Into the Year of the Rabbit we travel

The rabbit is a sign of peace, prosperity, and longevity in Chinese culture.

So, as we travel into 2023 – the Year of the Rabbit -- we start with the hope that the growling Tiger that caused pain to the world this year is left behind for good, locked away for at least the next dozen years.

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This year has been one of a war in Europe, high inflation, economic hardship, rising food prices and interest rates, and a China that first refused to lift its Covid lockdowns and then suddenly swung the other way. What will the next turn out to be like?

Let us look at some of the issues that might crowd our mindand life spaces.

The Middle Nation Dilemma

The world will be watching China very closely, as it reopens after a prolonged Covid-triggered lockdown and looks at pushing its economy rapidly ahead and flexes its political, diplomatic, and economic muscles. The Covid Zero policy is out and people will have to get used to living with the virus that devastated the world in 2020 and 2021. Hospitals will be under stress and so will businesses as they stave off very different challenges than the ones faced during lockdowns. However, the Chinese economy is still predicted to grow at more than 4 per cent. The first few months of the New Year will decide whether the Year of the Rabbit turns out to be benign, peaceful, and prosperous, or whether the remnants of the growling Tiger will still play a role.

Diplomatically, China will continue to face pressure from the West which now considers it as a sworn enemy. Militarily, China will flex its muscles, pushing neighbours and further raising uncertainties in Asia and elsewhere. On trade, it might see some targeted concessions from the United States, but it is unlikely their relations would return to what they were pre-Covid. The reality is that the Chinese economy has become too big for the usual U.S. sanctions to impact it beyond a point. China has other countries to potentially partner with in the Middle East, Europe, and Asia. Still, the United States will continue to work towards isolating China on technology in the hope that Beijing will fall in line on other contentious issues.

What’s the Face Saver?

The war in Ukraine would continue, with Russia putting further pressure as winter deepens and many European countries face shortages of gas for homes and industry. While the United States would like to keep the pressure on Russia, a frustrated Europe would eventually want a way out for Moscow – some face-saver that would help Russian President Vladimir Putin pull back claiming victory. After the long war in Afghanistan, there is only that much appetite for another in Ukraine. However, the larger and sustained economic cost of the war that pushed food and energy prices to all-time highs this year, is yet to be ascertained. It is a matter of who gives in first with Europe heading into a recession. Keep a close look at the conversations in several world capitals as the snow subsides in spring.

The Shift in TheMiddle East

The Gulf countries, fresh from making money from high oil prices and basking in the glory of hosting a football World Cup, will continue to invest in relationships beyond their traditional ties with the United States. Saudi Arabia – the region’s biggest economy – welcomed Chinese President Xi Jinping in a snub to Washington and signed deals worth billions of dollars. In a post-Ukraine war world, larger Gulf nations would be more careful about their self-interest and open to dealing with others. Oil will continue to play an important role in the relationships Saudi Arabia and the United Arab Emirates form with larger nations such as China, Russia, and India. How will the Gulf oil economies play their hand in 2023 will be important.

The New Most-Populous Nation

India will replace China as the world’s most populous nation, becoming the world’s biggest marketplace and positioning itself as a strong alternative to its northern neighbour for industrial and technological investments. For a country, which is increasingly seen as a “bright spot” in an otherwise uncertain world, 2023 can be a huge year as it dons the G20 presidency and tries to lead from the front on critical issues facing the world as well as become a much-needed bridge between the Global North and Global South as the world realigns. India, which recently replaced Britain as the world’s fifth-largest economy, is slated to take the third spot by the end of this decade. The new crown and its steadily growing economy might place India in the right spot to claim a seat on the UN Security Council. Watch India closely.

Who Gets the Chips?

The decades-old ties between Washington and Beijing are changing fast, as the Biden administration pushes hard to drop thick walls between China and the chips in its effort to curb the technological rise of the world’s second-biggest economy. After years of deep technological and political engagement, the United States has finally accepted that the Chinese economy is state-led, and not market driven. Given the long-standing linkages between the two economies, there is only that much that the United States can push back on trade with its sanctions and tariffs. The focus, therefore, is on starving China of technology – an area that China has moved fast in but is still behind the United States in key segments. Drying up the chips supplies and bringing the semiconductors back to its shores to gain an upper hand over China is part of the U.S. plan to protect itself from future shocks and threats. Who, therefore, gets those chips will be something to watch for in 2023.

Back to Work, Again

The dreaded Covid virus is on a rampage in China, just as the rest of the world prepares to get back to fully working from workplaces after three years of a work-from-home and work-from-home-and-also-from-office world. There are people who want to be back in offices, meeting colleagues and pumping their social batteries after months of isolation. There are also many who would still want to live and work in their pyjamas. The battle is real for businesses, which want people back in the office. Nothing works better than face-to-face meetings for faster and focused decision-making. Do expect a lot more people to return for longer to offices. The stragglers might not enjoy being left out as the world has started travelling and partying hard. Many more businesses will take a tough call in 2023 than the year that’s going by.

Cut To the Green

The shift to renewable power is accelerating thanks to the global energy crisis, and the International Energy Agency expects total capacity growth worldwide set to almost double in the next five years, overtaking coal as the largest source of electricity generation along the way and helping keep alive the possibility of limiting global warming to 1.5 °C. The war in Ukraine increased the speed of the shift and global renewable power capacity is now expected to grow by 2,400 gigawatts (GW) over the 2022-2027 period. That is an amount equal to the entire power capacity of China today. Can European governments and businesses replace the Russian gas that has powered these nations? Next year will have a strong story to tell, as India, China and the United States lead the change.

But Then It is The Economy, Stupid!

High inflation is killing the world, its businesses and people, and by the looks of it, the trendline isn’t going to be dropping any soon. Several factors had a role to play this year – tighter supply chains, Covid-related stimuli, and higher food and fuel prices due to the war in Ukraine, all of which triggered monetary tightening by central banks that raised interest rates. There are strands of goodness ahead as some of these factors are becoming less of a worry given consumer prices are on the decline thanks to easing supplies, oil prices are back to their previous year levels and high-interest rates have choked demand. Do expect a slowdown, but the debate over a recession is still on as central banks might begin to go slow on further rate hikes. And if the Chinese economy manages to settle in better than expected in the new, open world, we just might see a faster economic turnaround despite the war in Europe. Asia seems to be better placed than others.

Hop into a New Year with the Rabbit!

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)

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