Something to watch closely on...

Extracted this News from BT Singapore, 15 Mar 2022.

WHILE markets have begun pricing in the risk of secondary sanctions on China - in the event that it provides military and economic aid to Russia - economists say it is too early to speculate on the possible economic fallout.

And even if the United States does impose such sanctions, they do not expect Singapore to follow suit, saying that the Republic has always tried to remain neutral and avoids picking sides.

Said Maybank Kim Eng senior economist Chua Hak Bin: "Singapore's economy is highly dependent on both the US and China, and cutting one leg off will tip the whole table over."

Echoing him, DBS senior economist Irvin Seah noted that Foreign Minister Vivian Balakrishnan has already made clear that Singapore will only take a stand to uphold existential principles, rather than to simply take sides.

"Singapore does not follow the initiative of any single country blindly. That is clear, and we've seen it in the past before," he said.

Russia has been increasingly isolated by global sanctions in response to its invasion of Ukraine, and the US has threatened to impose secondary sanctions on China if the latter provides economic or financial support to Russia.

After a 7-hour meeting with their Chinese counterparts in Rome, US officials feared that China has already decided to do so.

But China said after the meeting that it wants to avoid being hit by US sanctions, with Foreign Minister Wang Yi saying: "China is not a party to the crisis, nor does it want the sanctions to affect China."

Wang's remark may not "completely assuage market concerns that secondary sanctions may also hurt China whether directly or indirectly", said OCBC chief economist and head of treasury research and strategy Selena Ling.

"Nevertheless, it suggests that China would also be mindful about taking a side that could derail its ambitious around-5.5 per cent growth target for this year."

Agreeing, Chua believes China will act more cautiously than Russia as "the costs from Western sanctions for supporting Russia with military equipment will far outweigh the benefits".

"China will likely choose a middle ground and supply Russia with basic necessities, but will not want to be seen as fuelling and financing the war," he added.

Tommy Wu, lead China economist at Oxford Economics, said that Chinese corporates and major banks are aware of the risk of secondary sanctions and are trying as much as possible to avoid being affected. "But needless to say, it is much more complex from a political perspective," he added.

"Markets are starting to factor in the risk - and that's probably one of the reasons for the recent stock market sell-off, on top of fears of further crackdown, Fed rate hike, policy stimulus not enough to shore up growth, and also the Chinese yuan weakening over the past two days," said Wu.

Jung Sung-Eun, senior economist at Oxford Economics, said: "On Singapore, we're currently not factoring in secondary sanctions on China into our baseline forecast." Any impact on Singapore will mainly feed through weaker global growth and trade volumes, which will dampen re-exports as well as domestic exports, she added.

"We continue to see upside risk for inflation, which we think will continue to rise through the middle of the year before coming down. But the peak could be pushed out later if global commodity prices stay elevated for longer depending on how the Russia-Ukraine situation evolves."

https://www.businesstimes.com.sg/government-economy/too-early-to-speculate-about-secondary-sanctions-on-china-economists?utm_source=facebook&utm_medium=social-organic