For Australia,of course,a stronger growth rate in China means higher prices for iron ore and other resource and agricultural commodities
With the growth in factory output more than halving in November,from 5 per cent to 2.2 per cent,retail sales plunging 5.9 per cent,auto sales 9.9 per cent,property investment 9.8 per cent and residential property sales 28.4 per cent,China’s economy was spluttering badly even before a reopening.
If the authorities can get control and China finds a way to live,however uneasily,with COVID it could be expected to lift its growth rate from the depressed (by China’s standards) 3 per cent or so expected this year to something closer to the 5.5 per cent originally targeted for this year.
That wouldn’t necessarily be good news for the rest of the world as China’s meagre growth has affected its demand for resources and reduced the volumes of goods and raw materials flowing through global supply chains.
A rebound in its economy could add to global inflationary pressures – it could have a significant impact on oil and other commodity prices – and complicate efforts to drive down inflation in the major Western economies,delaying the moment when interest rates stop rising.
For Australia,of course,a stronger growth rate in China means higher prices for iron ore and other resource and agricultural commodities even where those commodities,such as coal,have been sanctioned by China.
Foreign Minister Penny Wong says Australia’s trade dispute with China was top of the agenda in her discussions with her counterpart,Wang Yi.Credit:DFAT
For the Australian economy,China’s growth rate is far more important than whether Penny Wong’s visit to China,however significant it might be in restoring some semblance of civility to the relationship,helps lead to an easing of the bans on some Australian exports.
Australian exporters affected by the sanctions have found other markets – coal exporters,in by far the biggest sector exposure to the bans,have experienced booms in demand and prices – and,after their experiences,are unlikely to restore their dependence on China even if the trade tensions are defused.
Iron ore prices,while well down on the $US160-plus a tonne prices achieved in April,have started rising again in anticipation of action by Beijing to stimulate the economy.
At China’s annual Central Economic Work Conference late last week Xi Jinping set out Beijing’s agenda for 2023. Economic stability was the key priority,with proactive fiscal policy and prudent monetary policies to be deployed to boost domestic demand as the leadership focuses on reigniting “reasonable” growth.
Chinese President Xi Jinping was running out of pandemic options.Credit:AP
No GDP growth rate target has yet been set for 2023,but it is expected that it will be around 5 per cent,with more fiscal stimulus and the People’s Bank of China pumping more cash into and through the state-owned banking system to promote more activity and to try to stabilise a still-declining property sector.
It was notable that,at the conference,Xi was quoted by state media as saying he had always supported private enterprises and his senior leaders said they would implement policies to encourage private businesses,broaden access for foreign companies and support internet technology platforms to play a leading role in economic development.
Xi Jinping’scrackdown on the big tech platforms,notably Alibaba and Tencent,and the imposition of leverage limits on property developers (which triggered a meltdown in a sector that has contributed about 30 per cent of China’s economic growth) have played a significant role in China’s economic slowdown.
It appears that Xi’s mistrust of private enterprise,particularly big tech and property companies,is thawing as all other issues become secondary to restoring economic growth in a challenging domestic and global environment.
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China’s officials are hoping that the initial waves of infections from the reopening are a short-lived phenomenon and that by the second quarter of next year economic growth will be accelerating in what one official described as a “J-curve.”
That does,of course,pre-suppose that,after a few more months of COVID-related turmoil and economic disruption,infection rates will be falling,the healthcare system will start coping and businesses and consumers will start feeling,and acting,more confident about their futures.
The alternative,of course,is not a J-curve but an S-bend if the authorities can’t get COVID under control and the economy continues to slide.