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“If China Sneezes, Shipping Will Catch a Cold”: A Saying More Timely Than Ever

With China’s economy slowdown and the COVID-related measures in flux, shipping and more importantly the dry bulk segment is under pressure. In its latest weekly report, shipbroker Allied Shipbroking said that “as China announced last week a series of wide-ranging relaxations on its zero-Covid restrictions, markets worldwide began to price what these shifts could mean for the global economy, inflation as well as what it will mean for the world’s second-largest economy itself. Despite the Chinese Communist party having fervently defended its position to uphold its zero-Covid stance, the pressure that had mounted from the sharp contracting in trade last month (the sharpest drop in exports and imports noted in several years), rising unemployment and the inevitable public unrest that followed, seems to have been enough to push for a major rethink and revaluation of the policy in place.

According to Mr. George Lazaridis, Head of Research & Valuations for Allied, “the triggers for this U-turn may have been ample yet even with these changes in place there is no guarantee it will be enough to fire up the economy. The major risks these measures could bring are considerable despite the fact they are still well behind what is currently seen in the West. Given that there is still a very low rate of vaccination in its elderly population and a lack of natural immunity, limiting case numbers and deaths will prove to be quite a challenge. An improvement in its domestically developed vaccines and broader-based vaccinations may help ease some of the pressure. Till such a point occurs, the gaps can be covered to some degree through better provisions of anti-viral treatments and increasing its healthcare capacity. Keeping its population healthy and Covid free will prove a challenging hurdle to overcome in the coming months”.

“However, reinvigorating its economy will prove to be a major challenge in its own right. China’s latest trade figures released last week showed a drop of 8.7 percent in exports year-on-year and a drop of 10.6 percent in imports. These declines obviously in part highlight the exposure and dependency that the Chinese economy still has on other major economies which have been facing dampened demand for imports in the face of high inflation and stagnating growth levels. Yet, domestic consumers have been playing an ever more significant role over the past decade and it is here where the strict Covid restrictions have been a source of fragility. In order to revamp the troubled domestic real estate market and revive internal consumption, a series of daring stimulus packages will be needed. This makes it all the more challenging when considering the fact that an economic recovery will be ever more dependent on bolstering domestic demand rather than being oriented around past export-led growth”, said Mr. Lazaridis.

Allied’s analyst noted that “given the importance that China plays in global trade and more particularly the trade in dry bulk commodities, any strong recovery at this point in dry bulk freight markets will go hand in hand with a stronger Chinese economy. Till such a point when any new strong stimulus measures are brought about and their effects start to make their presence felt, the dry bulk market looks set to stagger along around its current levels. The most difficult point will most likely prove to be once again the seasonal slump typically noted during the Chinese New Year festivities which this year fall in late January and early February. The expectation is that thereafter we should start to see a significant effort being placed by Beijing to revamp its economy. Depending on the extent and commitment of any and all efforts they bring in doing so, this could lead in turn to a much faster-paced and more significant recovery in dry bulk freight rates during the latter half of 1Q23. Yet all this depends right now on an expectation that Beijing will act in a major way to reverse the recent trends noted in both its economic growth and trade figures”, he concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide

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