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How the Russia-Ukraine war could affect China’s trade

China’s trade surplus soared to a record high during the pandemic as people began consuming more goods than before, but analysts say the Russia-Ukraine war is about to change that.

The Asian manufacturing giant’s trade surplus could fall to $ 238 billion this year, about 35 percent of the $ 676 billion high reached last year, according to estimates by ANZ Research, according to CNBC.

“The war in Ukraine will soon begin to burden net trade with softer foreign demand and higher import costs,” said Julian Evans-Pritchard, chief economist for China at Capital Economics.

Growth shocks to China’s major trading partners

The war could cause a wider slowdown in the global economy, especially in Europe, adds Betty Wang, senior economist for China at ANZ Research.

The European Union is China’s second largest trading partner, accounting for about 15% of the Asian giant’s total exports. Exports to the EU increased even more last year, accounting for 16% of the 30% increase in China’s exports, according to ANZ Research.

“Statistically, the EU’s economic growth is highly correlated with China’s overall export growth,” Wang said, adding that any 1 percentage point drop in the EU’s GDP growth rate is 0.3 percentage points below the EU rate. increase China’s exports.

The great shortages of semiconductors and the fears of nickel

Meanwhile, Russia’s war in Ukraine is set to further disrupt supply chains by exacerbating shortages of semiconductors.

ANZ Research points out that the conflict has already exacerbated the global shortage of semiconductors, on which China relies heavily on exports of its electrical products. Exports of electronics contributed 17.1 percentage points to a 30% increase in China’s exports in 2021, according to the research company.

Analysts even point out that both Ukraine and Russia play an important role in the global semiconductor supply chain.

Ukraine is a supplier of clean rare gases, such as crypto and new, which are both necessary for the construction of semiconductors, according to ANZ Reserch. It also produces precious metals used in the construction of semiconductors, smartphones and electric vehicles.

China, for its part, is emerging markets vulnerable to war-induced commodity shortages, according to a report by TS Lombard on Monday. In particular, China is sensitive to nickel supply disruptions, the report notes.

During the week, the London Stock Exchange suspended trading in nickel several times as prices more than doubled amid fears of a sell-off due to the war. Russia is the third largest producer of nickel in the world.

Nickel is the main raw material for electric vehicle batteries and China is the largest producer of electric vehicles in the world. The number of EVs exported to other countries increased 2.6 times last year to almost 500,000 vehicles – more than any other country in the world, the Nikkei said last week.

Chinese electric vehicles account for about 44% of electric vehicles built between 2010 and 2020, according to another study.

Increased energy prices

In addition, the crisis in Ukraine caused strong volatility in oil prices, which jumped to high levels last week before then falling more than 20%. This development is going to have a serious impact on China, which is the largest importer of oil in the world, according to CNBC.

China imported $ 423 billion worth of energy products last year, according to economists Nathan Chow and Samuel Che of Singapore-based DBS. Of that, $ 253 billion came from crude oil imports.

DBS economists point out that China’s nominal GDP would fall by 0.8% if average oil prices jumped from $ 71 a barrel to $ 110 this year.

Oil prices fell below $ 100 a barrel earlier this week after hitting a high of $ 130 last year, but were above $ 100 again on Thursday, well above the $ 70 to $ 80 level traded. the crude at the beginning of this year.

China, however, could receive some relief from Russia.

“Given its neutrality on sanctions against Russia, China can partially offset higher energy prices with cheaper imports from Russia,” according to DBS economists.

Source: Capital

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