The reopening of China is anticipated to give a much-needed stimulus to the world economy, making up for the sluggishness of Europe and an upcoming recession in the United States. However, the revival of the world's second largest economy – and its biggest consumer of commodities – threatens to push up global prices for fuel, industrial metals, and food this year, creating an environment of rising inflation that could temper hopes by businesses and investors that the world’s central banks may soon be done raising interest rates.
China’s swift reopening after nearly three years of strict coronavirus controls has been relatively subdued, with the Shanghai Shenzhen CSI 300 rising less than 0.5% and the Shanghai Composite eking out less than a 0.2% gain. But stocks in MSCI’s China index have risen 14% since the start of trading this year, and Nasdaq’s Golden Dragon China index — which tracks Chinese companies listed in the United States — have climbed 19% over the same period.
There are already indications that the economy is recovering. On Thursday, Bernard Arnault, CEO of the luxury goods corporation LVMH, reported to analysts that the resurgence of shoppers in Macao, now that Chinese tourists are admitted again, has been “spectacular.”. Futures prices for wheat, a dietary staple, are still 58% higher than they were in mid-2020, when prices started to rise steadily, indicating rising demand for agricultural goods.
Rising oil prices could help push up global inflation — or at least keep it elevated — just when consumer price rises have shown signs of moderating. Europe will find it especially challenging to replenish its gas supplies in anticipation of winter, with only a minimal amount of the Russian imports they used to count on, due to China's voracious energy consumption. Europe’s benchmark natural gas prices have tumbled 84% since hitting their all-time high of €343 ($373) per megawatt hours in August, but this trend could start to reverse if China competes with Europe for a fixed number of LNG cargoes from the United States and Qatar, the bloc’s biggest suppliers.
Bain predicts that the demand for steel will not rise until the second half of the year due to the ongoing weakness of China's property sector, which is a major consumer of steel.
0. “China's reopening isn't all good news. Inflation could get a second wind” erienewsnow.com, 27 Jan. 2023, https://www.erienewsnow.com/story/48248309/chinas-reopening-isnt-all-good-news-inflation-could-get-a-second-wind
1. “What China's reopening means for markets” Financial Times, 30 Jan. 2023, https://www.ft.com/content/89e8e569-7f5f-40a4-bf2a-4fd651663895