Thursday, October 17, 2019

Will Year of Pig bring economic boost for China?

Feb 03. 2019
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By Suwatchai Songwanich
CEO Bangkok Bank (China)

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Suwatchai Songwanich CEO Bangkok Bank (China)

This year there is an underlying sense of uncertainty during the Chinese New Year celebrations due to worries about the strength of China’s economy. Sales of consumer goods have been slowing and companies such as Apple, Caterpillar and Nvidia have reported a sharp drop in Chinese demand. Exports and imports have contracted and GDP growth, at 6.6 per cent, is at its lowest level in 28 years. This weakening performance was foreshadowed by the stock market last year – the Shanghai Composite Index fell by 25 per cent, the worst performing in the world. 

In the face of this pessimism, Vice President Wang Qishan used the platform of the World Economic Forum to try to boost confidence. He said that people should not be alarmed by the slower growth rate – after all it is still higher than most countries in the world – and that China is pursuing a path of sustainable growth.

This assurance was echoed by Zhang Yansheng, a chief research fellow with the China Centre for International Economic Exchanges, who pointed to China’s high expenditure on research and development at 2.15 per cent of GDP. Last year, China had the largest number of patent applications and issuances in the world and over the longer term this will stimulate innovation and growth. 

Despite the drop in sales by companies such as Apple, the Chinese consumer is a big driver of China’s economy, now contributing around 80 per cent of GDP growth. Demand for premium and luxury goods continues to grow, especially for local brands. Prospects for tourism are bright and the number of Chinese holding passports is expected to rise this year from 120 to 150 million. 

With disposable income continuing to grow and tax cuts promised this year, consumer confidence is high. It is possible that the problems American companies are experiencing are due to a backlash from Chinese consumers and businesses – as they shun US products in favour of their own or those from other countries. In prior spats with South Korea and Japan, Chinese consumers expressed their displeasure by boycotting the goods from those countries.

Although a failure in the US-China trade talks would certainly dent consumer confidence in China, there will be mitigating factors. US tariffs up to now have been offset by a weaker yuan which has also encouraged people to switch to local brands, while the offshoring of low-value manufacturing is a trend that was already well underway.

In any case, let’s hope a deal is reached and that, after all, the Year of the Pig will live up to its promise of prosperity.

For more columns in this series please visit www.bangkokbank.com.

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