Marius Dubnikovas, a financial analyst, said on the “Lietuvos rytas” TV programme “Nauja diena” that the possible Chinese sanctions against Lithuania would not easily shake the country’s economy but require a combination of other unfavourable factors. However, the expert said that these strained relations could have more severe consequences for the Lithuanian economy in the long term, lrytas.lt reported.
– Economic relations between Lithuania and China. What is their proportion?
– The relationship can be defined in two stages. The first is exports of goods of Lithuanian origin, which is about 300 million euros, but it must be stressed that this figure is not large. Imports and what comes to us in Lithuania are EUR 1.3 billion, and that figure is already significant. A third sector is very difficult to assess: that would be the Lithuanian-origin component goods used in various other goods that go to China via Europe.
We can see that these goods also have problems because one or more components are of Lithuanian origin. It isn’t easy to assess this magnitude.
– Which sector is the most sensitive when it comes to possible Chinese sanctions?
– On the exporting side, the most significant impact, surprisingly enough, is on our laser industry itself, because about 20% of lasers from Lithuania go to China. The wood, food and beverage industry is also going. So the biggest damage in a conflict with China could be to our industry, which produces goods.
Today alone, it is said that around EUR 200 million worth of goods that come from China, which are mostly components, are being held up or delayed in delivery. As for the goods that are coming off the shelves here are arriving, but the electronic goods, the electronic components or the microchips, are delayed.
– How much of this is a short-term problem, and how much a long-term problem?
– In the short term, this would be a short-term shock when companies have to reorient and adapt. But, in the long term, we can see the consequences for the industry. We have already heard about German factories that produce parts for the automotive industry; they are already talking about being pressured by their Chinese partners to cooperate with Lithuania – that is probably the most considerable risk.
In the long term, in 12 months or more, it won’t be easy to attract additional investors to Lithuania: investors who will open new factories and successfully operate and employ people. There is no point in the economy where nothing changes. There are always two states in the economy: either expansion or contraction.
If we were to lose a large part of the investors at this point, the risk is that we would eventually move into a base that is quite unusual – economic contraction – because expansion might be limited.
– Could the China factor tip the scales from expansion to contraction?
– One factor cannot outweigh the other; there must be at least several factors. We have those risk factors for next year, and if they coincide at the same time, and so far, they seem to overlap, we will see what the Chinese sanctions will be, but we cannot yet say how much weight they will have. It will depend on the willingness and the extent to which they want to do harm. Another quite ominous factor is energy resources.
For example, last week, gas approached EUR 2 per cubic metre, which means that next year, an industry that could potentially be affected by the Chinese will also face significant problems such as sustainable costs. Let us realise that gas is becoming more expensive from time to time, and we were already discussing last year that this level was threatening, but now it is twice as high.
Gas is the beginning of everything: gas equals heat, gas equals electricity, and that price can be high. If all these factors are lumped together, we could have big problems.
– How much are we talking about Lithuania now, about the global risks or the risks of recession in our region?
– So far, the risks of a global recession are slowly gathering momentum, and such thoughts are emerging, but it is unlikely that things will come to such an abrupt halt next year. At this point, we need to bear in mind that there is money on the market; it is just that energy prices and resources are a huge challenge for business – we need to look for compromises and draw conclusions.
Is Lithuania facing a separate recession from the global world? I don’t think so. As long as Europe and the US are revolving and the economies are growing, we should not expect a recession in Lithuania because we do not have a separate economic cycle from the world.
That economic growth might be a little lower because these stumbling blocks are real, but let us agree that 2021 was an exceptional year of growth, so if we paused, it would not be a big problem – we would reflect on what is happening around us.
– How far have we come in 2021?
– We have come a long way, both for the better and with some room for improvement. We have gone in a good direction because our economic expansion is one of the fastest in the European Union, but at the same time, we have had side-effects that could have been expected. One of the adverse effects is the very rapid growth in people’s incomes.
Income is forecast to grow by another 10% next year, which would be the fifth year of double-digit income growth. On the one hand, that is good, but on the other hand, it produces the enormous inflation that we have and that we are talking loudly about. In November, we already had 9%, and by the end of the year, we will see figures close to the 10% mark.
That is a high note going into 2022. We ran strong, we avoided the coronavirus hit, but that run has had side effects. They all carry over into the next year, and we may have challenges as a result.
– What should people do or not do with the money?
– There are probably things that are related in themselves: what to do and what not to do. However, there are likely to be more euros in our pockets next year. What not to do is not to spend it. Sometimes it seems that Lithuanians find it very easy to spend hard-earned money and not to save, and not to save and not to invest.
A few years before the coronavirus, we saw that the savings rate for the pandemic was negative, according to the Bank of Lithuania. This means that more is being spent than is being earned.
This financial suicide should be converted and reversed, and we should go back to the classic formula of putting 10% of your income away each month and preferably investing it once you have saved it. This could be life insurance, third pillar pension funds, shares, bonds or the same real estate.
– How can Lithuania try to absorb the losses if China chooses the tactic of imposing sanctions?
– The first step, and a wish for those in power, is to gather evidence of unofficial sanctions and submit them, one by one, to the European Commission so that Lithuania can be represented at the European Union level and we are not left standing alone in front of the world’s second economy.
The second thing is that we need to use all our resources. We have many and move along a green course to integrate even more into the EU economy to be dependent on sustainable and green technologies. In this way, we would reduce China’s impact on our economy, and we would be able to breathe easier.
It is now very difficult to appease and to change course – we must realise that the Chinese remember grievances too well. So perhaps we need to build an economy that bypasses Chinese interests.
– Will other international actors be brought in between China and Lithuania?
– Tensions between the Chinese and the EU and the US are obviously on the rise, and what we are dealing with today may be topics that will be dealt with in the future, not only by Lithuania but also more broadly.