Archives for posts with tag: china economy

We’re well into the Year of the Rooster in China now, but trade figures for last year are still coming in and it’s interesting to see what a major impact China still had in 2016. Economic growth rates may have slowed, and the focus of global economic development may have diversified to an extent, but China was very much still at the heart of the world’s seaborne trade.

Not A Lucky Year

In 2015 the Chinese economy saw both a slowdown in growth and a significant degree of turbulence. GDP growth slowed from 7.3% in 2014 to 6.9%. Steel consumption in China was easing and growth in Chinese iron ore imports slowed from 15% to 3%. Coal imports slumped by an even more dramatic 30%. Container trade was affected badly too. China is the dominant force on many of the world’s most important container trade lanes and is involved in over half of the key intra-Asia trade. Uncertainty in the Chinese economy in 2015 took a heavy toll on this and intra-Asian trade growth slumped to 3% from 6% in 2014. Going into 2016, there was plenty of apprehension about Chinese trade, and its impact on seaborne volumes overall.

Back In Action

However, things turned out to be a lot more positive in 2016 than most observers expected. China once again underpinned growth in bulk trade, with iron ore imports surprising on the upside, registering 7% growth on the back of producer price dynamics, and coal imports bouncing back by 20%. Crude oil imports into China also registered rapid growth of 16%, supported by greater demand for crude from China’s ‘teapot’ refiners.

In containers, growth in intra-Asian trade returned to a robust 6%, and the Chinese mainlane export trades fared better too, with Far East-Europe volumes back into positive growth territory and the Transpacific trade seeming to roar ahead. Overall, total Chinese seaborne imports  grew 7% in 2016, up from 1% in 2015, with Chinese imports accounting for around 20% of the global import total. Growth in Chinese exports remained steady at 2%.

Thank Goodness

Despite all this, seaborne trade expanded globally by just 2.7% in 2016. Thank goodness Chinese trade beat expectations. Of the 296mt added to world seaborne trade, 142mt was added by Chinese imports, equal to nearly 50% of the growth. Unfortunately, this was counterbalanced by trends elsewhere, with Europe remaining in the doldrums and developing economies under pressure from diminished commodity prices.

Rooster Booster?

So, 2015 illustrated that a maturing economy and economic turbulence could derail Chinese trade growth. But China is a big place, and 2016 shows it still has the ability to drive seaborne trade and that the world hasn’t yet found an alternative to ‘Factory Asia’. 2017 might see a focus on other parts of the world too, with hopes for the US economy, India to drive volumes, and developing economies to potentially benefit from improved commodity prices. But amidst all that, China will no doubt still have a big say in the fortunes of world seaborne trade. Have a nice day.

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In English if you say “he’s gone west” you mean he’s a “goner” (i.e. dead). It’s a phrase the stock market might now be applying to China’s economy. But in China, if you “go west” you get to the town of Urumqi. It has 3 million people, per capita income of $11,000 a year, the Texas Cafe serves great Tex-Mex, and it’s China’s “fastest growing city”. Oh yes – and it’s the world city most remote from the sea (2,400km).

China Really Is A Big Place

The point is that, unlike any other developing region, China is a very, very big place. Many economists would classify China’s recent growth as typical of the “Trade Development Cycle” model. Economic development uses vast quantities of raw materials, for building infrastructure and stocks of durables. Then the focus turns to less material intensive products – there’s not much iron ore in a Gucci handbag. Anyway, it looks as if China might have reached this inflection point in its development cycle.

Previous Growth Regions

Forty years ago Europe and Japan went through the same process. Between 1965 and 1973 Japan was the miracle economy, accounting for two thirds of dry bulk trade growth – just like China. The problems began in 1973 as heavy industry, especially steel, reached unsustainable capacity levels. In 2001 China’s  steel output was 151mt, up from 90mt in 1993. Useful growth which brought China’s steel production in line with Europe’s output of 159mt. But by 2013 China’s output hit 815mt and is likely to be about the same in 2015. Familiar territory.

How Big Is Too Big?

The problem is figuring out when China’s trade development is overshooting. China is so much bigger than Japan and Europe. But by looking at the ratio of the growth in total Chinese seaborne imports to growth in Chinese industrial production, a change is apparent (see chart). If the ratio is over 1, trade is growing more quickly than industrial production – from 2000 to 2003 the ratio averaged 1.6. If the ratio is 1, seaborne imports and industrial production are growing at around the same rate – in 2004-12 the ratio averaged 0.9. Below 1 is bad news – since 2012 the ratio has averaged 0.4 and has been negative in recent months.

Good News & Bad

The good news is that China’s industrial production trend remains at about 5-6% per annum. There is still a long way to go in developing the economy, especially the inland provinces. The bad news is that the stagnation of imports looks suspiciously like the structural slowdown of a maturing Trade Development Cycle. For a while it seemed that coal might fill the growth gap, but with the new attitude to the environment, that seems less likely.

Pushing West

So there you have it. Lots of drama, but the underlying economics suggest that the Chinese economy is having normal development pains, intensified by its size and the pace of growth. For shipping this may not be the end of the road, but it’s time to take a careful look at the management of the business. When a customer the size of China gets growth pains, you just can’t ignore it. Have a nice day.

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