CHINA’S EXPORTS PLUNGE IN NOVEMBER
In November, the volume of goods China shipped abroad fell 8.7 percent from a year earlier, the steepest annual drop since February 2020 when international COVID lockdowns were slamming the world’s economy shut, The Wall Street Journal reported.
Economists the WSJ surveyed had foreseen only a 2-percent drop.
The higher figure hints that the world’s economy, which had risen on the return of international trade following the COVID War, may be slowing faster than analysts had expected.
China’s exports to the U.S. plunged 25 percent in November, the fourth consecutive month of declines. Shipments to Europe were down 11 percent.
Higher interest rates around the world are hampering demand for China’s products, the WSJ noted.
China imported 11 percent less in November, year on year, accelerating from a 4-percent shrinkage in October and marking the largest drop in 30 months.
The loss of exports trimmed China’s trade surplus to $70 billion last month after it booked $85 billion in October.
China’s export economy is unlikely to recover soon.
The world’s economy will grow by 2.7 percent in 2023, the International Monetary Fund has predicted, less than half of the 6-percent spurt it saw in 2021, as inflation and higher interest rates persist.
The dive in exports bodes badly for China’s economy, already suffering from a year of recurring, widespread anti-COVID lockdowns, a lingering financial crisis in the property development industry, and a regulatory crackdown on tech industries that has hobbled growth and dented stock values.
Analysts now expect China’s economic growth next year to be its least in decades, according to the WSJ.
In response to its limping economy, China has begun easing or repealing many of its extreme anti-COVID measures. Most testing and proof of vaccinations to enter public gathering places is being abolished and people diagnosed with the virus but showing no symptoms will be allowed to isolate at home.
However, China is unprepared to deal with a surge in COVID cases that could result as the strictures are removed, many observers warn, as we detail in “Is China Ready to Cope With a Possible COVID Surge as Lockdowns Ease?” in this issue.
TREND FORECAST: China’s dual circulation economic policy of continuing its thriving export economy while creating a flourishing consumer economy at home has been trashed by the combination of its own drastic, long-term anti-COVID lockdowns and a world economy running out of steam.
The degree of damage is reflected in recent street protests against the lockdowns in major Chinese cities, something not seen since the 1989 Tiananmen Square freedom demonstrations.
China’s ascendance to become the world’s leading economy has been delayed, but not indefinitely.
Should economic conditions further deteriorate and should protests escalate, as we often remind readers, “When all else fails, they take you to war.” Therefore, president Xi Jinping may try to mend his tattered leadership and distract from his economic failures by becoming more belligerent about annexing Taiwan.
INFLATION SLOWS IN CHINA AS LOCKDOWNS CRIPPLE ECONOMY
China’s consumer prices rose 1.6 percent in November, year on year, at their slowest pace since March, the National Statistics Bureau reported.
The gain was significantly less than October’s 2.1 percent and only fractionally higher than the 1.5 percent predicted by economists in a Wall Street Journal survey.
Food prices added 3.7 percent in November, barely half of October’s 7-percent jump. Non-food prices grew by 1.1 percent.
Producer prices also fell, throttling back to 1.3-percent gain as consumer spending and exports both faded.
Inflation’s dramatic drop resulted from the severe anti-COVID lockdowns and similar measures still in effect last month.
Because of the drastic anti-virus measures imposed last winter, economists surveyed by the WSJ predict China’s economy will grow by a scant 3 percent this year, its slowest in almost 30 years, aside from 2020 when COVID fears ruled the world.
Beijing has now begun to ease those restrictions, as we reported in “China to Shift Emphasis from COVID Containment to Growth” (6 Dec 2022).
While other central banks have been jacking up interest rates to tackle inflation, prices have risen at a slower pace in China than in many other countries. That has enabled the central bank to keep interest rates low to fan the embers of growth.
However, China’s troubled economy has left relatively few businesses and individuals interested in seeking loans, even at relatively low interest rates.
Easing the strict anti-COVID rules could entice more borrowers, a step toward economic revival, China economist Katrina Ell at Moody’s Analytics told the WSJ.
CHINA’S DOMINANCE IN EVs THREATENS A KEY EUROPEAN INDUSTRY
The auto industry has given rise to some of Europe’s largest, most powerful corporations.
Now, as the world shifts from internal combustion engines to electric power, China is poised to take that scale and political clout for itself.
By 2031, China will have more vehicle manufacturing capacity in Europe than any other country, analysis firm Benchmark Mineral Intelligence has predicted.
Europe also is projected to be the world’s second largest market for electric vehicles (EVs), following China, the Financial Times noted.
China dominates in EV battery technology and batteries account for about 40 percent of an EV’s value.
The country best able to supply batteries at the lowest cost not only will prosper but also will vanquish makers of internal combustion engines, which are becoming a legacy technology.
“The electric vehicle world will be dominated clearly by battery costs,” Thomas Schmall-von Westerholt, president of Volkswagen’s technology division, told the FT.
European nations have set a goal of ending sales of internal combustion vehicles by 2035. To meet that goal, the continent’s auto firms began making deals with China’s battery companies. CATL now makes batteries for Mercedes and Volkswagen; BYD supplies power cells to Stellantis, maker of Fiat.
China will produce 322 gigawatts of EV battery power in Europe by 2031, Benchmark calculates, followed by South Korea. France and Sweden take third and fourth place, with the U.S. ranking fifth, thanks to Tesla’s battery plant in Berlin.
Now Chinese auto firms, including BYD and Nio, have announced plans to build their own auto assembly plants on the continent.
