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AB 2000 studies

Alain Boublil Blog


China is not doing so bad


The publication of the Chinese economy results during the 2023 2nd quarter has been generally received with disappointment and frequently with the evocation od the new structural weaknesses to which the country was confronted. What is really true? To appreciate growth, you may use two criteria, the comparison between two successive quarters or with the past year one. Quarter on quarter, growth has been 0.8%, with a very significant slowing from the previous period (+2.2%) which took profit from the strong rebound resulting from the end of restrictions decided to cope with the Covid-19 pandemic. It is this slowing which has generated the critical comments. But this analysis is not relevant when there are external phenomenon which affect the economic behaviors.

If we reason year-on-year, Chinese growth has been during the last twelve months 6.3%, which is not, compared with the major developed countries economies, so bad. In order to smooth the perturbations coming from government decisions, we can also look at the half-yearly evolutions. During 2023 1st half-year, production has grown by 5.5% compared to 2022 1st half. The 5% growth government objective for 2023 is so not out of reach. We even see an acceleration because growth had been 3% in 2022 and the rhythm between 2022 1st quarter and 2023 1st quarter has been 4.5%.

The main mentioned weaknesses regard household consumption in goods and the situation of the real estate sector. After the strong rebound which had generated during the Lunar New Year holidays during January and February a very strong increase of travels and of the expenditures in services which was resulting from them, household have adopted an attitude close to their Western homologues one, cautiousness in front of the future, the delay of buying and the constitution of a precautionary saving. Yet, in real terms, their available revenue increased by 5.8%. Another factor has played a role, the increase of the unemployment rate of the young, living outside of the major urban areas, which has also leaded families to restrain their expenditures to support their children looking for a job.

Logically, with the progressive come back to a normal situation, these behaviors would lessen during the year and constitute a supporting factor for the Chinese growth. To the opposite, the real estate crisis will take several years to be solved and the building sector, which was an important support to the economy will continue to weight on the activity. The financial consequences will be heavy for the banking sector but the State has at its disposal the resources to impeach a bankruptcies wave and has already let known that it will do it. The reproduction in China of a crisis like the subprime one occurred in the U.S. in 2007 is so not likely because their was no financial speculation on the real estate debts and the State, if it was needed, would not hesitate to intervene.

China looks like good pupils regarding inflation because prices increase has never overpassed 2% these last two years, which has contributed to protect household level of life. Among the factors which have made possible that stability is the lower exposure to the energy prices international fluctuations. China has even taken advantage of the sanctions decided against Russia through the increase of its oil purchases to Moscow which has so come ahead of Saudi Arabia as its first supplier. Imports have grown by 12% during the 1st half and have reached a 2.6 million barrel per day in June against 2 mb/j as an average in 2022.                     

Despite an unfavorable international environment, China still continues to accumulate huge trade surplus. They have overpassed 400 billion dollars during the 1st half of the year with stable imports and exports rising by 3.7%. The China central bank has at its disposable 3600 billion dollars in currencies reserves and 68 million gold ounces. There is so no risk if the country, as their leaders are thinking about, launches, as in 2008 but probably at a smaller scale, consumption supporting measures.

Before the crisis which have hurt the world economy these last two years and the increase of restrictive trade measures, China had adopted as and objective to exit from its status of the factory of the world and to have a growth more nourished by the internal demand. The recent evolutions are going against this project but the country could take much more profit from that: China is becoming a great industrial power by itself and not anymore through being the supplier of the world industry.

In the nuclear industry, it has acquired its technical autonomy. The Hualong 1 reactor is in operation and exports contracts have been concluded, notably with Pakistan where 7 reactors will be built. In the aeronautic, in which China was absent ten years ago, the C919 model, a competitor to the Airbus 320 and to the Boeing 737, has been certified and Eastern Airlines has received its first airplanes. On three other markets, essential for the energy transition, the Chinese industry is becoming a world leader.

Regarding solar cells, the country always had had a real advance but with the acceleration of the investments in order to de-carbonizing the power production, Chinese exports will continue to increase. The batteries sector along with the commodities indispensable for their utilization, also contributes to give China a world leader position at a time when vehicle electrification will be mandatory in Europe. Companies like CATL are even going to invest abroad and to build gigafactories with components produced in China and having granted the safety of its supplies in special metals and rare earths.

Lastly and especially, the Chinese car industry which has at its disposal a technologic lead and an already very large internal market for electric vehicles, which allows to reducing costs, is getting ready to conquer the world market. BYD sales have doubled during the 1st half of the year to reach 1.26 million vehicles. For the 1st time, China became a car net exporter with, during these last twelve months 80 billion dollars against 45 billion dollars imports. As a total, these three sectors, solar cells, batteries and electric vehicles have generated exports for an amount of 64 billion during 2023 1st half, an increase by 64% year on year.

The Chinese model is evolving, but not in the direction the country leaders had forecast and definitely not where it is imagined in Europe. International tensions have slowed its exchanges with the Western countries but it has found the take over with its South Asian neighbors and especially with the high-quality industrial products which are indispensable to achieve the energetic transition. A new era in the relations between China and the developed countries is opening. It is the duty of the governments and of the enterprises to become aware of it. The first ones must include it in the analysis of their relations with the Middle Empire and the second ones must look to create strategic partnerships with their Chinese homologues where everybody will be the winner.     



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