Pandemic Restriction And Low Global Demand Are Hurting China's Economy

In November, Chinese exports decreased at their fastest rate in more than two years. It is the largest drop in outbound shipments from China since February 2020, when a statewide lockdown brought about a halt to economic activity led to a 8.7% drop year over year.

  • Sales of goods to the European Union decreased 11% in November compared to a 9% decline in October, while exports to the United States plummeted 25% in comparison to a year earlier for the fourth consecutive month
  • China's trade surplus shrank from $85 billion in October to just under $70 billion in November, according to official data
  • Shipments of almost all items, including toys, electronics, and furniture, fell dramatically, in another proof that Western consumers are reducing their spending on goods as global inflation stays high

Easing Covid Controls Comes With Its Own Risks

In recent weeks, protests spread throughout China, bringing attention to the growing economic and social costs of leader Xi Jinping's zero-tolerance policy toward Covid-19.

  • According to economists, the speed at which the government can implement a change from the strict Covid-19 policy and whether it can do so without causing a wave of infections will determine how quickly China's economy can recover
  • China's vulnerable healthcare system and low vaccination rates leave it ill-prepared for a huge wave of diseases, which might cause labor shortages and make customers even more wary
  • The promise of economic growth next year is not certain

“Even with potentially faster easing of Covid restrictions, we expect economic activity to remain weak in the next two to three months,” said Tao Wang, chief China economist of UBS Investment Bank Research.

The State Of The Global Economy Will Not Provide China With A Lifeline

The trade barometer, a composite leading indicator of trade maintained by the WTO, dropped from 100 in August to 96.2 in November, reflecting a decline in the demand for traded goods. Since September 2020, the most recent reading has been declining.

  • A composite leading indicator for global trade, the Goods Trade Barometer provides real-time data on the direction of merchandise trade in relation to recent patterns
  • Values above 100 denote above-trend growth, while values below 100 denote below-trend expansion

“The global economy continues to face multiple challenges: continuing impacts of the pandemic, the repercussions of the war in Ukraine, high inflation—particularly for food and energy prices—and several climate change-related events that disrupted economic activity,” WTO Director-General Ngozi Okonjo-Iweala said in remarks to member countries last week

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

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