China’s economic reopening might be a boon or bane

Business leaders and policymakers in a meeting held at Davos, Switzerland, are a bit concerned about China reopening its economy. Although this step might boost the much needed economy, it might even result in inflation.

The most discussed topic in the meeting revolved around the decision to welcome Chinese tourists, and make it easier for them to travel abroad.

Business community was excited by the prospect of China, the world’s second-largest economy opening its economy, and making plans for new deals. It was the most important topic that was ever discussed in the economic event 2023.

However, they also expressed their concern about inflation and the cost of living might impact on the overall economy.

″[If] Chinese demand for other goods starts picking up, if that creates a bigger pressure on commodity prices, for example, natural gas, big issue in Europe, if Chinese natural gas demand increases, because the factories, their households demand more electricity, then it’s going to put pressure on Europe because natural gas, they’re competing [in] the same markets for liquid natural gas,” former central bank governor of the Reserve Bank of India, Raghuram Rajan, told CNBC.

“So China’s opening [is] good news overall, but potentially, the inflationary impact — there could be some,” he continued.

European countries are cautioned by the International Energy Agency, as they might face the increasing cost while purchasing natural gas this year, as there is competition in the market. European citizens have been facing the biggest challenge, the inflation that has been driving higher energy bills.

Satish Shankar, managing partner for APAC at consultancy Bain & Company,conversing on a CNBC-moderated panel, said: “I think China’s opening will therefore increase consumption in global energy, it could cause some inflation.”

President of the Swiss-Chinese Chamber of Commerce, Felix Sutter, expressed at the same panel that “Chinese energy needs and raw material needs will compete with the European needs, the global needs, so I see inflation relaxation right now, [but] we will see more pressure on inflation in Q3.”

Some economists have expressed their concern that the U.S. Federal Reserves might end up increasing the interest rate, if this proves to be the case. “In our view … a stronger China increases the chances of a stubbornly hawkish Fed,” institutional equity strategist at Raymond James, Tavis McCourt, stated in his 2023 outlook.

“With China, we do need more of everything — if that drives enough demand to get commodity prices back up closer to where they were in the spring of last year, then that puts the progress we’ve seen on inflation in a much more tenuous position,” he continued further.

China recorded the second slowest growth rate since 1976 of 3% for 2022. However with December retail sales and industrial productions exceeding expectations, shorter term data have raised hope of stronger rebound than anticipated.

Standard Chartered Chairman, José Viñals conveyed CNBC in Davos this week that China is expected to have an excellent year ahead and might also give a pleasant surprise on the way.

“The Chinese economy is going to be on fire and that’s going to be very, very important for the rest of the world,” he continued.

Meanwhile, CEO Jakob Stausholm, Rio Tinto also expressed on a positive note regarding China’s economy and its impact on global natural growth, stating CNBC in Davos that he was “absolutely convinced” that the global economy will get a much needed boost as China begins reopening.

- Published By Team Timeswire

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