Hope and consternation as China economy reopens

• China opens trading doors to the world after 1,016 days of a strict "zero-Covid" policy
• It would also help reduce costs of all manufactured items and machinery
• Bangladeshi exporters are hopeful to explore the market
• Chinese reopening not to impact Bangladesh's supply of oil and gas as its source is different

With 2023 looking to be a gloomy year for economies, businesses in Bangladesh are cautiously optimistic that China's decision to open its trading doors to the world after 1,016 days of a strict "zero-Covid" policy will ease supply chain woes and boost business.

However, as China, the workshop of the world, opens up its borders on Sunday, experts said there are concerns about whether the spillover effects of the decision may disrupt the world economy.

Entrepreneurs and experts opined that the reopening might create more export opportunities for Bangladesh and help it procure raw materials from its most significant source. Additional demand for oil, gas and other essential commodities in global markets will also be created.

Talking with The Business Standard, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan said, "A reopened China will reduce our raw materials import cost as we are dependent on China for importing large amounts of raw materials. The supply chain has also been affected during Covid-19, which increased the costs."

"Bangladeshi apparel makers are focusing on making us self-sufficient in primary raw materials. Still, for core raw materials, we remain import dependent," he said, adding China's "zero-Covid" policy has disrupted the supply chain.

When China opens its borders, that will also be helpful for Bangladeshi exporters to explore the market, said.

Envoy Textile Ltd Founder Kutubuddin Ahmed said the move would ease supply chain issues as the world depends on the country. He added that it would also help reduce the costs of all manufactured items and machinery.

But while it is good news, China's reentry means more competition for already strained energy resources.

According to Goldman Sachs, an investment bank, a rapid recovery in China could help push the price of Brent crude oil to $100 a barrel, an increase of a quarter compared to today's prices (though still below the heights reached after Russia invaded Ukraine).

The Centre for Policy Dialogue (CPD) Distinguished Fellow Professor Mustafizur Rahman said, "Reopening the Chinese economy would boost aggregate demand for the country, which will lead to a huge jump in commodity prices in the international market. The prices of commodities were reduced in the global market. Inflation would peak again following the reopening".

He added that the reopening would create a massive demand for energy and fuel to keep the Chinese economy humming, increasing energy prices globally.

The ongoing recession in the European countries would deepen further due to the impending energy crisis.

Any further recession in Europe will create pressure on domestic demand, which may reduce export orders from Bangladesh, the economist opined.

A fight for fuel

Rising energy costs have already proven a significant hurdle in taming inflation.

For Europe, China's reopening is another reason to be cautious about gas supplies later in the year.

China's closed-door policy had suppressed the demand for gas to a certain extent, making it comparatively cheaper for Europe to fill its storage tanks in 2022.

But a strong recovery in China will mean more competition for imports of liquefied natural gas.

In December, the International Energy Agency, a forecaster, warned of a scenario in which winter starts in 2023 and Russia immediately cuts off piped gas to Europe.

That could result in shortages amounting to as much as 7% of the continent's annual consumption, forcing it to introduce rationing, reports the Economist.

Kutubuddin Ahmed of Envoy Textiles, however, said the Chinese economy reopening will not impact the global supply of oil and gas as the country built a considerable stock from Russia during the Russia-Ukraine war.

"If they want to import further, it may not affect the global market as Russia remains their low-cost supplier," said Kutubuddin, chairman of Sheltech Group and Envoy Legacy.

According to Bloomberg, experts are eying Christmas 2023, as Europe has kept the lights on through this festive period despite an energy crisis that has gripped the continent for more than a year.

While grids remain focused on ensuring enough gas and electricity supply households over the coming months, experts are already concerned that all the same challenges could be repeated next winter and perhaps even worsen.

And the impacts of the current gas crisis could last for even longer. In December, one of the UK's most respected energy consultancies warned that gas prices could remain high until the decade's end.

The same goes for most European countries, where gas and electricity prices have soared over the last year and a half.

The continent's situation next winter will, to no small extent, depend on how cold January, February and March proved to be, experts say.

Hope tempered with fear

Professor Mustafizur Rahman hoped that the reopening of the Chinese economy would be considered a good signal for Bangladesh, considering the trade and bilateral relations with the country.

"Most Bangladeshi producers have a dependency on China to import intermediate goods and raw materials at a lower cost. The reopening would play a vital role in easing the supply chain of raw materials, which will be cheaper."

He added that the reopening would also ease the realisation of the proposed investment, project finance and development activities with support from China.

"As uncertainty is a common phenomenon in the global economy, policymakers and industrialists must take proper initiatives to increase domestic aggregate demand, production and productivity to reduce risks and uncertainties.

"Some special care should be taken to ensure that the manufacturing of products for the domestic market or the export sector is not disrupted in any way."

Research and Policy Integration for Development (RAPID) Chairman Dr MA Razzaque opined that withdrawing Chinese restrictions would ease the global supply chain. Still, it will not create any immediate pressure on the worldwide supply of oil, gas and commodities.

The Chinese government policy will help ease further downtrends of inflationary pressure, he said, adding that by 2023, inflation may fall from 10% to 5%.

He said that the US dollar, which has gained the strongest position in a while, will also weaken in the coming days.

Mohammed Amirul Haque, founder, managing director and CEO of Premier Cement Mills Limited, said China coming out from the "zero-covid" policy will be a positive sign for everyone, as it will create an opportunity to boost bilateral trade between Bangladesh and China.

He added that it would create opportunities to negotiate with suppliers by visiting their industries.

Withdrawal of the Chinese "zero covid" policy will boost further investment in Bangladesh as Chinese sunset industries can relocate to Bangladesh, said Energypac CEO Humayun Rashid.

"During their policy, we installed many machines imported from there, but those could not be commissioned. The same case applies for many government projects as well. Once they move away from this policy, then we can proceed with these issues faster."

Despite the boosts, worries remained about how effective China's policy to contain Covid-19 was.

Professor Mustafizur also said it would be difficult to make any projection regarding opening up the Chinese economy, considering that the Covid-19 infection was spreading in the country. He added that the opening might adversely impact the global economy with some health-related concerns.

However, Humayun Rashid, managing director and CEO of Energypac, said China's "zero-Covid" policy was unsuccessful as they are still facing the virus threat.

Only a few days ago, WHO Director-General Tedros Adhanom Ghebreyesus said, "With a circulation in China so high and comprehensive data not forthcoming – as I said last week, it is understandable that some countries are taking steps they believe will protect their own citizens."

Several countries, including the United States, have announced new Covid testing requirements for travellers from China to gain domestic entry amid concerns over the spread of the latest variants.

On Thursday, Greece, Germany and Sweden joined more than a dozen countries to demand Covid tests from Chinese travellers. The World Health Organisation said China's official virus data was under-reporting the true extent of its outbreak, Reuters reported.