Opinion – Rodrigo Zeidan: China: lockdowns in Shanghai affect all world consumers

In two years, China added an economy the size of Brazil to its market. As of January 2020, China’s GDP was $16 trillion. It is now US$ 18 trillion (R$ 90.1 trillion). In the meantime, the Brazilian economy, presided over by the most incompetent economic team in our history, went sideways; the Brazilian GDP closed 2021 totaling US$ 1.6 trillion (R$ 8 trillion).

China’s contribution to global growth is orders of magnitude greater than that of other emerging countries, with the exception of India. In 1990, Chinese GDP was 1.3% of world GDP. In 2013, it hit 10%. Today, it is 19%. In other words, in China, practically a fifth of everything produced and consumed in the world is produced and consumed. By 2050, the world’s largest economies, in purchasing power parity, are expected to be China, India, the US and Indonesia.

And it is because of the importance of the Chinese economy to global growth that the recent wave of lockdowns and economic slowdown worries.

The growth expectation for the Chinese economy was 5.2% in January. It dropped to 5% in March, 4.5% in the middle of that month and there is already an investment bank that estimates that Chinese GDP will end the year below 4%. Even if it stops there, Chinese growth will be well below the government’s target at the beginning of the year, which was 5.5%.

With the city-wide lockdown in Shanghai and hundreds of communities under quarantine in several provinces, the Chinese economy cannot continue at the pace of last year’s GDP growth, when GDP increased by 8.1%. Obviously, China is not going to 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 affect the world economy even more in the next two years at least. And yet, as I wrote before, it is common for people to overestimate China’s economic relevance in the short term and underestimate the country’s weight in the long term.

It is worth remembering that the way out of the 2008 global financial crisis was largely due to the locomotive pulled by Chinese growth. And it’s not just commodity-exporting countries that benefit from rising demand in Asia. As an example, in 2011, the European Union exported €126 billion (R$ 662 billion) to China, 60% more than in 2008. In 2021, it was € 223 billion (R$ 1.1 billion).

On the one hand, China must advance some of the 102 mega projects that were due to be carried out at the end of the 14th Five-Year Plan (2021-2025), which would increase world demand. But on the other hand, the risks of the Chinese economy fueling global stagflation are greater. Among the short-term risks, the main one is the logistical blackout due to the recent lockdowns. The authorities in Shanghai and Ningbo, two of the country’s biggest ports, managed to keep them open (quite a feat, as even supermarkets were closed), but the port’s capacity was severely hampered: the number of cargo ships waiting to landing and receiving goods has almost doubled in recent weeks.

However, the biggest risk is even deglobalization. Political relations between China, the US and Europe are greatly weakened. This brings the specter of declining Chinese imports, further closure of the services sector, delayed integration of financial markets, and less flow of technology and innovation.

The lockdowns in Shanghai affect not just those who live here, but all consumers worldwide. And it can get worse.