China’s carrot, sticky for global economy? – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/chinas-carrot-sticky-for-global-economy/articleshow/96093161.cms

Synopsis

China’s revival comes at a cost to other emerging economies that have gained from a dispersal of capital flows. Foreign investment has begun reviving to economies tied to Chinese supply chains and the size of the pie is shrinking with heightened borrowing costs. China’s recovery and the spillover effects on North Asia will come at some cost to its southern neighbours like India.

China‘s easing of its zero-Covid policy could lend a hand to a sputtering global economy. But the process is uncertain and long. China’s aged population has not been vaccinated at levels that would allow its healthcare system to cope with a fresh wave of cases as quarantine is lifted. This will govern the pace of economic revival after the country’s international trade last month contracted the most since the pandemic. Exports have kept the Chinese economy going as domestic demand was roiled both by Covid restrictions and a collapsing housing price market. Reviving manufacturing exports will need greater effort amid weakening global demand and improved capacity utilisation among smaller Asian rivals.

Yet, as the Chinese economy lumbers back, the recent weakening in commodity prices, particularly energy prices, is likely to reverse. This adds another dimension to central bank efforts worldwide to pull down inflation through monetary tightening. Central bankers are signalling a slowing down in the pace of interest rate hikes. But the scenario could change if they sense a resurgence in food and fuel inflation. That eventuality could steer the world economy further towards recession. Chinese policymakers are trying to weaken the economy’s dependence on external demand. It will involve shoring up the property market.

China’s revival comes at a cost to other emerging economies that have gained from a dispersal of capital flows. Foreign investment has begun reviving to economies tied to Chinese supply chains and the size of the pie is shrinking with heightened borrowing costs. US and European attempts to make supply chains resilient are work-in-progress. China’s recovery and the spillover effects on North Asia will come at some cost to its southern neighbours like India.