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Thursday, 29 December 2022

China reopening after 3 years

China set to reopen

After three long years, China suddenly looks set to scrap its home quarantine restrictions and reopen.

This is a sudden and dramatic development, which may in time see international travel in and out of China reverting higher. 

Over the year to January 2020, Australia had a record 2.3 million arrivals from China, Taiwan, and Hong Kong.

Of course, this number promptly fell to near zero in 2021, as international borders were shuttered. 

The return of international students is likely to be seen first in the rental markets of Sydney and Melbourne, around the University hubs. 

Reopening surge

This is potentially huge news for Australia.

Financial markets are clearly concerned that the ensuing China reopening could be an inflationary force, as Chinese demand for LNG and other commodities is now likely to surge, which could push gas prices higher in Europe. 

Thankfully the weather in Europe appears expected to be relatively mild over the coming weeks, which for now at least is helping to keep power and energy prices under control. 

On the other hand, China's shutting down of low-cost production was one of the many supply shocks which drove up global inflation in the first place.

Theoretically, then, the resumption of production and ongoing easing of supply bottlenecks could be a disinflationary force, as the supply of i-Phones and electric goods supply resumes. 

For Australia's domestic economy, of course, the prospect of the return of Chinese international students, tourists, and permanent migrants is potentially momentous. 

Relationships with China have soured somewhat over recent years.

However, China is still Australia's number one trading partner, and the election of the ALP combined with the diplomatic skills of Senator Penny Wong will probably go some way to repairing the relationship.