EVER SINCE CHINA launched its huge economic stimulus programme in 2009, it has been obvious that the road for debt-fuelled economic growth would eventually run out.
A lot of money was made during this long period of investment and debt-driven economic expansion, including by the polymers industry.
The Economist, in a 12 September 2022 article, underlined the end of the debt growth model when it wrote: “China’s Ponzi-like property market is eroding faith in the government [worth around 29% of China’s GDP].
“The 120km train ride between the cities of Luoyang and Zhengzhou is a showcase of economic malaise and broken dreams. From the window, endless half-built residential towers pass one after another for the duration of the hour-long journey.
“Many of the buildings are near completion; some are finished and have become homes. But many more are skeletons where construction ceased long ago. Developers have run out of cash and can no longer pay workers. Projects have stalled. Families will never get their homes.”
A 4 October Financial Times article on China’s property crash said that thousands of local government financing vehicles were either running short of funds or on the brink of unprecedented defaults. These vehicles have been the main source of growth since the Global Financial Crisis.
The FT, quoting analysts, wrote in the same article that Beijing was more focused on the Common Prosperity economic reforms than shoring-up short-term growth. This is an argument I’ve been making since last September.
The FT view is confirmed by the latest China Total Social Financing (TSF) figures, courtesy of Paul Hodges from New Normal Consulting. TSF, which is lending from the state-owned and private banks, reached Yuan (CNY) 8018bn n Q1 this year. This fell to CNY5345bn in Q2 and CNY4339bn in the third quarter.
An earlier boost to China’s economy followed its admission to the World Trade Organization in late 2001.
Admission removed the quotas and tariffs that had limited China’s exports of manufactured goods to the West, allowing China to take full advantage of what used to be a very youthful population.
This other road has also run out because of the long-term collapse in Western demand for exports worth between 10-20% of local polymers demand, depending on the type of polymer.
There are two reasons for lost export demand. Firstly, there’s the inflation crisis that’s reducing affordability, along with the inevitable cycle out of demand for durable goods and into services now that we are past the peak phase of the pandemic; and, secondly, the rise of “less is more and “build to last” as sustainability pressures build.
China’s economic boom: The impact on global polymers demand
The chart below shows how China became the world’s biggest regional consumer of the seven major synthetic resins in 2006. But, as you can see, a key step-change was between 2008 and 2009 when China’s share of global demand increased by four percentage points. This was the result of the big stimulus package.
In terms of tonnes, China’s consumption rose to 185m tonnes in 2021 from 79m tonnes in 2009 – a 135% increase.
Now consider the chart below.
China accounted for 33% of global growth in the same seven polymers between 1990 and 2001. But this jumped to 63% in 2002-2021. In distant second place during both these periods was the Asia and Pacific region at 15% and 17% respectively.
What happens next? What if China’s share of global growth were to collapse in 2022-2040? I see this as a major risk now that China can no longer depend on investment and exports to drive its economy.
I shall look at scenarios for China’s 2022-2040 growth in these seven resins – and what the scenarios would mean for the rest of the world – in a later post.