Health policies in China threaten to worsen the inflation problem in the rest of the world. Unless the opposite effect occurs.
Inflation remains near its 40-year high in the United States, with the cost of living rising by 8.3% in one year in April, we learned on Wednesday. New figures for Canada are expected next week. And the metric is not expected to have budged much here either from the 6.7% 12-month rise in the consumer price index seen in March, a peak in over 30 years.
One would have hoped that this global phenomenon, supposed, according to the central banks, to be “transient”, would begin to settle with the return to a more normal economy and because the situation to which we are comparing ourselves 12 months ago, corresponds less and less to a period when the economy was still deeply marked by the stigma of the COVID-19 pandemic. But no. New aggravating economic factors are constantly being added, starting with the invasion of Ukraine by Russia, which has disrupted the energy and food markets in particular.
And then there is this resurgence of the pandemic in China which convinced the authorities there, almost two months ago, to put in place extremely severe control and containment measures in the hope of returning to their target of zero COVID. We have mainly talked about the case of Beijing and Shanghai, but the total or partial containment measures have affected 30 of the 31 provinces and major urban centers of the country, noted last week the wall street journal.
Accounting for 15% of global goods exports and almost 30% of all manufacturing output, China is at the heart of these famous supply chains whose difficulties in meeting global demand were already one of the major causes of the rise in inflation in recent months. Struggling with workers confined to their homes and unable to find drivers and delivery trucks, 85% of companies located in Shanghai reported having difficulty accessing raw materials and components needed for production, as well as deliver their finished products to China or the rest of the world, reported last week The echoes.
Exports blackout
The sharp drop from 14.7% to just 3.9% in Chinese export volume growth last month reported on Monday seemed a direct consequence of this new logistical puzzle. It comes as deliveries from China to the North American west coast were already experiencing waiting times twice as long and at a cost six times higher than before the pandemic, the rating agency Fitch recalled on Tuesday.
But the rest of the world hasn’t seen anything yet, experts warn. The mass of goods that Chinese factories are failing to produce today are unlikely to hit store shelves in North America or Europe until the start of the school year, and even the next holiday season. It is especially at this time that their absence is likely to be felt on the price level. Worried, US President Joe Biden is even considering lifting the tariffs imposed by his predecessor, Donald Trump, on Chinese products in order to reduce their prices for consumers in the United States, Agence France-Presse reported. tuesday.
But the main reason for the slowdown in China’s exports in March was not its difficulties in meeting global demand, experts noted this week in the FinancialTimes. It is above all that foreign demand for Chinese goods has been weaker because consumers, with the easing of sanitary measures, are no longer forced to buy computers, bicycles or electronic devices; they go back to going to restaurants, to see shows or to travel. It is also because the sharp rise in prices has undermined their ability to spend in addition to encouraging their central banks to engage in an accelerated increase in interest rates.
A downward effect
In fact, China’s health policy may well not only put upward pressure on global prices, but also do the opposite. It is that Chinese exports do not only occupy an important place in the economy of other countries. They are also one of the main economic engines on which China relies since the questioning of the foundations of its real estate sector, in the same way as its domestic consumption, also hard hit by the strict containment rules.
It is not surprising, in this context, that fewer and fewer observers believe that the Chinese regime will manage to achieve its economic growth target of 5.5% this year, and that some even think that it could fall as low as it had in 2020, at just 2.3%, the FinancialTimes. However, China accounted for just over 18% of the world economy last year, according to the International Monetary Fund, behind the United States (24%), but just ahead of all the countries of the European Union (17.7%). If its economy begins to slow down, demand and world prices could well be weighed down.
We may well have just had a glimpse of it. Late last week, Chinese President Xi Jinping reaffirmed his intention to maintain his draconian health measures and to “resolutely combat any words and actions that distort, question or question” these measures, reported. The world. “To persevere is to win,” he asserted, taking up a famous phrase from Mao Zedong. Far from being reassured, the markets reacted to the news on Monday, causing stock markets to fall, as well as oil prices.