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China’s economic slowdown affects the world

For decades, China was seen as the world’s major market and factory, and as its economic growth slowed, the impact spread globally.

A weakening of the world’s second-largest economy is bad news for commodity exporters such as Brazil, Chile or Australia, which supply China with oil, copper and iron ore. Germany, Taiwan and South Korea are also affected because of their dependence on China as a huge market for machinery, cars and semiconductors; as well as being an important link in their company’s global supply chain.

For the United States, where galloping inflation is tightening household budgets, the slowdown in China’s economic growth is also negative news. Federal Reserve Chairman Jerome Powell warned last week that, along with the war in Ukraine, China’s economic hardship could exacerbate inflationary pressures in the US.

“Whatever happens in China has a significant impact on global growth,” said Carlos Casanova, senior Asia economist at Union Bancaire Privée (Hong Kong).

According to data from the International Monetary Fund, in 2021, China accounts for 18.1% of global GDP, behind the US with 23.9% but higher than the 27 members of the European Union with 17.8%. They account for nearly a third of global manufacturing output, according to United Nations data from 2020.

However, official data earlier in the week showed that China’s export growth slowed much in April, due to factory shutdowns and weak global demand, especially in Europe and Japan. . Iron ore imports were 13% lower year-on-year, copper imports were down 4%, and auto and chassis imports were down 8%, according to Nomura.

The impact of China’s slowing growth is being felt widely. In Lincoln (Nevada, USA), school sports equipment maker and installer Bison had projects stalled because suppliers were unable to receive switches and other electronic components. from China.

“Projects of $80,000 or $100,000 are being delayed because of the lack of some $200 worth of components,” said CEO Nick Cusick.

Recently, Apple said that the blockade in China could cost the company between $4 billion and $8 billion in revenue due to supply chain issues. As for General Electric, its healthcare division is facing production and delivery problems because of the outage.





Shanghai people deliver goods during the blockade.  Photo: Reuters

Shanghai people deliver goods during the blockade. Photo: Reuters

In Japan, Sony and Nintendo said China-related supply constraints would affect the production of video game consoles. According to Sony Chief Financial Officer Hiroki Totoki, Covid-19 restrictions, including the blockade in Shanghai, have made it difficult for companies there to manufacture and ship used parts. in company equipment.

Meanwhile, Fortescue Metals (Australia) – the fourth largest iron ore producer in the world – said that the blockades in China have affected steel demand and increased freight costs…

Taiwan and South Korea’s exports to China in April also fell 3.9% from March, according to economists at Goldman Sachs. Some Asian economies are closely tied to China, making them particularly vulnerable to a recession, the bank said.

Data from the Organization for Economic Cooperation and Development shows that while Chinese parts and inputs account for only about 1.4% of the value of US exports, South Korea accounts for 5 .2%, Taiwan 6.3%, and in Vietnam 14.4%.





Cars at the port in Yantai, China on May 9.  Photo: Zuma Press

Cars at the port in Yantai, China on May 9. Image: Zuma Press

In Europe, Germany’s March manufacturing output recorded its biggest month-on-month decline since the start of the 2020 pandemic, reflecting the impact from China as well as the aftermath of the Ukraine crisis.

BMW reported a 19% drop in production output for the first three months of the year, citing congested global supplies of parts, as well as a shutdown in China. Car deliveries to China fell about 9% in the quarter.

Sales of sportswear maker Adidas in China in the first three months of the year fell 35% year-on-year in 2021. Meanwhile, higher sourcing and shipping costs hurt profits.

“The Chinese market is very important to us,” said Jörg Wuttke, President of the European Union Chamber of Commerce in China. He said about 900,000 jobs in Germany depend on the Chinese market. German companies also employ close to a million people in the country.

According to him, the worst of the production disruption due to the blockade has not even been felt in Europe, as shipments that have been in China for several months are now starting to arrive.

Some economists expect China’s economy to shrink in the second quarter compared with the first, and unemployment is on the rise. Top officials have pledged to revive growth with massive spending on infrastructure projects, but many economists are skeptical that the government or the central bank can do much to help. restart the economy while still applying “Zero Covid”.

“China’s policymakers have heralded easing to stem a slowdown but have yet to act fully,” said senior economists at BlackRock Investment Institute, the division Investment analysis by the world’s largest asset management company BlackRock.

The extent of the impact China has on the global economy will depend on the extent of its own downturn. Both Fortescue Metals and Rio Tinto are optimistic that Chinese demand will recover. Some economists expect government stimulus to spur faster growth later this year.

Session An (according to WSJ)

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