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Winnipeg Free Press - PRINT EDITION

China focus of new global jitters

By: Jay Bryan

Posted: 07/12/2012 1:00 AM | Comments: 0

AS if Europe's ability to blunder itself into a double-dip recession wasn't enough to worry about, skittish investors have persuaded themselves China will be the next big domino to come crashing down on the world's prosperity.

Earlier this week, Chinese stocks hit a six-month low on the latest bit of bad news out of Beijing: trade statistics that, despite an unexpectedly strong export number, contained a weak figure for imports. This latter figure suggested to pessimists Chinese demand is collapsing as the economy screeches to a near-halt.

Happily, it doesn't look as if this gloomy forecast is anything like inevitable. In fact, a number of credible analysts just plain disagree.

That's not to say this is an easy call. "Even people you respect in China have very mixed views," notes Aron Gampel, deputy chief economist at the Bank of Nova Scotia.

Not surprising, perhaps, since the Chinese slowdown has indeed gone on longer than many had anticipated and it isn't over yet. Gampel's best guess is growth in the world's second-biggest national economy will stabilize sometime in the second half of this year.

That's of more than passing interest to a trading nation such as Canada, since China plays an outsized role in determining world demand -- and therefore prices -- for the resource products that make up so much of our export earnings. Even commodities sold mostly in the West will have their prices influenced strongly by the vigour of Chinese demand.

The Scotia forecast is growth in China will slow, but average 7.8 per cent this year, actually exceeding the official Chinese government target of 7.5 per cent. Then growth should strengthen to 8.4 per cent in 2013.

Such a performance would be welcome news for Canadians exporting everything from wheat to copper, since it should put a floor under their earning power that's pretty close to its present level.

This is not to say the next couple of years will see a smooth ride for commodities. Gampel expects to see plenty of drama on issues such as Europe's debt crisis and the U.S. political deadlock on economic policy, which could mean major volatility even if prices aren't trending down.

At BCA Research, analyst Yan Wang agrees with Gampel and some other forecasters that China's growth will come in above this year's official target, but he sees 2013 as uncharted waters -- a period of continued soft and possibly choppy growth, thanks to the uncertain outlook in Europe, China's biggest export customer.

But even Wang's cautious view doesn't leave much room for a disastrous meltdown. That's because when he looks closely at China's domestic economy, he simply doesn't see the fragile, unbalanced economy some investment analysts portray.

A key imbalance pointed to by those who worry about the sustainability of Chinese growth is the remarkably small role played by consumer spending, a relatively stable element of economic activity that is a remarkably low 35 per cent of China's GDP, according to official statistics. That's far below the more typical 50 to 60 per cent for an industrial economy.

But Wang notes Chinese statistical reporting isn't always accurate, and this anomaly flatly contradicts both observations on the ground and other, likely more reliable, statistics such as those for auto sales, which have shot up tenfold since 2000. Such sales are a good indicator of consumer spending.

Meanwhile, consumer spending on health care has supposedly dropped in the past decade, lowering this component of consumer spending. But that's just not credible in a period of widespread privatization of health-care costs.

-- Postmedia News

Republished from the Winnipeg Free Press print edition July 12, 2012 B6

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