World Economy Threatened by China?

China recently shut down a key terminal at its Ningbo-Zhoushan port, the third busiest port in the world, after one worker was found to be infected by Covid. How will the closure affect the recovery of the world economy?

August 19, 2021, | AtoZ Markets – Lately, it seems like China is doing everything it can to stay on top of news headlines around the world. This time, the main news was the message that against the background of an increase in cases of coronavirus, the PRC closed one of the terminals of the port of Ningbo-Zhoushan, which is the third-largest in the world in terms of cargo turnover.

The consequences seem to be worse than the congestion in the Suez Canal. To be more precise, the suspension of the terminal’s operation may negatively affect the volume of handling and transportation of goods.

It is worth noting that this is not the first time that China has closed a port. At the end of May, a quarantine was announced at the Yantian port in Shenzhen, which lasted almost a month. Among the primary consequences is the accumulation of inventories of goods from manufacturers, as well as the rise in the cost of freight to record levels. So it turns out, as in the saying: “what is good for a Russian is death for a German.”

How will China’s port closure affect the recovery of the world economy?

The main question for today is how the shutdown of the Meishan terminal will affect the recovery of the world economy for a long time. Do not forget that traditionally the volume of sea freight traditionally increases towards the end of the year, when business begins to prepare for the Christmas season. Most likely, only those companies that have learned the lesson and included the risks associated with COVID-19 in insurance contracts will be able to reduce losses.

Against this backdrop, the Bank of China decided not to be greedy and injected 600 billion yuan ($92.6 billion) into the country’s banking system as part of the medium-term lending (MLF) program. Given the fact that market participants expected more modest figures, many regarded this as a measure of support for the economy.

In addition, the rate on loans for a period of one year, issued under the MLF, was left at the level of 2.95% per annum. The regulator, however, said that it was simply trying to provide sufficient liquidity in the banking system. It is hard to say if this will help the Chinese economy, but the drop in oil prices and the rise in gold prices indicate that worries about a further recovery have not gone away.

We can only hope that China will be able to prevent the further spread of the virus, otherwise, we will face new turmoil in the market.

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