China’s Economic Realities In Four Charts

Business, China, Company Strategy, Economics

I’ll be again posting less frequently this week – today, obviously, Wednesday and also on Friday – as I  am on still on leave. The blog returns to normal from the week starting 27  July.

 

By John Richardson

SOME graphs are worth many thousands of words, and so here are four graphs to start your week off.

This first graph shows the decline in the growth of fixed asset investment in China, which is very important to monitor as some 50% of GDP has been driven by investment.

Chinafixedasset

Nobody should, as a result, take the official GDP Q2 growth rate that seriously (official growth numbers should never be taken that seriously  in China).

It is instead quite likely that real GDP growth is in the low single digits, if not in negative territory, as the economy is rebalanced away from investment and towards consumption.

My second graph, from the same Zero Hedge blog post, is of equal importance:

Chinaretailsales

It shows how the effective rebalancing of the economy away from investment and towards consumption is going to be a long and difficult process.

One of the immediate challenges is that consumer sentiment has weakened because most people in China have been long aware that more painful economic reforms are ahead.

There is another reason why consumption growth has slowed down, which is explained in this chart:

Chinahomeprices

Why does the fall in home prices matter so much for consumption growth? Because of how much of Chinese wealth is tied-up in real estate:

Chinahouseholdwealth

The above fourth and final chart also tells us that the decline  in China’s stock markets, whilst acting as a useful wake-up call to wider economic challenges, is by itself not that significant.

What is also important to note is that China has to find a replacement for the lost wealth effect of the credit boom of 2009-2013, which was nothing short of an economic, environmental, social and political disaster.

What form will this replacement take? We know that one of the major political and social mistakes of the credit boom was that it benefited far too few people – the relatively very small rich upper and middle classes who own most of China’s high-end real estate. It is a mistake that China’s government simply cannot afford to repeat under any circumstances.

So when we talk about rebalancing away from investment and towards consumption, we not talking about consumption of lots more luxury autos and designer handbags etc. – the most visible sign, to most occasional thinkers about China, of its economic success.

What we are instead talking about is the $50 refrigerator and the cheap, but perfectly good entirely locally-made smartphone.

For every manufacturing and service company wanting to do really big-volume business in the new China there must therefore be three main priorities: Affordability, affordability and affordability.

PREVIOUS POST

The Great "Middle Class Myth" Further Exposed

16/07/2015

By John Richardson A GOOD argument is only a good argument if it is backed up by...

Learn more
NEXT POST

Serving The Needs Of The Vulnerable Poor Majority

22/07/2015

By John Richardson HERE is another way of looking at the important new Pew Resea...

Learn more
More posts
China paraxylene and ethylene glycols apparent demand booms as real demand remains weak
13/08/2020

              All the numbers below are comparisons on a year-on-...

Read
Why a new stimulus deal could be critical for US polyethylene demand
11/08/2020

By John Richardson GOVERNMENT stimulus is crucial for protecting polyethylene (PE) markets in the We...

Read
China’s shift towards styrene self-sufficiency adds to pressure for new petrochemicals business model
09/08/2020

By John Richardson IT IS dead simple, apparently. All you have to do is find alternative geographica...

Read
Why a hard look at the data show China has not seen a V-shaped recovery
06/08/2020

          Note: All the data comparisons below are year-on-year By John Ric...

Read
China moves closer to Iran as tensions with the US build: Implications for petrochemicals
02/08/2020

By John Richardson Opinions and emotions and can shape how we interpret data, but, as we all know, o...

Read
China polyolefins market H1 review: so far so good, but beware of the risks ahead
30/07/2020

By John Richardson ALL looks fine in the polyolefins world. The Old Normal appears to have reasserte...

Read
Polyethylene market recovery could be threatened by slower China crude buying, weaker economic growth
28/07/2020

By John Richardson EVEN by China’s standards, where just about every number is eye-wateringly larg...

Read
Why the polypropylene industry must switch from volumes to value
26/07/2020

By John Richardson EVERYONE knows about the oversupply in the polyethylene (PE) market as it has bee...

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