China’s Economic Troubles Won’t Stay at Home
The collateral damage is already showing up in its neighbors
By Jacky Wong
The bull has been tamed./ PHOTO: ALEX PLAVEVSKI/SHUTTERSTOCKChina’s slowdown—the worst since the early days of the pandemic—risks spilling over its borders. Its neighbors in Asia look particularly vulnerable.
The country’s economic outlook has darkened rapidly as it grapples with Covid-19 lockdowns in Shanghai and other cities on top of continuing woes in the all-important housing market.
In April China’s purchasing managers index sank to its lowest level since early 2020 as both manufacturing and services took a hit from pandemic restrictions.
But the country’s top leaders are sticking to their “dynamic zero-Covid” strategy, according to a meeting memo released Thursday.
The plunge in domestic demand will hurt exporters to China, and lockdowns could disrupt supplies to manufacturers in other countries, particularly in Asia.
South Korea’s exports to China in April were down 3.4% from a year earlier, dragging total export growth down to its weakest level in more than a year.
Similar trends are likely for Taiwan and Japan, suppliers of goods like semiconductors and machinery to China.
Partly that reflects sluggish consumer spending: Smartphone sales in China, for example, were down 14% in the first quarter from a year earlier, according to Counterpoint Research, and passenger-vehicle sales in the first three weeks in April were down 39%, according to the China Passenger Car Association.
Lockdowns will also reduce Chinese factories’ demand for parts and components from neighboring countries.
Some commodity exporters will also feel the chill.
Russia’s invasion of Ukraine has sent energy and food prices soaring, but prices of commodities more directly linked to Chinese demand—especially industrial metals—haven't joined in the ride.
Iron ore is down around 10% in the past month, and aluminum and copper have dropped similarly.
China’s housing market remains deep in the doldrums despite easing policies rolled out by many local governments.
President Xi Jinping announced another spending spree on infrastructure last week.
But funding could be an issue, given the weak property market: Land sales are a major source of local government revenue.
Beijing’s rigid approach to the highly contagious Omicron variant has rattled an already shaky economy.
The effects will spread far and wide, but the ripples will hit China’s neighbors first—and perhaps hint at how bad the collateral damage farther afield could be.
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