china's economic reopening and its global implications

The end of China's zero-COVID policy reduces worries about lockdown-related supply chain problems, but the nation is struggling with a high number of infections, which adds different pressures to the Chinese economy and the global supply chain.

The sudden reversal of policy in China has been chaotic, with factories struggling to deal with high absenteeism due to sick workers. The country is also facing a slowing global economy, dragged down by high inflation, an energy crisis, and geopolitical turmoil.

Why: The high number of infections in China is affecting the country's economy, as people are staying at home, either by choice or due to illness, leading to reduced consumer spending and decreased demand for goods.

"The sudden reversal of policy in China has been chaotic to start with, as factories have been struggling to deal with high absenteeism due to sick workers."

The Chinese economy is expected to miss its 5.5% annual growth target for 2022, and the country's export-driven economy is being affected by reduced demand from Western countries.

Chinese exports fell in November compared to a year earlier, led by a 25% decline in exports to the United States. Westerners, who had spent heavily on Chinese goods during the pandemic, are now feeling more budget-conscious.

Why: The reduced demand from Western countries is affecting China's export-driven economy, leading to a decline in exports and a subsequent impact on the country's economic growth.

"Westerners, who had spent heavily on things like exercise equipment and other manufactured goods from China during the pandemic, are now feeling more budget-conscious."

The Chinese government has changed the definition of what qualifies as a COVID death, ensuring that the official number of fatalities will remain well below those observed in the West.

The government's decision to change the definition of a COVID death is likely an attempt to downplay the severity of the pandemic in China and maintain control over the narrative.

Why: The government's actions are driven by a desire to maintain control and stability, and the changed definition of a COVID death is a means to achieve this goal.

"The Chinese government has changed the definition of what qualifies as a COVID death, ensuring that the official number of fatalities will remain well below those that have been observed in the West."

China's overall vaccination rate is above 85%, but the domestic Chinese vaccinations may not offer sufficient protection against severe disease for adults over 60.

The vaccination rate in China is high, but the effectiveness of the vaccines, particularly for older adults, is a concern. The country's vaccination passport system has also led to a situation where the elderly are less likely to be vaccinated.

Why: The vaccination rate in China is high, but the effectiveness of the vaccines, particularly for older adults, is a concern due to the limited data available on their efficacy.

"According to the epidemiologist Ben Cowling, the domestic Chinese vaccinations offer sufficient protection against severe disease for adults under the age of 60."

Analysts are expecting infection to peak around the Chinese New Year festivities, and the economy is expected to begin recovering after March.

The lifting of quarantine rules has helped drive sales of airline tickets ahead of the Lunar New Year holiday, and the removal of COVID restrictions means that goods are moving through the country much faster.

Why: The peak in infections is expected to occur during the Chinese New Year festivities, after which the economy is likely to begin recovering as the number of cases declines and consumer spending increases.

"Analysts are expecting infection to peak around the Chinese New Year festivities later this month, as that's when friends and families get together to celebrate."

The trend towards nearshoring or friendshoring could be good for countries like Mexico and India, who might see manufacturing grow within their economies.

Companies are diversifying their production and purchasing away from China, and countries like Mexico and India are likely to benefit from this trend. The economist Michael Pettis argues that there is a good economic reason for Washington to encourage switching production from countries with large persistent trade surpluses like China to countries like Mexico with balanced trade or even trade deficits.

Why: The trend towards nearshoring or friendshoring is driven by companies' desire to reduce their reliance on Chinese manufacturing and mitigate the risks associated with trade disputes and supply chain disruptions.

"The economist Michael Pettis argues that there is a good economic reason for Washington to encourage switching production from countries with large persistent trade surpluses like China to countries like Mexico with balanced trade or even trade deficits."

The Chinese government is rolling back the three red lines policy that burst the Chinese property bubble back in 2021, and policymakers might permit some property firms to add more leverage by easing borrowing caps and pushing back the grace period for meeting debt targets.

The crisis in the real estate sector has delayed or halted construction of pre-sold homes across the country, triggering protests by homebuyers. The government's decision to roll back the three red lines policy is an attempt to ease the credit crunch and boost market confidence.

Why: The government's actions are driven by a desire to stabilize the property market and prevent a further decline in economic growth. The rollback of the three red lines policy is a means to achieve this goal.

"Bloomberg is reporting this morning that Chinese policymakers are rolling back the three red lines policy that burst the Chinese property bubble back in 2021."

Economists polled by Bloomberg are forecasting full-year growth of just 3% for 2022, and the country's economy is expected to miss the 5.5% annual growth target set by the government.

The Chinese economy is facing significant challenges, including a slowing global economy, reduced demand from Western countries, and a high number of COVID infections. The country's economic growth is likely to be affected by these factors.

Why: The reduced demand from Western countries, the high number of COVID infections, and the slowing global economy are all contributing to a decline in China's economic growth.

"Economists polled by Bloomberg are forecasting full-year growth of just 3% for 2022."