China’s Real Growth Could Be Weakest Since 1995

Business, China, Company Strategy, Economics, Fibre Intermediates

By John Richardson

WE all should know that China’s published GDP figures are meaningless as, of course, China’s premier Li Keqiang has told us so.

But the trouble is that so many analysts continue to talk about another burst of stimulus being just around the corner, which will help China achieve its 2014 GDP growth target of 7.5%.

Those familiar with the blog will know that we have long argued that such a burst of stimulus would be nothing short of an economic, social, political and environmental disaster for China . The great news is that it is not going to happen because China’s  leaders are not stupid – they know it would be a disaster.

And back to our main point: Even if there is an uptick in official GDP growth later this year, for whatever reason, this would  likely be a public relations measure and the data would, essentially, be meaningless.

The chart below, from veteran China commentator and metals expert Simon Hunt, illustrates our point.

ChinarealGDPgrowthSept2014SimonHunt

It begins in 1991 and shows nominal GDP (dotted blue line) and a GDP deflator (red).

Nominal GDP is total output before adjusting for inflation, and the GDP deflator then adjusts for inflation.

The black line shows official GDP growth and the green line is real GDP growth, once this deflator has become taken into account.

The real GDP line shows that China saw negative GDP growth in 1993, 1998-1999 (the Asian Financial Crisis) and 2009 (the Global Financial Crisis).

We think  that real GDP growth is again likely to dip into negative territory as the vital economic reforms accelerate.

On this occasion, though, negative GDP growth is a much bigger deal for the global economy. Here is why, based on data from the UK’s Guardian newspaper:

  • Before 2007, the US was easily the biggest contributor to the growth of the world’s economy. In 2004, for example, the world economy grew by 12.8% (nominal terms) to which the US contributed two percentage points. By way of context, the UK and Japan that year contributed 0.9 percentage points, France 0.7 and Germany 0.8. China also contributed 0.8 percentage points.
  • In 2007, the world’s GDP grew by a similar 12.7%, but this time China was the biggest contributor with 1.6 percentage points worth, and the US contributing just 1.2. And since then, China has remained the biggest driver of the world’s economic growth.
  • To put it in even more stark terms, from 2007 to 2013, the world’s economy grew by 31% and China contributed nearly a third of that, with 10.1 percentage points worth.

And so, as official GDP growth rates are worthless, what can we rely on as a guide to what is actually happening in China’s economy?

We could recalculate nominal GDP growth based on an inflation adjustor. But as inflation is constantly shifting, we would have to wait until the end of this year to work out 2014’s real GDP growth.

This would obviously far too late for corporate planners.

The fantastic news for company planners in every industrial sector is that chemicals serve as an excellent “real time” barometer of what it is really happening out there. This is because our industry supplies the raw materials for so many consumer goods.

The chart below, showing China’s purified terephthalic acid (PTA) operating rates, is therefore very useful.

ChinaPTAoperatingratesSept2014

It shows that in 1998, China’s average PTA operating rate was 81%. This was the lowest point of the Asian Financial Crisis when, as we point out above, China’s real GDP was in negative territory.

Last year, the rate fell to 80%. This was not only lower than during the Asian Financial Crisis, but the lowest operating rate since at least 1995.

And the estimated operating for this year is just  64%. But with rates right now at 52-53%, there is a danger that the average full-year rate might be even lower than this.

This could well mean that:

  • China’s economy is in its worst shape in at least 19 years.
  • This is occurring at a time when China’s economy is much more important for global economic health.

Need a  Plan B? Then register for  our free webinar on China, which takes place today.

PREVIOUS POST

China Transformation Webinar Tomorrow

08/09/2014

By John Richardson EVERYWHERE you look is the same,  according to the Asia ICIS...

Learn more
NEXT POST

Iron Ore and Petrochemicals Share The Same Delusions

10/09/2014

By John Richardson BACK in January we wrote:  “As China’s investment growth...

Learn more
More posts
China ethylene glycols and paraxylene: new 2021-2031 import scenarios as self-sufficiency threat increases
08/04/2021

By John Richardson WHEN I WAS a boy in 1970s Britain, a new pair of shoes was an expensive propositi...

Read
Iran may gain 48% of total China HDPE imports, 85% of LDPE imports by 2025 because of new deal
06/04/2021

By John Richardson IRAN and China earlier this month signed a wide-ranging economic and security agr...

Read
China early data points to 42% fall in 2021 HDPE imports
30/03/2021

By John Richardson China’s high-density polyethylene (HDPE) imports in 2021 look as if they might ...

Read
China early data point to PP imports collapsing by 78% this year with SM 67% lower
28/03/2021

By John Richardson CHINA’S apparent demand for polyethylene, polypropylene (PP), styrene monomer (...

Read
China’s environmental policies: scenarios essential for impact on local and global petrochemicals
25/03/2021

By John Richardson WE MUST develop very nuanced, broad ranging and constantly updated scenarios abou...

Read
Worsening semiconductor shortages highlight need for new approach to demand
23/03/2021

By John Richardson PETROCHEMICAL companies need to set up demand teams that focus on all the new sho...

Read
China petrochemicals and the lack of logical basis for the 2021 boom theory
21/03/2021

    By John Richardson IF YOU DO a Google search, you will find a lot of articles on China...

Read
Seeing through the lack of data: new scenarios for global LLDPE demand in 2021-2025
18/03/2021

By John Richardson WE DON’T HAVE THE DATA sets nor the data tools to work out what is going to hap...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more