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© 2022. BNY Mellon Investment Management EMEA Limited. All rights reserved.
IDEAS AND KNOWLEDGE TO INSPIRE YOUR INVESTMENTS THINKING
7 April 2022

What Russia/Ukraine could mean for China

At its latest National People’s Congress (NPC) meeting, China’s 2022 growth target was set at “around 5.5%” – above consensus and at the upper-end of the People’s Bank of China’s (PBOC’s) growth potential estimate.1 However, it faces several growth headwinds from its ‘zero-Covid’2 policies, and property restrictions will linger, while additional fiscal resources may also be needed to ring-fence downstream demand from a recent global commodity price shock.

 

The main external risk, going forward, is a prolonged Russia-Ukraine conflict – resulting in an energy shock–potentially undermining the EU’s growth prospects and weighing on China’s own ebbing consumption propensity. The NPC session made passing reference about China playing a balanced role in this conflict.3 Russia represents only about 2.5% of China’s total external trade, though it is an important upstream supplier of energy and commodities.4

 

The Ukraine accounts for even less of this, though it is an important node in China’s Belt-and-Road Initiative (BRI). In comparison, the European Union represents around 14% of China total trade,5 and a sharp slowdown here would have a bigger impact on Chinese exports and growth. In addition, the risk of running afoul of secondary sanctions will also keep Chinese financial institutions wary and limit their support of Russia; whereby it may not join in with sanctions, but it is unlikely to come to Russia’s rescue either. All in all, we think China faces an increasingly delicate cyclical–structural–geopolitical trilemma between striving to reach its stated growth target, maintaining structural policy discipline, and embarking on a ‘limitless’ partnership with Russia. We believe it can prioritize at most two, but not all of these objectives.

 

The BNY Mellon Investment Management Global Economics & Investment Analysis (GEIA) Team.

 

Doc ID: 942384

 

1 Bloomberg. China signals more policy support with 5.5% growth target. 09 March 2022.
2 China’s stringent zero-Covid strategy has involved large-scale lockdowns, mass testing and international travel bans since early in the pandemic.
3 BNY Mellon Investment GEIA team. 09 March 2022.
4 BNY Mellon Investment GEIA team. Macrobond, International Monetary Fund as at 09 March 2022.
5 NIKKEI Asia. ASEAN becomes China’s top trade partner as supply chain evolves. 15 July 2020. 

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