April 25, 2022, 11:29 am EDT
China, the second-largest economic system in the world (GDP), has a high impact on the global economy from many perspectives. Last night China Shanghai index was down -5% and Hong Kong Hang Seng index is also down by -4%. China’s factor is the topic to be discussed in this article.
In the past 20+ years since China joined World Trade Organization (WTO) China provided low labor costs with a tax advantage as a developing country. China became the manufacturer in the world. From Nike shoes to Apple iPhones or 90% of items from Walmart, the US, Europe, and the whole world depend on China for goods. Both China and the rest of the world participated in this “Globalization” for its benefits.
However, there is a price to be paid when enjoying low-price products. It is similar to Russia providing natural gas, and oil to the European countries, dependence on Russia and China could be fatal. Russia’s invasion of Ukraine is a good example to illustrate how a dictatorship system could harm neighboring countries. They will use force to invade and destroy others to expand their territory.
While the Russia-Ukraine war is still an ongoing process, China Communist Party, its ruling party, also intensifies its threat toward its own people and neighboring countries. China’s “Zero Case Goal” for COVID-19 policies created disasters in big cities like Shanghai, Shenzhen as well as many other cities. Extreme control like lockdown for its citizens threats both the life of people and the economic stability of China. Currently, the lockdown spreads to Beijing which is the capital city. Such control is not just for COVID-19 disease, China prepares for its leader Xi to continue its dominance for another 5-years term.
Here is the list of the economic impacts of China’s factors on the global economy.
- Supply Chain Interruption
- Food Shortage
This is the main reason the outlook for China’s economy is bearish. China’s Shanghai index made another 52-week low today to reflect the coming hardship in China. However, its negative outcome could spread to the whole world in the coming months in our opinion.
Therefore, we could follow up on the development of China in order to prepare for what is comings to other parts of the world.