The Chinese economy is a picture of enviable growth compared with the rest of the world
Jeffrey Landsberg says the desultory performances of economies elsewhere, notably in India and the US, underline China’s vital role as a global growth engine
To fully understand China, one must first understand the rest of the world. The reality is that the Chinese economy is doing quite well, and that much of the world outside China is doing poorly.
Take the United States for example. According to the Federal Reserve, US industrial production has contracted for 11 consecutive months, year on year, and the fact remains that the US is not doing nearly as well as its robust stock indices would suggest.
India is another nation that is perceived as maintaining great strength but, in many areas, it is showing weakness. India’s industrial production has wavered in the past several months. Where there has been growth year on year, that growth has been small. Other months have seen contractions, with November 2015 through to January 2016 marking a period when Indian industrial production fell for three straight months, year on year.
The US, while still dealing with some economic challenges, is at least a developed nation where its industrialisation has peaked. India, however, is a large developing nation that is still very early into its own industrialisation. Notably, Indian steel consumption growth has been extremely low this year. According to the Indian government, domestic steel consumption totalled 47.5 million tonnes during the first seven months of this year. This is only 0.4 per cent more than was consumed during the first seven months of 2015. Warning flags need to be raised when a nation such as India is witnessing its steel consumption grow by only 0.4 per cent, year on year.
Global steel production outside China has also remained very troubling. July marked the 18th consecutive month where global crude steel production outside China contracted, year on year. In comparison, July marked the fifth straight month where Chinese crude steel production increased year on year. In China, demand for commodity imports has also remained robust, with iron ore imports, in particular, setting another record this year and coal imports also rebounding. Iron ore imports are on pace to set a record of nearly 1 billion tonnes this year. In addition, Chinese coal imports in the first seven months of this year totalled 129.2 million tonnes, about 7 per cent more than was imported during the same period last year.
While much of the global economy remains under pressure, China has remained an engine of growth. Without China, many segments of the world’s commodity trade would be contracting, just as many nations outside China have often been experiencing a contraction of industrial production. Overall, China has been faring quite well this year while the world outside it has remained under significant pressure.
China’s economy should be recognised for what it is: an engine of robust growth that continues to hold much of the world afloat. Too often, nations outside China receive a pass while China is scrutinised far too critically. Just a few months ago, analysts said China’s foreign exchange reserves fell too low. The irony was that these reserves have stayed above US$3 trillion throughout this year, and that China is one of only two nations that has at least US$1 trillion in reserves (Japan is the only other nation that has over US$1 trillion). The US, in comparison, has only a little over US$120 billion in foreign exchange reserves.
In addition, China last year achieved a global trade surplus totalling some US$600 billion and continues to maintain a robust trade surplus this year. In comparison, there has not even been a single month this decade where US trade achieved a surplus.
The United States maintaining a trade deficit with its global partners is certainly not news, but what might come as a surprise to some is that India has also not experienced a single month this decade where its trade with its global partners has achieved a surplus.
Thus, to fully understand China, one must first understand the rest of the world. Signs of weakness are evident in many nations – but it is China that has remained an engine of growth for the global economy.
Jeffrey Landsberg is a managing director at Commodore Research & Consultancy