-fifth of that of the US (US$70,248). This large income gap is reflected in the provision of public healthcare, including in ways that are not always apparent.

For example, although China and the US have a comparable number of hospital beds and physicians per person, such indicators mask a lower quality of care. Most Chinese hospital rooms are shared by many patients, which poses obvious problems in the case of a contagious outbreak. Worse, in 2022, China had only four intensive-care-unit beds per 100,000 people on average, compared with more than 30 per 100,000 in the US.

China's limited public resources also are reflected in the high price of treatments. In the US, the government purchased 20 million courses of Paxlovid at US$530 each and provided them to Americans free of charge. In China, patients currently must buy Paxlovid at the market price of US$426.80 per course, which amounts to 8.3% of the average annual disposable income (US$5,092). For comparison, this would be like asking the average American to pay US$4,034.

In the months ahead, these issues are likely to become more problematic as migrant workers spread the virus to the rural population when they return home for the Lunar New Year (Jan 22). Home to some 500 million people, China's rural areas have even more multigenerational households, and they are generally poorer — with only half the number of beds per hospital, and very few ICU units. As such, many fear that rural China is heading for a "dark Covid winter".

The Covid-19 pandemic began in China during the 2020 Lunar New Year holidays. Now, for the first time in three years, the Chinese people can see a small light at the end of the tunnel. But the last mile will be gruelling. Households must do their best to protect themselves with very limited access to some of the most important tools for fighting the disease. While there is little doubt that returning to normalcy is the right direction for China, the days and weeks ahead are going to be exceedingly difficult and full of sorrows.