Politics

See how easily China can manipulate the Global Markets

How China’s central policy also affects the rest of the world. Beijing frequently intervenes in the free market. These interventions are also taking effect in the global market.

China’s importance in the world continues to grow. Some people are afraid of this. The political and economic system is quite different, and world powers have a habit of wanting to export their model. The greater China’s importance, the more likely it is that its economic model will be imposed on the world.

This is one of the reasons why the U.S. is going head-to-head with China. They do not want China’s influence, and they want to push back the influence they have already gained. But the influence has been there for a long time, whether they like it or not. The best example is the recent energy crisis.

France distributes cash to citizens to compensate for the high energy prices. Italy and Spain also want or need to relieve the financial burden on their citizens. It’s not just Europe that has an energy crisis, the whole world does. While no one in the West knows what can be done, Beijing has declared war on high energy prices.

It has succeeded in doing so. Since the threat of intervention, the price of coal in China has halved (Chart 1). This intervention does not change the coal stock and demand in Europe. Nevertheless, prices are falling significantly here as well.

This even applies to the USA. Coal inventories there are emptier than at any time since the 1970s (Chart 2). Fundamentally, the situation in the USA has not improved, but has become worse. Nevertheless, the price of coal is falling just because China views the prices as too high.

U.S. coal inventories are emptier than at any time since the 1970s

This applies not only to coal, but also to natural gas. In Europe, one can argue that Russia is now supplying more via pipelines again. This cannot be said for Asia. Nevertheless, the price of liquefied gas imports is also falling significantly there (chart 3).

All this is happening because China is declaring war on high prices. No one knows what that means in concrete terms. So far, little has followed the threats. This shows how powerful Beijing’s word is, not only in China but all over the world.

It does not stop at energy commodities either. The first threat of intervention was for iron ore in the spring of 2021 (Chart 4), and since then the price has fallen significantly in China, but also in the rest of the world. Aluminum has also been on the agenda since November.

After successful intervention at iron ore, it’s now the turn on aluminum

China influences commodity prices far beyond its borders. This also applies to commodities that have a more local character. This includes natural gas, which has a different price everywhere in the world.

China will hardly have intended a global price crash. It is concerned with its own country. However, the impact is global. China’s intervention in the free market has a worldwide impact. In the current case, it is not a big damage. Panic buying made commodities more expensive. China’s intervention breaks this cycle. Next time, however, it may not be a benefit that reaches us in the next intervention

Christian Zürcher

From 1990 to 2005, Mr. Zürcher was a risk analyst in the institutional swiss banking sector - thereafter, he specialized exclusively in private trading of financial products. He is a certified real estate agent and studied economics. For more than thirty-five years, Mr. Zürcher has been intensively involved in the observation of financial markets, globalization, and the monetary system. Mr. Zürcher enjoys an excellent reputation as a political analyst and commentator related to finance.
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