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Growing protests in the world’s largest producing country are adding new uncertainty to the war in Ukraine, an energy crisis and inflation.
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By Patricia Cohen
Report from London
Growing protests opposing severe pandemic restrictions in China, the world’s second-largest economy, are injecting a new detail of uncertainty and instability into the economy, as nations are already struggling to deal with the fallout from a war in Ukraine, a crisis of power and painful inflation.
For years, China has served as a global factory and a major engine of global growth, and the turmoil there can only spread elsewhere. Analysts warn that more problems can also further slow down the production and distribution of built-in circuits, device parts, family appliances, etc. It would possibly also inspire corporations in the U. S. The U. S. and Europe are moving away from China and diversifying their supply chains faster.
Millions of Chinese citizens have been irritated under strict lockdown for months as the Communist Party seeks to triumph over the spread of the Covid-19 virus, 3 years after its emergence. Other people and comments on social media asked if the lockdown had prevented their escape.
It’s unclear whether the protests erupting across the country will be temporarily quelled or turn into broader resistance to the iron rule of its most sensible leader, Xi Jinping, but the biggest economic damage comes from the blockade.
“The biggest economic blow comes from zero-covid policies,” said Carl Weinberg, lead economist at High Frequency Economics, a research firm. “I don’t see the protests themselves turning that into that. “
“The world will look to China for what it does more productively and cheaper,” he added.
Asked how Biden’s management assessed the economic fallout from the most recent unrest, John Kirby, the National Security Council’s strategic communications coordinator, said Monday, “We don’t see any specific effects on the chain of origin lately. “
However, concerns about the economic impact on the spread of unrest in China appear to be partly to blame for the drop in global markets. The S-index
The duration of China’s economy and resources make it a key player in global trade. “It’s incredibly fundamental to the global economy,” said Kerry Brown, a research associate in the Asia-Pacific program at Chatham House, a foreign affairs institute in London. This uncertainty “will have a major impact on the rest of the world. “
China now overtakes all countries as the largest oil importer. It manufactured only about 30% of the world’s goods in 2021. “There’s just no choice to what China offers in terms of scale and capabilities,” Brown said.
Pandemic-related delays and shortages have led many industries to rethink the resilience of their supply chains and more resources from raw fabrics and workers. Apple, which recently announced that it expects sales to decline due to closures at its Chinese factories, is one of many tech corporations that have moved a small portion of their production to other countries, such as Vietnam or India.
The inclination of some corporations to move away from China predates the pandemic, and dates back to the determination of former President Donald J. Trump of starting an industrial war with China, a move that has led to a spiral of punitive tariffs.
However, even though business and political leaders should be less dependent on China, he said. According to Dr. Brown, “the stark truth is that it’s not going to happen anytime soon, if anything. “
“We have no illusions that we can temporarily disengage,” he added.
China’s length is an attraction for American, European and other corporations, not only to manufacture products temporarily and cheaply, but also to sell them in large quantities. There is simply no other market as important.
Tesla, John Deere and Volkswagen are among the corporations that have bet on China for long-term growth, but they will most likely suffer some setbacks, at least in the short term. Volkswagen announced last week that its sales in China had stagnated this year. year, 14% below expectations.
The protests highlight the political dangers related to making an investment in China, but analysts say the recent wave shows nothing investors don’t know.
“Many investors will look at the long term and position their portfolios now to reopen,” said Nigel Green, lead executive at deVere Group, a monetary advisory firm. They “will seek to take advantage of the country’s transition from an export economy to a customer economy,” he added.
Luxury brands continue to bet on their long-term expansion in China.
As interconnected as the global economy is, one of the tactics China’s slowdown can apply to other nations is to keep energy costs down. Over the past 20 years, the expansion of the Chinese economy has been one of the main drivers of global demand for oil and hydrocarbons in general.
Energy experts say the emerging number of covid infections and growing doubts that China will ease restrictions in major cities are one of the main reasons oil prices have fallen over the past three weeks to degrees last seen before Russia’s invasion of Ukraine beyond February. .
“Chinese demand is the maximum driving force of global oil demand,” said David Goldwyn, a senior diplomat in the Obama administration. “China is the seeker of change. “
As China’s economy has been weakened by the Covid lockdown, fewer tankers have been sailing through Chinese ports in recent weeks, forcing major oil manufacturers in the Middle East and Russia to cut prices. Now, the spread of protests is creating additional uncertainty about long-term demand. .
China’s oil request is expected to average 15. 1 million barrels a day this quarter, up from 15. 8 million a year ago, for Kpler, an analytics firm.
When it comes to supply chain disruptions, Neil Shearing, lead economist at Capital Economics, a think tank, said he believes China is primarily to blame. “Everything was designed around the scarcity of sources,” he said, however, in China, commercial production has increased the pandemic. The challenge was for global demand to develop further.
For now, the biggest economic impact will be felt in China, rather than the global economy. Sectors that rely on face-to-face contact (retail, hospitality, entertainment) will be hit the hardest. In the next 3 Days, other people’s movement measures have been significantly reduced, Mr. Shearing.
He added that more people are being quarantined now than at the height of the Omicron outbreak last winter. The wave of infections and the government’s reaction to them, not the protests, are what are having “the biggest impact on the Chinese. “economy,” he said.
Clifford Krauss has contributed reporting for Houston and Michael D. Shear from Washington.
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