China is hardly the savior for the world economy

China’s reopening is difficult to revive the global economy, because the country itself is in trouble and people are still afraid to spend.

The world is expecting a rebound in China’s economy to support global growth and avert the risk of a recession. However, economists warn this could yield less of an effect than governments and businesses expect.

In the past, China relied on government stimulus and heavy investment for growth. This partly helped pull the global economy out of the 2008 financial crisis.

But this time, the situation was very different. China is in debt. The housing market is still in crisis and most of the infrastructure that needs to be built has already been built. As a result, this recovery needs to rely on consumers. They spent 3 years under strict control of their activities and movements.

The figures show that the Chinese are gradually returning to shopping and doing business in big cities. Many signs suggest that the worst of the outbreak is over. Like Americans, Chinese consumers have accumulated large sums of money during the lockdown. However, consumer confidence is still low. Many rich Chinese have opened their wallets, but others have chosen to continue saving.

Chinese tourists at Ngurah Rai airport (Bali, Indonesia).  Photo: AP

Chinese tourists at Ngurah Rai airport (Bali, Indonesia). Image: AP

Early signs suggest that the greatest impact from China’s recovery will be most pronounced in the country, rather than in the world. Official figures, including business surveys, which measure the number of people traveling by public transport, show that the strongest increases will come from the service sector, such as restaurants, bars and tourism.

This also means that while China’s economic acceleration is good news for the global economy, the direct impact of this will probably be less than previous aggressive stimulus campaigns. “The nature of this economic recovery suggests that its spillover to the world will be much smaller,” said Frederic Neumann, chief Asia economist at HSBC.

US growth could even be stifled if China’s energy demand soars, driving up global inflation.

China’s economy is forecast to grow 5.2% this year, according to the International Monetary Fund (IMF). This rate is far ahead of the US (1.4%) and eurozone (0.7%).

Some businesses are optimistic. For example, the rich in China can help boost global growth, thanks to European luxury spending and travel to places like Southeast Asia. Chinese watchmaker Swatch Group last month forecast record sales this year, thanks to markets in mainland China, Hong Kong and Macau.

LVMH boss Bernard Arnault said his stores in Macau were packed with customers. “The change is amazing,” he said.

Boeing is also hoping to deliver more planes to China. Airlines in this country will need more 737 MAX to meet the demand for high altitude flights.

Still, many companies are cautious. During the pandemic, Chinese households received less support from the government than people in developed countries. Many people are still worried about the job market and the real estate market.

Colgate-Palmolive CEO Noel Wallace said last month that sales of its consumer goods in China remained weak. “China is still a big question mark,” he said.

Yum China Holdings – the parent company of KFC and Pizza Hut in China – recorded explosive sales during the Lunar New Year. However, they are still worried about the outlook. “Customers remain price-sensitive and spend cautiously,” said CEO Joey Wat last week.

Even if China’s growth is strong, it still has many internal problems to deal with. Local governments are inundated with debt, limiting their ability to spend on infrastructure.

China is also having to stimulate the real estate sector, such as extending credit. However, house prices and home sales still fell, making people reluctant to buy. This will also drag down the demand for iron and steel

Other policy goals could also weigh on the country’s import demand. Beijing wants to localize many items, instead of buying from Japan and Germany. They are also curbing polluting industries, like steel, to meet climate goals.

Besides, although the number of flights in China has increased sharply, it will take more time for tourism activities to the US and Europe to return to pre-pandemic levels, said Olivier Ponti, deputy director of consulting firm ForwardKeys. know. Last month, popular destinations for mainland Chinese were Macau, Hong Kong and Tokyo.

China’s contribution to the global economy depends on how long its people’s consumption lasts. Now, even if the Chinese saved $2.6 trillion last year, less than 30 percent of that amount can be spent right away. Because most of it is in long-term savings accounts. The weak labor market and stagnant real estate also reduce family wealth.

The consumer recovery “will be shallow and not lasting,” said Logan Wright, regional director for China at research firm Rhodium Group. He forecast that after growth accelerated from the second quarter, consumption will also quickly lose momentum.

Ha Thu (according to WSJ)

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