Published 16:35 IST, July 12th 2020
Can China survive global isolation with nations shifting base amid a geo-economic reform?
On Friday, China’s aggression was met with further blockades and isolation from countries like Australia and the United States
On Friday, China’s aggression was met with further blockades and isolation from countries like Australia and the United States. The US President Donald Trump ruled out the second phase trade deal with China and the country is also considering a ban on Chinese apps.
Now China, which is considered to be the driving factor for the global economy, cannot afford to continue with its aggression if it is faced with global isolation. Here is why:
CHINA’S ECONOMY HAS SHRUNK BY 6.8% -
China’s economy has shrunk by 6.8% in the biggest contraction since the 1960s with retail sales falling by 19% due to the pandemic in the March quarter. An international boycott would further impede China’s economy which has already taken a hit domestically.
HUAWEI’S LOSS DUE TO US BAN -
China’s telecom giant, Huawei after facing a ban from just one country, the United States faced a loss of 12 billion US Dollars in 2019. With countries like the United Kingdom actively considering a ban on Huawei for supplying 5G network in the country, China’s companies could spur up losses.
ALARM BELLS FOR MANUFACTURING INDUSTRY -
A ban could also impede China’s manufacturing sector which contributes to 27% of its GDP as of 2019 as the world finds alternatives to Chinese products. Commonwealth Bank Analysis of Australian exporters have already shown that they will be able to substitute demand from China.
COST OF TRADE WAR WITH UNITED STATES
The trade war with just one country, United States, hurt Chinese economy as measured by Purchasing Managers Index 49.7 points where the value of large companies fell by 14.1 points to 36.3 within 12 months in 2019.
COUNTRIES ARE MOVING OUT THEIR SUPPLY CHAINS -
Countries have made efforts to move their supply chains and production lines out of China. Taiwan has encouraged supply chain investments in Taiwan leading to more than $33.5 billion domestic investments and Japan has budgeted $2 billion for companies to shift production lines out of China.
ITALY IS RESTRICTING FOREIGN INVESTMENT -
On 8 April, countries like Italy which is part of China’s Belt Road Initiative expanded its ‘Golden Powers Law’ to restrict foreign investment in sensitive areas to include a large number of other sectors over concerns of foreign takeovers of domestic firms.
THE EXPORT MARKET IS CLOSING DOORS -
China’s economy depends on the $2.49 trillion export market with the majority of its trade surplus coming from the US and Hong Kong. If the countries impose bans on Chinese products like how India’s largest trade body CAIT has vowed to reduce the sale of Chinese products, it could impede the economy.
Updated 16:35 IST, July 12th 2020