Trading with China in a post-Covid world

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The next Asia Scotland Institute event will be on Thursday 23rd June to discuss “Trading with China in a post-Covid world”.

The webinar has several highly experienced executives who have spent decades working on China business. With us will be Jörg Wuttke, President of the European Union Chamber of Commerce in China, and Yang Du an Associate at Moller Institute, Churchill College, University of Cambridge.

The discussion will drill down into China’s current direction in terms of ease of doing business both domestically and internationally, the “Dynamic Zero-Covid” policy, and the outlook for the energy transition to carbon neutrality.

The “Dynamic Zero-Covid” policy in China is the issue creating most uncertainty across the world because of the impact on other economies. Most of the world has moved on from the huge loss of life and economic disruption caused by the COVID-19 pandemic, but the relentless fixation on a policy of “Dynamic Zero Covid” is impacting supply chains that are reliant upon China.

There are other pressures on economic growth that are hindering a post-Covid recovery. The OECD reported in June in The Price of War that Russia’s war in Ukraine is slowing economic recovery, is causing rising inflation, and has triggered a cost of living crisis that is affecting millions of people globally (not only in the UK). The OECD also notes that indicators of business confidence and output have fallen sharply in China, reflecting the lockdowns in many cities and ports, as well as continuing vulnerabilities of highly leveraged real estate companies that have hit equity markets.

In addition, although the world economy was on track for a strong recovery from Covid-19, the war in Ukraine as well as supply chain disruptions in China caused by the “Dynamic Zero Covid” approach are hindering recovery. In May, global shipping and logistics giant Maersk reported in China landside challenges affecting supply chains that despite the lockdown in Shanghai for over 7 weeks the city ports continued to operate, but that truck drivers (who transport three-quarters of freight in China) spent 70% less time on the roads in March 2022 compared to April 2021. Ships may be able to get to China’s ports, but manufactured goods have not been able to get to the ships.

Another economic indicator to keep an eye on are cost increases in China. The Jamestown Foundation reports that from April 2021 to April 2022, fresh vegetable prices rose by 24%, fresh fruit by 14.1%, eggs by 13.3%, and potatoes by 11.8%. In addition, the prices of petrol, diesel and liquefied petroleum increased by 29.0%, 31.7% and 26.9% respectively. This is a clear illustration that rampant inflation is not confined to the UK and is a global issue caused by a the pandemic, war, and constrained supply chains.

The official story from inside China is more positive. The Ministry of Commerce was reported by the China Daily in June as stating that there should be stable growth in foreign trade this year and that “there are multiple enabling factors to stabilize foreign trade and improve trade quality”. The good economic news story, repeated across state controlled media in China, is that exports have increased by over 15% year on year in May, which is attributed to the control of Covid-19 cases. Zhao Ping, vice-president of the Academy of China Council for the Promotion of International Trade, said that “Thanks to the huge size, firm footing and strong resilience, China’s foreign trade will keep healthy growth momentum despite challenges from the slowdown in world economic recovery and rising commodity prices.”

Variable economic growth in different countries after recovery from Covid-19 has shown that some countries have come out of the pandemic more quickly than others. The IMF reported in April in War Sets Back the Global Recovery projected economic growth for the UK of 7.4% in 2021, 3.7% in 2022, but only 1.2% for 2023. The corresponding projections for the Euro area are 5.3%, 2.8%, and 2.3%, indicating an initially faster recovery by the UK. But economic growth projections for China are 8.1% in 2021, 4.4% in 2022, and 5.1% in 2023. Despite “Dynamic Zero Covid”, China seems to have such a huge scale of production and range of industries that its economy is more resilient and can recover from the prolonged lockdowns.

As Jörg Wuttke pointed our recently in an interview with Deutsche Welle, The China shock: Germany turns away from its biggest trading partner, China depends on the European market more than Europe does on China. Europe exports goods to China valued at 600 million Euros every day, but China exports 1.3 billion Euros worth of goods daily to Europe.

Once again the sheer scale of manufacturing, of exports, and of its total economy indicate that despite China having as many if not more indicators of economic slowdown it is capable of pulling through and avoiding recession. Join us for the discussion on 23 June to hear more views on the outlook for trade with China in the post-Covid world.