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Breakingviews – Corona Capital: Bailouts, Vaccines, Deficits

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HONG KONG/LONDON (Reuters Breakingviews) – Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– China Eastern Airlines bailout

– Johnson & Johnson vaccine stumble

– UK fiscal woes

GIFT BALLOON. China Eastern Airlines, one of the country’s Big Three state carriers, is getting a $4.6 billion injection of capital after losing $1.3 billion in the first half. Rival China Southern received similar help last year. These investments are not supposed to be considered bailouts, but rather part of Beijing’s fuzzy “equity diversification” push. This case involves no private money, only funds from different government-controlled investors, including a life insurer and a tourism company.

However thin the reform excuse, cash is always welcome. It lands at a good time for $10.8 billion China Eastern, whose Hong Kong shares have tumbled 23% this year as passenger traffic nosedived. Domestic air travel showed some signs of revival during the October national holiday week, while the recent rally in the yuan should help with dollar-denominated fuel costs. China Eastern isn’t yet clear for takeoff, but some financial clouds have cleared. (By Pete Sweeney)

VACCINE SETBACK. Johnson & Johnson’s vaccine “pause” is another stumble on the increasingly treacherous path to a Covid-19 remedy. On Monday night, the $400 billion drug giant stopped all trials of its coronavirus inoculation after one of its participants had an “adverse event”. Last month, British drug giant AstraZeneca slammed the brakes on its vaccine after a participant fell ill.

While it’s still unclear whether J&J’s vaccine caused the condition, it may still suffer a delay. After all, U.S. trials for AstraZeneca’s remedy are still on hold. The news may also do little to reassure the two-thirds of Americans that say they are either not very likely or not at all likely to take a first generation inoculation. J&J might also struggle to recruit the 60,000 participants it needs for its final trial. With more and more vaccines stumbling, hope for a Covid-19 silver bullet is fading. (By Aimee Donnellan)

SPEND AND TAX. UK Chancellor Rishi Sunak faces a tricky few years. The latest analysis from the Institute for Fiscal Studies, a think tank, shows that the country’s borrowing is set to balloon to 350 billion pounds this year as the coronavirus ravages the economy and pushes up government spending. Equivalent to 17% of GDP, that’s higher than any year except during the two world wars.

The legacy of the pandemic means Prime Minister Boris Johnson’s manifesto pledge to cut borrowing as a percentage of national income is in tatters. The question is how quickly Sunak should try to bring debt, likely to exceed 112% of GDP by 2025, under control. Merely to keep borrowing at around 100% of GDP would require a harsh fiscal consolidation equivalent to 2.1% of GDP, the IFS reckons. Yet some three-quarters of the increase in national debt is due to low growth, not Sunak’s crisis measures. That suggests targeted borrowing to boost growth should not be off the cards. (By Neil Unmack)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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