The reopening of China was probably the most discussed topics on the World Economic Forum in Davos.
Bloomberg | Bloomberg | Getty Images
DAVOS, Switzerland — China’s economic reopening could spur global growth, but business leaders and policy makers on the World Economic Forum this week are also a bit concerned about its potential impact on inflation.
China’s decision to re-admit tourists, in addition to making it easier for Chinese people to travel abroad, was probably the most discussed topics on the meeting in Davos in the Swiss Alps.
Overall, that is seen as probably the most vital economic events in 2023, and the business community is clearly excited to secure recent deals with the world’s second largest economy.
However, there are concerns about what this implies for inflation and the fee of living.
“[If] Chinese demand for other commodities starts to increase if it puts more pressure on commodity prices like natural gas an enormous problem in Europe if Chinese demand for natural gas goes up because factories their households demand more electricity it goes to put pressure on to Europe because natural gas competes [in] same markets for liquefied natural gas,” Raghuram Rajan, former central bank governor of the Reserve Bank of India, told CNBC.
“So opening up China [is] generally excellent news, but potentially inflationary impact – there could be some,” he said.
The International Energy Agency has warned that European firms could face higher costs when buying natural gas this yr as there’ll be more competition for the raw material. Inflation has been one among the most important challenges for European residents over the past yr, mainly due to higher energy bills.
Speaking on a CNBC-moderated panel, Satish Shankar, managing partner of the APAC region at Bain & Company, a consulting firm, said: “I feel opening up China will subsequently increase global energy consumption, which can cause some inflation.”
Felix Sutter, president of the Swiss-Chinese Chamber of Commerce, said on the identical panel that “Chinese energy and commodity needs will compete with European needs, global needs, so I see now inflation easing, [but] we are going to see more pressure on inflation in Q3.”
Some economists warn that if this happens, the US Federal Reserve may be forced to raise rates of interest further. “In our view…a stronger China increases the chances of a stubborn Fed hawk,” said Tavis McCourt, policy strategist on the Fed.
“With China, we’d like more of every part – if that is driving enough demand to bring commodity prices closer to last spring’s levels, which means the progress we have seen on inflation is way weaker. position,” he said.
China recently recorded a growth rate of three% in 2022, the second-slowest pace of growth since 1976. Nevertheless, short-term data boosted expectations for a greater-than-expected recovery, with December retail sales and industrial production above consensus.
Standard Chartered CEO José Viñals told CNBC in Davos this week that China can have a excellent yr and can surprise positively.
“The Chinese economy will go up in flames and that can be very, very vital for the remainder of the world,” he said.
Meanwhile, Rio Tinto CEO Jakob Stausholm has also spoken positively concerning the Chinese economy and its natural impact on global growth, telling CNBC in Davos that he’s “absolutely convinced” that reopening China will help the worldwide economy.
— Arjun Kharpal and Jihye Lee of CNBC contributed to this text.