Finally, China Takes A Chill Pill

Finally, China Takes A Chill Pill

about 1 year ago2 mins

Data out on Wednesday showed that China’s economy is flailing, and it seems like the government has finally taken note.

What does this mean?

China's known as the world's factory, but that’s looking a little shaky due to the shockwaves set in motion by the country’s strict Covid rules. See, exports took a nosedive last month, contracting 8.7% compared to the same time last year – over double what economists were expecting. And imports didn’t fare any better, falling 10.6%, the biggest drop in nearly three years. That left China's trade surplus – the difference between its exports and imports – 2.5% lower than last year. And that seems to have hit the government where it hurt: it decided to relax restrictions on Wednesday, meaning people can now quarantine at home for the first time, and folks won't have to show negative Covid results to enter most public places.

China imports and exports

Why should I care?

The bigger picture: Domestic hopes.

The Chinese government is now prioritizing the economy over its Covid battle, and that’s no surprise. After all, the global economy is likely to look even feebler next year, so China's going to have to pin any hopes of growth on domestic demand – and that’ll hardly increase if the country’s still locked down. But there won't be any big change overnight: analysts still think data will be weak for the next few months, as the country goes through a "bumpy reopening".

China covid cases rising
Source: The Wall Street Journal, Our World In Data

Zooming out: Black gold’s bleak prospects.

China's weak export performance was partly down to its own Covid-related supply issues, sure, but it's also a sign of the times: after all, global demand for goods is sliding as the world economy cools down. That’s not great news for oil, which might explain why the liquid gold's price fell to its lowest level in a year when the news broke.

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