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AB 2000 studies

Alain Boublil Blog


China : The detente and the rebound

The forum of the Asia-Pacific economic cooperation  (APEC) has allowed the United States and China to publicly showing their common will to lessening the tensions which were lasting between the two countries for near two years. The summit between the presidents Biden and Xi Jinping whose four hours duration was exceptional, has offered the opportunity of a frank discussion about the issues where there was a disagreement and to mention the appropriate measures to prevent that they degenerate and to find solutions. An almost friendly personal relationship between the two men was established and both of them do all they can do to show it to the general public.

The Chinese president also attended a meeting with hundreds of top American firm executives among which were the chairmen of Tesla, Apple, Pfizer and of the large investment fund Black Rock. The objective was clear: to put an end to the worries about the China economic situation and to reestablish the trust necessary to the recovery of American enterprises investments in China which had plummeted since 2022.

Progresses have also been achieved about the Taiwan issue and the principles defined during the Seventies under president Nixon and Henry Kissinger, according to which there was only one China have been confirmed. Every one tries to put an end on the warmful Pelosi episode when the president of the Chamber of Representatives went, in an official trip, to Taipeh without respecting the diplomatic procedures. The Taiwan presidential election will occur in 2024. The democrat Party now in power, which supports a tough line against Beijing, even going to an independence declaration, is far from being sure to win it. Its adversary, the Kuomintang, is itself favorable to the establishment of pacified relations and has good poll opinions.

Its candidate has won the Taipeh townhall election this year. But the appearance of the candidature of the former chairman and founder of Foxconn could, due to the divisions inside its camp, make it to lose the election. As soon as the political situation in the island has not been clarified, no Beijing intervention able to generate a reaction from Washington is envisioned and it seems that this point has been implicitly accepted.

Biden administration has been split on the China issue. Diplomats and militaries were supporting a tough line. Economic executives and notably Treasury Secretary Janet Yellen, to the contrary, never stopped to preaching a rapprochement. She paid several visits to Beijing and was welcomed. It is her line, probably in the prospect of the coming American presidential election, which has been adopted. That very clearly appeared in San Francisco at a moment when, despite many critical judgments about China economic situation, the country seems to be able to cope with its internal difficulties and to rebound.

Published GDP growth figures for the 3rd quarter (+4.9%) and the first estimates regarding activity in October allow to forecasting a growth at least equal to 5% in 2023 and slightly above in 2024, in line with the Chinese government objectives. Year on year, retail sales have progressed by 7.6% in October after 5.5% in September, an obvious sign of an evolution in the household attitude who are starting to draw on their saving. It is spectacular in the services sector: +18.9% in the 3rd quarter. With the end of the confinement, consumption is recovering, which will support demand.

Manufacturing industry, despite an unfavorable international environment, is also coming back to growth (+5% year on year in September). The car industry profits from a double change which leads to an increase of the local production. Consumers have a more and more preference for local brands whose sales have increased by 21% during the first nine months of the year. Their market share went from 48.1% to 54.6%. They prioritize the electric and hybrid models with 5.15 million sales since the beginning of the year, an increase by 33.8%. The number of electric vehicles in China has reached 14 million models and the country starts to become a major cars exporter with, for September alone, more than 300 000 models sold outside the country.

So, how is it possible that they are so many unfavorable and sometimes alarmist comments about the Chinese economy? The reason is simple: the current country growth rate is compared with that one which was measured ten or twenty years ago, which was at that time always above 7%. But since, the size and the development level of the country have completely changed. It would be better to compare its growth with that one of the Western countries, rarely above 2% for ten years when, like France and Germany, they did not fall into stagnation or even into recession.

But that doesn’t mean that China is not confronted with difficulties. There has been first the fantastic wealth accumulation in the private sector resulting from the success of many Chinese enterprises, which was at least a paradox under a communist regime. Authorities then have taken measures, sometimes authoritarian ones, toward their executives which has weighted on the trust of international investors. When American and European stock markets were beating records, Chinese markets knew a severe correction (-20% on two years). The values were, atop of that, weakened by the Yuan fall against the dollar and the euro, which was the consequence of the interest rates increases in these countries.

In the same time was occurring a major real estate crisis, coming from structural problems. The past growth had been by large nursed by urbanization and so by a huge home and infrastructures building effort; but that trend came to an end mainly due to demographic reasons. The country is hurt by the consequences of the one child policy and it is facing, as in Europe or in Japan, an ageing of its population. The main real estate developers had not anticipated this market change, which has been made worse by the very brutal policy adopted to stop the Covid-19 epidemy. The insolvency of two major actors in this sector, in a context of geopolitical tensions and of disorganization of the supply chains in raw materials and industrial components, has aggravated the perception observers had of the state of the Chinese economy.

But the massive foreign exchanges surplus and the accumulation of currencies reserves by the central bank exclude any financial crisis, to the difference of what have known the United States with the sub-prime crisis and Europe with the euro crisis. Beijing has, at its disposal, the financial tools to cope with the real estate crisis and to avoid to endanger the whole economic activity and has the necessary resources to accompany its industry transformation. This one has not any more the mission to be the plant of the world but, and the carmakers sector, with the electrification, provides a good example, to create leaders whose products will take market shares in the whole world.

Instead of permanently giving alarmist comments about the Chinese economy, European leaders would do better to encourage their enterprises to prepare themselves to cope with the apparition of new and powerful competitors. But, that time, these which will mainly be targeted will not be the French companies but their German neighbors.  






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