Foreign Policy and Economy News: China’s opening will boost demand
China’s rapid opening up would boost demand for Canada’s abundant manufactured goods. If this happens, it will help the Canadian economy avoid a recession if it doesn’t also boost inflation and spur further interest rate expansion.
Last month, the Bank of Canada (BOC) raised its key interest rate to 4.52%, a 15-year high. It stated the economy would stall in the first half of the year and could fall into recession. Furthermore, the BOC prompted the central bank to halt its most aggressive tightening cycle, becoming the first major central bank to do so.
But analysts say China’s growing economy will increase demand for key Canadian exports, including oil, grains, natural gas, and other commodities, making the economy’s desired soft landing easier than previously thought.
Traders have already bid up the Canadian dollar and Canadian indices, the so-called “commodity currency,” since news of China’s reopening broke in December. The benchmark stock market, with a roughly 30.4% weighting of energy and mining stocks, rose nearly 8.2%, while the Loonie gained 1.81% against the dollar.
Canada has the world’s 3-biggest oil reserves, which rose 17.93% after China began easing restrictions somewhat before giving back much of that gain.
Rising oil prices driven by China’s new opening could add to inflationary pressures, which the governor of the Bank of Canada highlighted as a concern about holding rates.
Most experts predict service-driven growth in China and do not expect it to lead to a radical oil shock.
Economics and regulatory hurdles are shrinking
Tech investors say the worst is back as China reopens and abandons its zero-COVID policy. In December, the Chinese government announced that it would increase the country’s consumption and increase the increase in 2023. China’s economy is set to grow by just 3.5% in 2022 – weighed down by severe COVID restrictions and a slumping property market. The company has raised nearly $500 million for a new China tech fund that will close this year — more than the $400 million previously planned.
Beijing recently granted access to the U.S. accounting watchdog, helping resolve audit uncertainties that threatened to delist Chinese companies from U.S. fonds. China has also restarted licensing approvals for imported games and approved the injection of new capital into a major fintech company.
Chinese technology stocks have risen this year. Alibaba was up 19.5%; Tencent up 18.2%; Baidu up 25.9%, and NetEase up 21.5% as of Monday’s close.
The Netherlands and Japan – the world’s two giant manufacturers of advanced semiconductor equipment – will join the United States in banning overseas exports of chip-making machinery to China.
