Home Uluslararası The impact of China’s economic and geopolitical concussion

The impact of China’s economic and geopolitical concussion

by bagimsizhaberajansi

Concerns about Covid cases… While Covid cases in China are causing concern, confused commodity prices seem to be in a structure between supply problems from Russia and demand problems from China. Of course, the widespread image of Covid cases across the country is worrying, in this environment, China, which used to describe democratic countries as unsuccessful in the Covid struggle, is imposing travel and lockdowns in its own country with a zero Covid policy, breaking its supply chains and causing a global demand shock.

 

Comparison of oil, platinum, palladium, gold and silver prices… Source: Bloomberg

 

The supply and demand dilemma in commodity prices… The restrictions extended to Beijing after the Shanghai closure will trigger a significant cost and loss effect for these two cities, which alone constitute more than half of the economy. While oil, platinum and palladium fell rapidly, the expected rate moves from the Fed reflected sharp decreases on the gold and silver side, feeding a general commodity collapse. Considering these factors, if we accept commodity prices as the only variable, the demand shock that will occur with a global slowdown originating from China will certainly bend the first effect of prices downwards. However, these troubles also mean adding a new link to a global supply chain break, which means a new lack of supply in addition to Russia, so prices may bend upwards again.

 

Troubles on the geopolitical axis… We cannot read any positive developments regarding the war between Ukraine and Russia. We are watching the re-emergence of defense strategies that will put economic resource allocation in trouble. Germany’s increase in defense expenditures due to the threat of Russia and Japan’s positioning for stronger armament can be given as an example. While there is a threat from Russia for Germany, there is a threat from both Russia and China for Japan.

 

Japan wants to follow a similar strategy after Germany announced that it would increase its defense spending in response to Russia’s invasion of Ukraine. A well-armed Japan greatly affects the balance of power and can contribute significantly to the US deterrent stance regarding China. Given its proximity to China and Taiwan, Japan would be in a good position to respond quickly should a possible Chinese attack be attempted. In other words, arming a US ally Japan means that China cannot move so easily in the Pacific Ocean. Also, the status of the Kuril Islands is disputed between Russia and Japan after World War II. Japan used a softer rhetoric for these islands, which prevented the signing of a permanent peace treaty with the Soviet Union, but now the international anti-Russian public opinion will allow them to act more freely on this issue. Japan imposes a series of sanctions against Russia.

 

By the way, Germany and Japan are countries whose defense power and armament were limited after World War II.

 

Conclusion? While there are global slowdown expectations and the demand shock from China, in addition to the financial tightening caused by the US returns and inflation expectations, it is certain that the supply problems will continue on the axis of geopolitical problems. And the supply problems do not seem to be resolved in a short time. A resource deficit that will appear with the sanctions measures taken by the US and which seems impossible to replace by 100% will mean that commodity prices will continue to be affected by supply shocks. The complex geopolitical situation of the Pacific will also affect the status of shipping hubs as a trade route, as the Shanghai closure is already creating problems in accessing resources. The Pacific-Indian Ocean route, which used to be a popular route after geographical discoveries in the cotton and silk trade (firstly Portugal, then the Netherlands, England colonized the Indochina, Indonesia, Malaysia region) is a popularized route in global trade in modern times. route. China is triggering a new breakout with the closure measures it has taken, so it may be more rational to read the source of new prices in terms of supply shock rather than demand shock in the axis of China.

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Hibya Haber Ajansı

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