China’s Zero-COVID release may boost global economy

The move by President Xi Jinping to lift China’s zero-COVID strategy and ease travel restrictions has raised hopes that it may soften the blow of higher global interest rates, unleashing production lines and unlocking supply chains after a turbulent three years.

From the 8th January 2023 travellers arriving in China will not have to quarantine and people are free to move internally in a series of steps to reopen the country, which bankers estimate will lead to GDP growth above 5% in 2023 and 4.2% in 2024.

Beijing’s streets are jammed with traffic again, there’s been a surge on foreign holiday bookings and business activity is picking-up, but removing restrictions has also led to a surge in COVID-19 infections, which will increase in the weeks ahead, as virtually every country that has transitioned away from restrictions has suffered an “exit wave” of infections.

Despite caution on the increased challenges to China’s medical system, domestic and international airlines are likely to benefit from the boost in travel and regional economies will also benefit from Chinese business travellers and tourists, as well as the easing of cross-border supply chains.

We have seen that, with greater stability going forward, Chinese manufacturing will return to pre-pandemic reliability, with stable component and raw material flows, which will have a positive effect on shipping and logistics from the region.

However, we have definitely seen a migration of business to other regions and areas over the last 12 months, which will likely disperse some of the sourcing that has been focused through China over the last decade, bringing new opportunities and dynamics to supply chains, as a result of the Draconian measures taken to restrict the virus spreading domestically. This will become evident in 2023 as traders reassess their manufacturing and global sourcing strategies.

China’s rapid reopening is reflationary for the global economy, which means that faster growth in China should also lift world GDP. But the benefits are unlikely to be felt evenly, because China exports more than it imports, which means western consumers, actually consuming, are critical to keep growth on track. However as widely reported in the international press consumer sentiment in Europe and the USA is subdued adding another variable into the recovery mix.

Within a day of Beijing lifting restrictions, a Zhejiang trade delegation departed for Europe to grab export orders, while the Suzhou Bureau of Commerce planned to charter flights to Europe after a trip to Japan returned with orders worth more £140 million.

In a bid to boost activity Alibaba, China’s biggest eCommerce platform, is launching “Digital Hybrid Trade Shows”, with plans for 100+ overseas exhibitions, covering more than 10 trade target markets, including the UK, United States, Japan, Singapore and Australia.

Expectations for higher growth in China are encouraging some of the world’s leading fund managers to ease recession expectations, with inflation expected to fall very quickly in the US in 2023, half in the UK and fall a little more slowly in Europe.

Also considering the huge reduction in freight rates and the stabilisation of foreign Exchange (FX) over recent months the world certainly appears to be returning somewhere resembling normality, at least until the next challenge and change of events hits supply chains. But for now predictability and consistency are in a reasonable place in relation to supply chain and logistics strategies and planning with ASIA.

As new opportunities to trade with China emerge, we have fixed price and long-term capacity agreements in place with our partner carriers, to give you peace of mind, with resilient, consistent and reliable supply chain solutions.

Metro’s cloud-based supply chain management platform, MVT, simplifies global trading, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level.

To discuss how our technology could support your supply chain, please contact Simon George our Technical Solutions Director or Elliot Carlile for all options relating to current freight profile movements to and from China.