In two years, China added an economy the size of Brazil to its market. In January 2020, China’s GDP was US$16 trillion. It is now $18 trillion (R$90.1 trillion). Meanwhile, the Brazilian economy, run by the most incompetent economic team in our history, has been moving sideways; Brazil’s GDP closed 2021 at a total of US$1.6 trillion (R$8 trillion).
China’s contribution to global growth is orders of magnitude greater than that of other emerging economies, with the exception of India. In 1990, China’s GDP was 1.3% of world GDP. In 2013 it was 10%. Today it is 19%. In other words, practically onefifth of everything produced and consumed in the world is produced and consumed in China. By 2050, China, India, the US and Indonesia will be the largest economies in the world in terms of purchasing power parity.
And it is the importance of the Chinese economy to global growth that the recent spate of lockdowns and economic slowdowns are a cause for concern.
The growth forecast for the Chinese economy was 5.2% in January. It fell to 5% in March, 4.5% midmonth and there is already an investment bank that estimates China GDP will end the year below 4%. Even if it stops there, Chinese growth will be well below the government’s target earlier in the year, which was 5.5%.
With the citywide lockdown in Shanghai and hundreds of communities in several provinces under quarantine, the Chinese economy cannot continue with last year’s GDP growth, when GDP grew by 8.1%. Obviously, China will not go into recession. But the drop in global demand due to the country’s slowdown and, more importantly, logistical problems due to the lockdowns could weigh even more heavily on the global economy over the next two years. And yet, as I’ve written before, it’s common for people to overestimate China’s economic importance in the short run and underestimate the country’s weight in the long run.
It is worth remembering that much of the way out of the 2008 global financial crisis was thanks to the Chinese growth engine. And not only commodityexporting countries benefit from the increasing demand in Asia. For example, the European Union exported 126 billion euros (662 billion reais) to China in 2011, 60% more than in 2008. In 2021 it was 223 billion euros (1.1 billion reais).
On the one hand, China needs to push ahead with some of the 102 megaprojects that should be implemented at the end of the 14th FiveYear Plan (20212025), which would increase global demand. On the other hand, there are greater risks that the Chinese economy will fuel global stagflation. Among the shortterm risks, the most important is the logistical blackout due to the recent lockdowns. Authorities in Shanghai and Ningbo, two of the country’s largest ports, managed to keep them open (quite an achievement given that even supermarkets were closed), but the port’s capacity was severely restricted: the number of cargo ships that could access the Waiting to land and goods received has almost doubled in the last few weeks.
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The biggest risk, however, is even deglobalization. Political relations between China, the US and Europe have been severely weakened. This brings with it the specter of falling Chinese imports, further closure of the service sector, delayed financial market integration, and reduced technology and innovation flow.
The lockdowns in Shanghai are not just affecting the people who live here, but all consumers worldwide. And it can get worse.
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