“Our start block is 100 meters behind” the Chinese, Westerholt said. To catch up, “we need a higher speed than them,” which is daunting “if you see how fast the Chinese are moving.”
“There will be a significant dependence of the Western world on Asia” for EV batteries,” Stellantis CEO Carlos Tavares warned in comments quoted by the FT. “Do you want to put your mobility in the hands of the Chinese state?”
The European Union’s (EU’s) approach to removing carbon waste from its transportation sector is “naïve and dogmatic,” he added.
Already, Europe’s auto industry is being lured away by more than $250 billion in incentives offered by the U.S. for green energy projects, adding more pressure on the EU to stand up its own set of protections for domestic firms.
Citing supply line disruptions created by Russia’s war in Ukraine, some European officials urge the EU to match U.S. incentives, as we reported in “U.S., EU Still At Odds Over U.S. Green Manufacturing Subsidies” (6 Dec 2022).
However, many auto companies are less concerned, noting that the sector’s jobs will not be exported if Chinese firms build cars in Europe.
It is better to stimulate competition than to build barriers, Westerholt said, “otherwise it will be more expensive for the consumer.”
TREND FORECAST: With several EU nations mandating an end to the production of internal combustion vehicles in less than 15 years, European auto companies are too far behind China’s prowess in EVs to catch up.
By 2030, the power and value of European auto companies will fade as they rely increasingly on China for their technology.
That will increase the probability that more than one household-name European auto company eventually will become a subsidiary of a Chinese firm.
WILL CHINA COPE WITH A POSSIBLE COVID SURGE AS LOCKDOWNS EASE?
Prodded by a flagging economy and public protests, Chinese authorities are peeling away the drastic “zero tolerance” COVID policies that kept tens of millions of people locked down in major cities and industrial zones over the past year.
However, officials have been so focused on enforcing restrictions that they have left the country unprepared for a surge of COVID cases that could well result from a sudden reversal of the protocol and new cases could reach more than five million a day, Bloomberg reported.
For example, 90 percent of the general population has been vaccinated, but only 69 percent of persons 60 and older, which comprise the group most vulnerable to infection.
Also, medical resources are unevenly distributed across China’s network of hospitals, leaving some areas unprepared to care for a sudden influx of COVID patients.
As carefully as China reopens, it still faces the likelihood of “hundreds of thousands of fatalities, if not millions” as the virus runs its course, Bloomberg noted, citing the opinion of public health experts.
Ironically, the caseload could be particularly high precisely because the lockdowns have kept the vast majority of the population from being exposed to recent variants of the virus.
“Experts in science to economics paint a picture of impending chaos, with absenteeism paralyzing factories, serious disease overwhelming hospitals, and outbreaks forcing residents to hunker down in their homes,” Bloomberg said.
As many as 2.1 million people could die, research firm Airfinity warned, based on Hong Kong’s caseload when the Omicron variant attacked the island nation.
“It will be all over the country almost at the same time, but first in urban areas because of crowding and then in rural,” Ali Mokdad, a professor of population health at the University of Washington, told Bloomberg.
It will be early in the new year “when we see very high numbers of cases, and mortality will come two weeks later,” he predicted. “It will never come back down to where it is now.”
Analysts are painting pictures of doom, with schools shuttered and businesses going without enough workers to keep operating.
“I don’t think anything looks good for China right now,” Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said in a Bloomberg interview.
“Its 1.4 billion people are at increased risk of contracting this virus for the first time, and these first infections surely pose the risk of serious disease, including hospitalizations and deaths,” he added.
Still, China should be able to use other countries’ experience in getting through their virus infestations as guides, especially steps Hong Kong took to cope with its round earlier this year.
Also, the current strains of the virus may be more contagious but are less severe and less deadly that previous ones, Bloomberg noted.
China’s death rate from infections by the current strains would be about 0.4 percent among unvaccinated people and 0.02 percent among fully vaccinated persons, a study by Barclays calculated.
China’s health agencies say they have established detailed plans to treat a COVID wave, including methods to route infected persons to the medical institutions best able to treat their specific conditions.
The country also will set aside separate isolation wards for pregnant women and patients with other health conditions, officials said.
Local medical centers around the country are being readied as “gatekeepers,” providing triage and caring for mild cases in which people can stay home and self-medicate and also referring more severe cases to appropriate care centers.
However, planning the infrastructure is easier than actually preparing it, Huang Yanzhong, a health expert at the Council on Foreign Relations, pointed out in a Bloomberg interview.
“Training ICU staff takes years and three years have been wasted,” he said. “Local governments didn’t have the incentive or capability to do advanced planning, or stock up on drugs, while they were busy enforcing Covid Zero. All the necessary planning has been put on the back burner.”
Maintaining some restrictions and telling people to wear masks again will be inadequate to prevent as many as a dozen cities from undergoing runaway transmission of the virus, Eric Feigl-Ding, the World Health Network’s COVID task force chief.
“The road to the full reopening could still be gradual, painful and bumpy,” said Ting Lu, chief economist for Nomura International. “China does not appear to be well prepared for a massive wave of Covid infections, and it may have to pay for its procrastination on embracing a ‘living with Covid’ approach.”
TREND FORECAST: The COVID death rate in China compared to the rest of the world is minimal. Take a country like Moldova for example. With a population of 2.27 million people, nearly 12,000 died of COVID since China launched the COVID War on its Lunar New Year, the Year of The Rat in January 2020, according to Worldometer.
In China, with a population of 1.4 billion, less than half, 5,235 Chinese have died from the virus since January 2020.
Therefore, “It’s the economy, stupid, and we forecast China will do all it can to boost its sagging economy.