Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

The biggest risk to the global economy no one is talking about

The biggest risk to the global economy no one is talking about

Nearly 400 million people across 45 cities in China are under full or partial lockdown as part of China's strict zero-Covid policy. Together they represent 40%, or $7.2 trillion, of annual gross domestic product for the world's second-largest economy, according to data from Nomura Holdings.
Analysts are ringing warning bells, but say investors aren't properly assessing how serious the global economic fallout might be from these prolonged isolation orders.

"Global markets may still underestimate the impact, because much attention remains focused on the Russian-Ukraine conflict and US Federal Reserve rate hikes," Lu Ting, Nomura's chief China economist and colleagues wrote in a note last week.

Most alarming is the indefinite lockdown in Shanghai, a city of 25 million and one of China's premiere manufacturing and export hubs.

The quarantines there have led to food shortages, inability to access medical care, and even reported pet killings. They've also left the largest port in the world understaffed.

The Port of Shanghai, which handled over 20% of Chinese freight traffic in 2021, is essentially at a standstill. Food supplies stuck in shipping containers without access to refrigeration are rotting.

Incoming cargo is now stuck at Shanghai marine terminals for an average of eight days before it's transported elsewhere, a 75% increase since the recent round of lockdowns began. Export storage time has fallen, but that's likely because there are no new containers being sent to the docks from warehouses, according to supply chain visibility platform project44.

Cargo airlines have canceled all flights in and out of the city, and more than 90% of trucks supporting import and export deliveries are currently out of action.
Shanghai produces 6% of China's exports, according to the government's statistical yearbook for 2021, and factory closures in and around the city are further rattling supply chains.

Sony and Apple supplier plants in and around Shanghai are idle. Quanta, the world's biggest contract notebook manufacturer and a MacBook maker, has stopped production entirely. The plant accounts for about 20% of Quanta's notebook production capacity, and the company previously estimated it would ship 72 million units this year. Tesla has shuttered its Shanghai Giga factory, which produced about 2,000 electric cars a day.

On Friday, China's Ministry of Industry and Information Technology said in a statement that it sent a taskforce to Shanghai to work on a plan to resume production at 666 key manufacturers in the locked down city. Tesla executives hope they'll be allowed to reopen their doors by Monday, ending the factory's longest pause since its 2019 opening. The automaker has lost over 50,000 units of production thus far, according to materials reviewed by Reuters.

"The impact on China is major and the knock on effects on the global economy are quite significant," said Michael Hirson, Eurasia Group's practice head for China and Northeast Asia. "I think we're in for more volatility and economic and social disruption for at least the next six months."

The prolonged disruptions to Chinese manufacturing and shipping could help accelerate a key Biden administration initiative aimed at reducing US dependence on Chinese products and supply chains.

But the task comes with serious immediate economic repercussions.

In a report released last week, the World Trade Organization warned of a worst-case scenario involving decoupling global economies, spurred on by Russia's invasion of Ukraine, could reduce long-term global GDP by 5%.

That's highly unlikely given the deep financial connections between China and the US. Investment in each others' stocks and bonds reached $3.3 trillion at the end of 2020, according to data from Rhodium Group.

These are still very intertwined economies," said Hirson. "That integration is not something that's going to be easily reversed because it would be incredibly costly for the US and for the global economy."

Still, American economic leaders believe decoupling is already underway. Oaktree co-founder Howard Marks wrote in late March that "the pendulum [has] swung back towards local sourcing" and away from globalization. Blackrock Chairman Larry Fink echoed the sentiment in a letter to the company's shareholders. "The Russian invasion of Ukraine," he wrote, "has put an end to globalization we have experienced over the last three decades.

In a speech to the Atlantic Council last week, Treasury Secretary Janet Yellen said the US is watching China's political and economic connections to Russia closely. "Going forward, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security," she said.

While she said she hopes a "bipolar split" between China and the US can be avoided, "the world's attitude towards China and its willingness to embrace further economic integration may well be affected by China's reaction to our call for resolute action on Russia."

A third of China, meanwhile, is stuck in quarantine, and its economy is suffering.

China's recent pandemic response is likely to cost at least $46 billion in lost economic output per month, or 3.1% of GDP, according to research from the Chinese University of Hong Kong.

Analysts no longer believe that China's 2022 target of 5.5% economic growth, the country's least ambitious goal in three decades, is realistic. The World Bank revised its estimates for Chinese economic growth this week to 5% but noted that if its restrictive policies continue that could fall to 4%.

The economic burdens come at a politically precarious moment. This fall, Chinese President Xi Jinping will petition for a third term as the nation's leader, breaking with the tradition of a two-term maximum.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Budapest Central European Fashion Week Kicks Off
U.S. Celebrates Labor Day
Hungarian National Team Captain Scores Epic Goal
EU is getting aggressive: Four AfD Candidates Die Unexpectedly Ahead of North Rhine-Westphalia Local Elections
Japanese Customer Sways from VW to BYD after “Unbelievable” Test Drive amid Dealership Expansion
Nestlé Removes CEO Laurent Freixe Following Undisclosed Relationship with Subordinate
Pickles are the latest craze among Generation Z in the United States.
Giuliani Seriously Injured in Accident – Trump to Award Him the Presidential Medal of Freedom
Deadline Day Delivers Record £125m Isak Move and Donnarumma to City
Nvidia Reveals: Two Mystery Customers Account for About 40% of Revenue
Woody Allen: "I Would Be Happy to Direct Trump Again in a Film"
Lula and Putin Hold Strategic BRICS Discussions Ahead of Trump–Putin Summit
White House Eyes Budapest for Peace Talks
Cave Diving Beneath the Streets of Budapest
Another American Restaurant Chain Opens in Budapest
Hungarian Opposition Politician Supports Ukrainian Commander
Opposition Leader Threatens Media Outlets
American Airlines Adds New Flights to Budapest
F1 Hungarian Grand Prix Wraps Up
WhatsApp is rolling out a feature that looks a lot like Telegram.
U.S. Trade Representative says Washington still negotiating trade deals after court rules tariffs illegal
Von der Leyen says Europe drawing up 'precise' plans to send troops to Ukraine
Kremlin accuses Europe of hindering Trump’s peace efforts in Ukraine
×