China is back.
The world’s second-largest economy has lifted most of its Covid-related restrictions.
People in China can now meet, shop, and travel.
And after years in lockdown, their desire to consume both goods and experiences is incredible.
What does it mean for the global economy?
China’s Recovery Could Drive Commodity Prices Up
The prices of copper and iron ore have already started rising in response to the reopening.
Chinese stocks are in a technical bull market. Their prices have risen over 20%.
The country has been hungry for commodities for over a decade now. China’s real estate sector, which has been one of the biggest drivers of its economic growth, needs a lot of copper, steel, aluminum, cement, and other materials.
China is one of the world’s largest consumers of commodities overall.
The International Energy Agency says that China’s reopening could drive global oil demand to an all-time high of 101.7 million barrels per day. This creates a bullish setup for fossil fuels as well, according to the Financial Times.
The country’s economic growth and international travel will lift the demand for oil. They could support its price this year.
China is also one of the biggest markets for electric vehicles and renewable energy.
Lithium, copper, and aluminum could benefit from the country’s consumption surge as well.
In 2023, EV sales in China could reach over $190 billion. And they may continue to grow at over 14% per year, reaching $324 billion in sales by 2027.
Luxury Brands Could Get a Boost
Before Covid, China was responsible for about one-third of the world’s total luxury spending.
Its share dipped to about 19% in 2022 because of the lockdowns.
But as the country reopens, its high-end shoppers will be back with a vengeance.
Sales of Hermes, a luxury brand, are expected to grow 17% compared to the same quarter a year ago.
By 2025, China will likely become the leading market for the luxury industry.
Some of Europe’s largest brands, such as Hermes and LVMH, are publicly traded companies. They have seen their prices rise by 16% and 15%, respectively.
China’s BYD Beat Tesla in Deliveries
China’s reopening could deliver surprises as well as growth.
BYD, a Chinese electric vehicle manufacturer backed by Warren Buffett, delivered record sales in 2022. It outsold even Tesla, which controls 65% of the global EV market.
Over the past year, BYD’s stock price is up 17%, while Tesla’s is down 47%.
One of the reasons why BYD is winning is vertical integration. The company produces most of its cars’ components itself, from chips to batteries.
To secure supplies of critical elements like lithium for its car batteries, BYD is striking deals with commodity producers.
The company has been searching for projects in China, Argentina, and Indonesia.
This is a catalyst for global lithium producers.
When they see BYD’s success, which is a direct result of its vertically integrated business model, they may also try to secure as much lithium supply as possible directly from lithium miners.
Overall, China’s reopening will create many new opportunities.
Here at the Financial Star, we focus on new energy commodities and other megatrends.
China’s reopening could provide a massive boost to the sectors we are interested in.
Thank you for your loyal readership,
The Financial Star team
