2022 can be described as a year mired with exacerbations of supply chains, rapid inflation, and shrinking economic growth worldwide. In China, the notorious Zero-Covid policy severely restricted the movement of Chinese citizens, for millions, this led to forceful quarantine in fever camps or being confined in apartments for weeks on end.
However, the scrapping of the Zero-Covid policy and the reopening of China to global markets marks the end of the global pandemic to many, and as a result, the economic shockwaves around the world, whether positive or negative will be more than palpable.
In terms of the positives of China’s reopening, many of its neighboring countries and regions such as Thailand, Hong Kong, and Singapore will fervently welcome the scrapping of the Zero-Covid policy as these territories heavily rely on Chinese tourism as a source of Economic growth. In popular tourist destinations such as Phuket, bookings on sites such as booking.com experience a 250% increase on December 27 compared to the previous day (“How China’s Reopening Will Disrupt the World Economy”). Furthermore, Goldman Sachs predicts that Thailand may experience a three-percentage-point boost to growth once China has fully reopened (“What the Great Reopening Means for China—and the World”). The much-welcomed influx of Chinese tourists in Thailand would also lead to the government being able to slow down the tightening of monetary policy with the policy rate at 1.50 percent as of the 25th of January 2023 (Carvalho) which would cause an increase in consumer spending and an ability to stimulate economic growth.
Another huge winner in the global market as a result of the reopening of the Chinese market would be Hong Kong. Following a 3.5% contraction in economic growth in 2022, Hong Kong’s financial secretary forecasts that the real GDP growth would significantly rebound with growth increasing at a rate of 3.5-5.5% (He). Much of this forecasted growth can be attributed to the large increase in tourists to Hong Kong, reducing the ubiquitous financial burden on the government during 2022.
The Chinese reopening would not only benefit neighboring countries in terms of tourism but the increase in demand for crucial commodities such as Indonesian and Philippine nickel, which China makes up for over 50% of the world’s demand for would provide a significant increase in revenue throughout the year (“How China’s Reopening Will Disrupt the World Economy”). Furthermore, commodities such as iron ore would also see increased demand from China, benefitting key exporters such as Australia, in which Chinese demand for Iron ore had amounted to 125 billion Australian dollars in the 2021 fiscal year (Granwal).
In addition, the resulting boost for commodity exporters and countries heavily reliant on tourism would play a significant part in the IMF’s prediction of a rise of 3.1% in terms of global growth in 2024 (Gournichas). Therefore, the significant advantages of the Chinese reopening can be seen in a wide range of advantages.
However, the advantages of China’s reopening will also bring inevitable negative side effects on the world’s economy.
For instance, central banks worldwide are still raising interest rates speedily to try and tame unprecedented levels of inflation in contemporary times. However, other countries that do not benefit from Chinese commodity exports would see a spike in prices for these commodities such as crude oil, which is expected to rise to $95 a barrel by the end of the year, up from the previous estimates of $85 (Cooban). Despite the spike in price for crude oil not reaching the same heights as in the initial stages of last year when Russia began its invasion of Ukraine, this increase in price pressure for crude oil would create a prevailing barrier in the battle to tame inflation. In particular, countries in the west, which are key importers of commodities such as oil would be forced to continue the trend of tightening monetary policy.
Another example would be the increase in competition for liquefied natural gas means that the costs to fill up tanks would increase in many areas such as Europe, and with Russia’s decreasing dependence on delivering natural gas to Europe amid heightened tensions between the Kremlin and the West, this would lead to shortages around Europe which would continue to exacerbate the cost of living for European citizens in the short term as the drive to switch to cleaner sources of energy will still take many years to become the dominant source of energy in Europe.
Furthermore, China’s sudden implementation and abandonment of the Zero-Covid policy has led to many foreign investors and manufacturing companies reconsidering setting up in China as they consider China more of a riskier bet. For example, the number of Japanese companies operating in China reduced from 13,600 in 2020 to 12,700 in 2022 (“Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing”) and the increasing political pressures combined with the sudden implementation of long-lasting policies have made foreign firms reconsider their involvement in China with the investment abroad decreasing over time. Another key example is the fact that ASEAN nations now account for over a quarter of global exports of integrated circuits, surpassing China’s 18% with countries such as Vietnam gaining increasing influence (“Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing”), this highlights the increasing influence of manufacturing firms and good being transferred to Southeast Asia who is continually gaining increasing prominence in the world market. The shifting away from the Chinese manufacturing hub can also be attributed to factors such as the rapid increase in manufacturing costs as the manufacturing wages have doubled from 2013-2022 to a current average of $8.27 per hour (“Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing”). As a result, foreign firms are seeking lower manufacturing costs in various Southeast Asian countries. These signs are key indicators of the implications of the Zero-Covid policy, political tensions, and production costs which may provide challenges to the Chinese economy in the coming future.
Ultimately, the reopening of China brings about many advantages and short-term pressures on the global market (Particularly in the West) but the exact extent is yet to be determined. Undoubtedly, the reopening of China brings about a significant shift towards the end of the pandemic era and marks a vital sign toward global economic recovery.
References:
Carvalho, Luisa. “Thailand Unexpectedly Cuts Interest Rate to 1.50%.” Tradingeconomics.com, TRADING ECONOMICS, 7 Aug. 2019, tradingeconomics.com/thailand/interest-rate. Accessed 22 Feb. 2023.
Cooban, Anna. “China’s Reopening Isn’t All Good News. Inflation Could Get a Second Wind | CNN Business.” CNN, 27 Jan. 2023, edition.cnn.com/2023/01/27/business/china-commodities-energy-inflation/index.html. Accessed 22 Feb. 2023.
“Global Firms Are Eyeing Asian Alternatives to Chinese Manufacturing.” The Economist, 20 Feb. 2023, www.economist.com/business/2023/02/20/global-firms-are-eyeing-asian-alternatives-to-chinese-manufacturing. Accessed 22 Feb. 2023.
Gournichas, Pierre-Oliver. “Inflation Peaking amid Low Growth.” IMF, Jan. 2023, www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023#:~:text=The%20IMF%20projects%20global%20growth. Accessed 22 Feb. 2023.
Granwal, L. “Australia: Leading Iron Ore Export Destinations 2021.” Statista, 9 Feb. 2023, www.statista.com/statistics/1149300/australia-leading-iron-ore-export-destinations/#:~:text=In%20financial%20year%202021%2C%20the.
He, Laura. “Hong Kong’s Financial Secretary Expects City’s Economy to Grow between 3.5% and 5.5% | CNN Business.” CNN, 22 Feb. 2023, edition.cnn.com/2023/02/22/economy/hong-kong-gdp-growth-covid-recovery-intl-hnk?utm_source=business_ribbon#:~:text=Hong%20Kong. Accessed 22 Feb. 2023.
“How China’s Reopening Will Disrupt the World Economy.” The Economist, 5 Jan. 2023, www.economist.com/leaders/2023/01/05/how-chinas-reopening-will-disrupt-the-world-economy. Accessed 22 Feb. 2023.
“What the Great Reopening Means for China—and the World.” The Economist, 2 Jan. 2023, www.economist.com/finance-and-economics/2023/01/02/what-the-great-reopening-means-for-china-and-the-world. Accessed 22 Feb. 2023.
— Writer Ansh Narula can be reached at anshnarula700@gmail.com. Follow him on Instagram @anxshh_
