Cargo ships load and unload containers at the foreign trade container terminal of Qingdao Port in Qingdao, east China’s Shandong province, 11 November 2021.

Yu Fangping | Cost photo | Barcroft Media | Getty Images

China’s trade surplus rose to historic heights during the pandemic as people consumed more goods than before, but analysts say the war between Russia and Ukraine will change that.

The Asian manufacturing giant’s trade surplus could shrink to $238 billion this year — about 35% of the historic $676 billion it made last year, according to estimates by ANZ Research.

“The war in Ukraine will soon weigh on net trade due to weaker foreign demand and a higher import bill,” said Julian Evans-Pritchard, senior China economist at research firm Capital Economics.

Growth shocks in China’s main trading partners

The war could trigger a broader slowdown in the global economy, especially in Europe, said Betty Wang, senior Chinese economist at ANZ Research.

The European Union is China’s second largest trading partner, accounting for about 15% of the Asian country’s total exports. Exports to the EU rose further last year, accounting for 16% of China’s 30% export growth, according to ANZ Research.

“Statistically, the EU’s economic growth has a high correlation with China’s overall export growth,” Wang said, adding that for every 1 percentage point drop in the EU’s GDP, China’s overall export growth is 0.3 percentage point. will descend.

The great chip disruption, nickel fears

The semiconductor shortage was already serious, but the Russian war in Ukraine will further disrupt supply chains.

ANZ Research said the conflict has exacerbated the global shortage of chips, on which China relies heavily for its electronic exports. Electronic goods exports contributed 17.1 percentage points to China’s 30% export growth in 2021, the research firm said.

Analysts noted that both Ukraine and Russia play important roles in global semiconductor supply chains.

Ukraine supplies purified rare gases such as neon and krypton, both essential in making semiconductors, ANZ said. It also produces precious metals that are used to make chips, smartphones and electric vehicles.

China is one of the emerging markets vulnerable to commodity shortages due to the war, according to a report published Monday by TS Lombard. In particular, China is prone to disruptions in its nickel supply, the report said.

Last week, the London Metal Exchange halted nickel trading after prices more than doubled amid fears of supply disruption due to the war. Russia is the third largest nickel producer in the world.

Nickel is an important raw material for batteries for electric vehicles and China is the largest EV producer in the world. The number of EVs it exports to other countries jumped 2.6 times last year to nearly 500,000 — more than any other country in the world, Nikkei reported last week.

EVs made in China accounted for about 44% of electric vehicles produced between 2010 and 2020, a study finds.

Increased energy prices

The crisis in Ukraine has also led to volatile oil prices, which soared to record highs last week before falling more than 20%. That will hit China, the world’s largest oil importer.

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China imported $423 billion worth of energy products last year, said DBS economists Nathan Chow and Samuel Tse of the Singaporean bank. Of that, $253 billion was crude oil.

The economists wrote that China’s nominal GDP would be cut by 0.8% if the average oil price rose this year from $71 a barrel to $110.

Oil prices were volatile, falling below $100 a barrel earlier this week, after peaking above $130 last week. On Thursday, they hit $100 again, well above the $70 to $80 level that at the beginning of the year for crude oil was traded.

However, China could find some relief if it leans on Russia.

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


This post How the Russia-Ukraine War Could Affect China’s Trade? was original published at “https://www.cnbc.com/2022/03/18/how-the-russia-ukraine-crisis-could-hit-chinas-trade.html”

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