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China’s swift reopening after nearly three years of strict coronavirus controls could provide a much-needed boost to global economic growth, but may also stoke inflation just as it has shown signs of falling back.
The revival of the world’s second largest economy — and its biggest consumer of commodities — threatens to push up global prices for fuel, industrial metals and food this year.
Since the beginning of January, prices for copper, aluminum and zinc have all had their best start to a year in 11 years, rallying by an average of 13%, analysts at Deutsche Bank told CNN, citing data from the London Metal Exchange. Tin, which is largely used to make electronics, has soared 30%, its biggest rise in 32 years.
“There’s a tremendous amount of pent-up demand that we do expect to come back to markets, specifically after Chinese New Year,” Nicky Shiels, head of metals strategy at precious metals trader MKS Pamp, told CNN. “Markets have rallied in anticipation of that,” she said.
It’s not just commodities that are rising on hopes for China’s recovery. Stocks in MSCI’s China index have risen 14% since the start of trading this year. Nasdaq’s Golden Dragon China index — which tracks Chinese companies listed in the United States — have climbed 19% over the same period.
There already signs that the economy is getting back on its feet. Bernard Arnault, chief executive of luxury retail group LVMH,
(LVMHF) told analysts on Thursday that the rebound in visitors to stores in Macao, where Chinese tourists are now allowed to travel, had been “spectacular.”
Since last month, the Chinese government has been rapidly dismantling its strict zero-Covid policy following a wave of popular protests over the restrictions. The speed of the reopening, as well as indications that infections may have already peaked, has been surprising, analysts told CNN.
But metals like copper and aluminum are “not a very meaningful part of the overall inflation basket,” Daniel Major, metals and mining analyst at UBS, told CNN.
Yet, if global food and energy prices start rising again, that could feed through into higher consumer prices.
China’s reopening could bump up demand for agricultural goods, while the world is still in the grips of the worst food crisis in modern history.
