For the better part of three years—1,016 days to be exact—China will have been closed to the world. Most foreign students left the country at the start of the pandemic. Tourists have stopped visiting. Chinese scientists have stopped attending foreign conferences. Expat executives were barred from returning to their businesses in China. So when the country opens its borders on January 8th, abandoning the last remnants of its “zero-covid” policy, the renewal of commercial, intellectual and cultural contact will have huge consequences, mostly benign.
First, however, there will be horror. Inside China, the virus is raging. Tens of millions of people are catching it every day . Hospitals are overwhelmed. Although the zero-covid policy saved many lives when it was introduced (at great cost to individual liberties), the government failed to prepare properly for its relaxation by stockpiling drugs, vaccinating more of the elderly and adopting robust protocols to decide which patients to treat where. Our modelling suggests that, if the virus spreads unchecked, some 1.5m Chinese will die in the coming months.
There is not much outsiders can do to help. For fear of looking weak, the Chinese government spurns even offers of free, effective vaccines from Europe. But the rest of the world can prepare for the economic effects of the Communist Party’s great U-turn. These will not be smooth. China’s economy could contract in the first quarter, especially if local officials reverse course and seal off towns to keep cases down. But eventually economic activity will rebound sharply, along with Chinese demand for goods, services and commodities. The impact will be felt on the beaches of Thailand, across firms such as Apple and Tesla, and at the world’s central banks. China’s reopening will be the biggest economic event of 2023.
As the year progresses and the worst of the covid wave passes, many of the sick will return to work. Shoppers and travellers will spend more freely. Some economists reckon that GDP in the first three months of 2024 could be a tenth higher than in the troubled first quarter of 2023. Such a sharp rebound in such a huge economy means that China alone could power much of global growth over the period.
The party is banking on it. It hopes to be judged not on the tragedy its incompetence is compounding, but on the economic recovery to follow. In Xi Jinping’s year-end address, the party chief thanked pandemic workers for bravely sticking to their posts and, while nodding to “tough challenges” ahead, promised that “The light of hope is right in front of us.” He sounded eager to look past the pandemic, emphasising the chances of a swift economic revival in 2023 and offering reasons to be proud of living in a rising China under party rule.
The ending of China’s self-imposed isolation will be good news for places that depended on Chinese spending. Hotels in Phuket and malls in Hong Kong suffered as Chinese were locked up at home. Now would-be travellers are flocking to travel websites. Bookings on Trip.com rose by 250% on December 27th compared with the previous day. Economists are pencilling in a GDP boost for Hong Kong of as much as 8% over time. Exporters of the commodities that China consumes will also benefit. The country buys a fifth of the world’s oil, over half of its refined copper, nickel and zinc, and more than three-fifths of its iron ore.
Elsewhere, though, China’s recovery will have painful side-effects. In much of the world it could show up not in higher growth, but in higher inflation or interest rates. Central banks are already raising rates at a frenetic pace to fight inflation. If China’s reopening increases price pressure to an uncomfortable degree, they will have to keep monetary policy tighter for longer. Countries that import commodities, including much of the West, are at the greatest risk of such disruption.
Take the oil market. Rising Chinese demand should more than compensate for faltering consumption in Europe and America, as their economies slow. According to Goldman Sachs, a bank, a rapid recovery in China could help push the price of Brent crude oil to $100 a barrel, an increase of a quarter compared with today’s prices (though still below the heights reached after Russia invaded Ukraine). Rising energy costs will prove another hurdle to taming inflation.
For Europe, China’s reopening is another reason not to be complacent about gas supplies later in the year. Zero-covid, by suppressing China’s demand for gas, made it less costly than it otherwise would have been for Europe to fill its storage tanks in 2022. A strong recovery in China will mean more competition for imports of liquefied natural gas. In December the International Energy Agency, a forecaster, warned of a scenario in which winter starts punctually in 2023 and Russia cuts off piped gas to Europe entirely. That could result in shortages amounting to as much as 7% of the continent’s annual consumption, forcing it to introduce rationing.
For China itself, the post-pandemic normal will not be a return to the status quo ante. After watching the government enforce zero-covid in a draconian fashion and then scrap it without due preparation, many investment houses now see China as a riskier bet. Foreign firms are less confident that their operations will not be disrupted. Many are willing to pay higher costs to manufacture elsewhere. Inbound investment in new factories seems to be slowing, while the number of companies moving business outside China has jumped, by some accounts.
Normal not normal
As Chinese officials struggle to repair the damage, they should remember some history. China’s previous great reopening, after the stultifying isolation of the Mao years, led to an explosion of prosperity as goods, people, investment and ideas surged across its borders in both directions. Both China and the world have benefited from such flows, something politicians in Beijing and Washington seldom acknowledge. With luck, China’s current reopening will ultimately succeed. But some of the paranoid, xenophobic mood that the party stoked during the pandemic years will surely linger. Exactly how open the new China will be remains to be seen. ■
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
