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The biggest risk to the global economy no one is talking about

About 400 million people in 45 cities in China are locked up in whole or in part as part of China’s strict zero COVID-19 policy. Together they account for 40%, or $ 7.2 trillion, of annual gross domestic product for the world’s second largest economy, according to Nomura Holdings. Analysts are ringing warning bells, but say investors are not properly assessing the severity of the global economic consequences. “Global markets may still underestimate the impact because much attention remains focused on the Russia-Ukraine conflict and US Federal Reserve rate hikes,” wrote Lu Ting, Nomura’s chief economist in China and colleagues in a note last week. The most alarming is the indefinite blockade in Shanghai, a city of 25 million people and one of China’s leading manufacturing and export centers. Quarantines there have caused food shortages, inability to access medical care and even reported pet killings. They also left the world’s largest port unmanned. The port of Shanghai, which handled more than 20% of Chinese freight traffic in 2021, is essentially stationary. Supplies of food trapped in transport containers without access to refrigeration are rotting. The incoming cargo is now trapped in Shanghai’s maritime terminals for an average of eight days before being transported elsewhere, a 75% increase since the recent round of blockades began. Export storage time has dropped, but new containers are unlikely to be shipped to docks from warehouses, according to the supply chain visibility platform project44. Cargo airlines have canceled all inbound and outbound flights from the city, and more than 90% of the trucks that support import and export deliveries are currently out of use. Shanghai produces 6% of China’s exports, according to the government’s statistical yearbook for 2021, and factory closures in and around the city are further disrupting supply chains. Sony and Apple’s supplier plants in and around Shanghai are inactive. Quanta, the world’s largest contract notebook maker and MacBook maker, has completely stopped production. The plant accounts for about 20% of Quanta’s notebook production capacity, and the company previously estimated it would ship 72 million units this year. Tesla closed its Shanghai Giga plant, which produced about 2,000 electric cars a day. On Friday, China’s Ministry of Industry and Information Technology said in a statement that it had sent a working group to Shanghai to work on a plan to resume production at 666 key manufacturers. in the closed city. Tesla executives expect to be allowed to reopen on Monday, ending the factory’s longest break since opening in 2019. The automaker has lost more than 50,000 production units so far, according to revised materials By Reuters. “The impact on China is significant and the effects on the global economy are quite significant,” said Michael Hirson, head of practices at the Eurasia Group for China. and Northeast Asia. “I think we are facing more volatility and economic and social disruptions for at least the next six months.” Prolonged interruptions in Chinese manufacturing and shipping could help accelerate a key Biden administration initiative aimed at reducing the United States’ dependence on Chinese products and supplies. chains.But the task comes with serious immediate economic repercussions. In a report released last week, the World Trade Organization warned of a worse scenario that would involve disengaging global economies, driven by Russia’s invasion of Ukraine, could reduce world GDP in the long run. now 5%. That is highly unlikely given the deep financial ties between China and the United States. Investment in shares and bonds of others reached $ 3.3 trillion by the end of 2020, according to data from Rhodium Group. “These are still very intertwined economies,” Hirson said. “That integration is not going to be easily reversed because it would be incredibly costly for the United States and the global economy.” Still, U.S. economic leaders believe the decoupling is already underway. Oaktree co-founder Howard Marks wrote in late March that “the pendulum has shifted to local supply” and has moved away from globalization. Blackrock chairman Larry Fink echoed the sentiment in a letter to the company’s shareholders. “The Russian invasion of Ukraine,” he wrote, “has put an end to the globalization we have been experiencing for the past three decades. In a speech to the Atlantic Council last week, Treasury Secretary Janet Yellen said the United States is watching politics. “In the future, it will be increasingly difficult to separate economic issues from the broader considerations of national interest, including national security,” he said. Greater economic integration may be affected by China’s response to our call for decisive action on Russia. ” % of GDP, according to research from the Chinese University of Hong Kong. as, is realistic. The World Bank has revised its estimates for China’s economic growth this week to 5%, but noted that if its restrictive policies continue, this could fall to 4%. The economic burdens come at a politically precarious time. This fall, Chinese President Xi Jinping will run for a third term as the nation’s leader, breaking with the tradition of a maximum of two terms.

About 400 million people in 45 cities in China are locked up in whole or in part as part of China’s strict zero COVID-19 policy. Together they account for 40%, or $ 7.2 trillion, of annual gross domestic product for the world’s second largest economy, according to Nomura Holdings.

