Moneycontrol Pro Panorama | China fuels risk of global gloom

The resurgence of COVID cases in China and fears of growing infections across countries are accentuating fears of a return of lockdowns, uncertainties in global trade, supply-chain pressures, inflation and growth.

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China’s dismantling of its zero-COVID policy, nearly three years after the outbreak of the virus, has put all nations on alert. New infections appear to be spiralling out of control, with hundreds of millions infected,  according to reports. As cases and deaths mount, health services are under pressure in the country.  The  evolving situation is fuelling risks of global gloom clouding the outlook in the New Year of 2023.

Even before China announced its intent to open up its economy, economists’ consensus was pointing to a decline in global trade in 2023. Reasons cited were multiple shocks such as tighter financial conditions, elevated cost of living and risks to employment. The International Monetary Fund (IMF) had projected in its latest World Economic Outlook report that global growth would slow from 6 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. The World Trade Organisation has also indicated a moderation in global trade.

The resurgence of COVID cases in China and fears of growing infections across countries are accentuating fears of a return of lockdowns, uncertainties in global trade, supply-chain pressures, inflation and growth. The land of the Dragon is back to haunt us! Already, it is hurting global confidence in the country’s industrial supply chains, said Li Daokui, Mansfield Freeman professor of economics at China’s Tsinghua University in a report on cnbc.com. But then there are others who say that the country’s growth rate could bounce back soon too.

Cut to India, the risks to growth from China’s stated policy are manifold! “India has all the more reason to worry as China is New Delhi’s top source of imports and the third-biggest destination for exports,” points out Abhijit Dutta, in this article Exports need navigational aid to sail through choppy waters.

After India’s merchandise exports hit record highs in FY2022, the loss of momentum in the last few months is painting a dull picture for FY2023 and the first half of FY2024. Further, any lockdowns or surge in infections can put even the imports from China at risk. India imports a host of items such as electronic, organic and inorganic chemicals, medicinal and pharmaceutical products, fertilisers, crude and manufactured and dyeing/tanning/colouring materials from China. One must note that a host of food items are in the list of goods traded between the two countries.

The pertinent question is whether reopening of China will undermine India’s weightage as an investment destination? While Prime Minister Narendra Modi has been striving to woo multinational companies into India, there are other issues such as clearances for investment, infrastructure and speed of policy transmission which need to be ironed out.

There is no clear answer to this question yet, as economists, policy makers, industries and investors grapple with global uncertainties fuelled by the China factor, yet again. However, silently some industries are taking measures to fortify supply chains going by the experience of recent disruptions. This FT article (free to read for MC Pro subscribers) on measures that some carmakers are taking to cut ties with China, is an interesting read. India is one of the countries whose auto-component makers could benefit as a result.

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Vatsala KamatMoneycontrol Pro​