I spent last week in Hong Kong and Singapore, singing for my supper. It was just ahead of Chinese New Year — the Year of the Rabbit begins on January 22 — and, in the past, both cities would have been heaving. On this occasion, however, only Singapore was. Hong Kong was spookily quiet. On arrival on a fine Saturday afternoon, we taxied past sections of Hong Kong’s impressive airport terminal that had, in effect, been shut down. Many planes were hibernating, their engines sealed off and their wheels boxed in, waiting in hope for passengers to return.
Hong Kong has only very recently lifted its Covid quarantine rules. The city’s reopening, however, is small beer compared with what took place the day after my arrival.
On Sunday, the border between Hong Kong and the Chinese mainland finally reopened, having been shut for the best part of three years. Admittedly, Beijing lifted many of its Covid restrictions a little earlier but, nevertheless, the ability of citizens to cross freely in both directions is symbolic. It ushers in a new phase in China’s emergence from lockdown, potentially affecting all of us.
China is the world’s second biggest economy. Before the onset of Covid, the economy had been expanding at a six to seven per cent annual clip. Since the pandemic’s emergence, the economy has, on average, grown by only 4.5 per cent — and a big chunk of that occurred in 2021 when China temporarily eased Covid restrictions. Last year, China expanded at a very modest three per cent, a reflection both of renewed lockdowns and a clampdown on speculative property investment.
Admittedly, with the disease now spreading rapidly through cities, towns and villages, China can’t immediately go back to “business as usual”: many people will be too ill to be able to return to work immediately. Nevertheless, we know from the experience of other nations — including our own — that when lockdowns end, economies rebound quickly. Last year, lockdown-related weakness led to a fall in Chinese imports, including the money spent by Chinese tourists heading to the rest of the world. This year, there’s every chance that imports will surge. The Chinese consumer — and tourist — is coming back, big time.
Stronger Chinese demand may help support businesses elsewhere in the world which might otherwise be struggling domestically.
The UK, for example, is hardly a picture of economic health, faced with high inflation, a huge squeeze on real incomes, a wave of punishing strikes and the Bank of England raising interest rates. More Chinese tourists might offer some respite for hotels, restaurants and shops, particularly given a relatively weak pound.
Yet it is not all good news. Relations between China and the West have soured: the opportunities that were once there have undoubtedly receded. Faster Chinese growth might, in time, force the People’s Bank of China, currently generous with its monetary policies, to reverse course (particularly if the moribund property sector rebounds), mimicking a now well-trodden path of higher interest rates in response to post-pandemic recoveries. And, when the planes currently marooned at Hong Kong airport eventually take to the skies, it’s a reasonable bet that China’s recovery will lead to heightened demand for energy, suggesting that oil prices worldwide could head upwards again.
For the world’s developed nations, making room for China’s integration into the world economy has been a challenge. Most stories of economic success in the post-Second World War period were associated with relatively small economies that exercised little in the way of global “gravitational pull”: South Korea, Israel and Singapore may have advanced at a rate of knots but they were too small to move the global dial. China isn’t.
We benefit from China’s ability to manufacture iPhones by the bucketload but we lose thanks to the impact of its demand on, for example, petrol prices, higher than they would be as a result of China’s insatiable demand for raw materials. That demand was tempered during China’s lockdown. Should it return, we may find that global inflationary pressures re-accelerate later in the year.
Stephen King (@kingeconomist) is HSBC’s Senior Economic Adviser. His new book, We Need to Talk About Inflation (Yale), will be published in April.