Analysts are ringing warning bells, but say investors are not properly assessing how serious the overall economic consequence of these prolonged isolation orders may be.

“Global markets may still underestimate the impact because much attention remains focused on the Russia-Ukraine conflict and US Federal Reserve rate hikes,” wrote Lu Ting, Nomura’s chief economist in China and colleagues in a note last week.

Most alarming is the indefinite blockade on Shanghai, a city of 25 million people and one of China’s leading manufacturing and exporting centers.

Quarantines there have caused food shortages, inability to access medical care and even reported pet killings. They also left the world’s largest port unmanned.

The port of Shanghai, which handled more than 20% of Chinese freight traffic in 2021, is essentially stopped. Food trapped in transport containers without access to refrigeration is rotting.

The incoming cargo is now trapped in Shanghai’s maritime terminals for an average of eight days before being transported elsewhere, a 75% increase since the recent round of blockades began. Export storage time has dropped, but new containers are unlikely to be shipped to docks from warehouses, they say. Supply Chain Visibility Platform Design44.

Cargo airlines have canceled all inbound and outbound flights from the city and more than 90% of trucks Support for import and export deliveries is currently out of use.

Shanghai produces 6% of China’s exports, according to the government’s statistical yearbook for 2021, and factory closures in and around the city are further causing supply chains.

Sony and Apple’s supply plants in and around Shanghai are inactive. Quanta, the world’s largest contract notebook maker and MacBook maker, has completely stopped production. The plant accounts for about 20% of Quanta’s notebook production capacity, and the company previously estimated it would ship 72 million units this year. Tesla closed its Shanghai Giga plant, which produced about 2,000 electric cars a day.

On Friday, China’s Ministry of Industry and Information Technology said in a statement that it had sent a working group to Shanghai to work on a plan to resume production at 666 key manufacturers in the closed city. Tesla executives expect to be allowed to reopen its doors on Monday, ending the factory’s longest break since opening in 2019. The automaker has lost more than 50,000 production units so far. according to materials reviewed by Reuters.

“The impact on China is significant and the effects on the global economy are quite significant,” said Michael Hirson, Eurasia Group’s chief practice officer for China and Northeast Asia. “I think we are facing more volatility and economic and social disruptions for at least the next six months.”

Prolonged interruptions in Chinese manufacturing and shipping could help accelerate a key Biden administration initiative aimed at reducing U.S. dependence on Chinese products and supply chains.

But the task comes with serious immediate economic repercussions.

In a report released last weekthe World Trade Organization has warned of a worse scenario involving the decoupling of global economies, driven by Russia’s invasion of Ukraine, could reduce long-term global GDP by 5%.

This is highly unlikely given the deep financial ties between China and the United States. Investment in shares and bonds of others reached $ 3.3 trillion by the end of 2020, according to data from Rhodium Group.

“These are still very intertwined economies,” Hirson said. “That integration is not going to be easily reversed because it would be incredibly costly for the United States and the global economy.”

Still, U.S. economic leaders believe the disengagement is already underway. Co-founder of Oaktree Howard Marks wrote in late March that “the pendulum [has] returned to local supply “and away from globalization. President of Blackrock Larry Fink echoed the sentiment in a letter to the company’s shareholders. “The Russian invasion of Ukraine,” he wrote, “has put an end to the globalization we have experienced for the last three decades.

In one speech to the Atlantic Council last week, Treasury Secretary Janet Yellen said the United States is closely monitoring China’s political and economic ties with Russia. “In the future, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security,” he said.

Although she said she hoped a “bipolar split” could be avoided between China and the United States, “the world’s attitude toward China and its willingness to embrace greater economic integration may be affected by China’s reaction to our call for a determined action on Russia “.

Meanwhile, a third of China is trapped in quarantine and its economy is suffering.

The response to China’s recent pandemic is likely to cost at least $ 46 billion in lost economic output per month, or 3.1% of GDP, according to the data. research from the Chinese University of Hong Kong.

Analysts no longer believe China’s 2022 target of 5.5% economic growth, the country’s least ambitious goal in three decadesit is realistic. The World Bank has reviewed his estimates for Chinese economic growth this week are up to 5%, but he noted that if his restrictive policies continue, this could fall to 4%.

The economic burdens come at a politically precarious time. This fall, Chinese President Xi Jinping will run for a third term as the nation’s leader, breaking with the tradition of a maximum of two terms.

The biggest risk to the global economy no one is talking about Source link The biggest risk to the global economy no one is talking about

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