OPINION: The importance of China to the global economy is highlighted by the fact that since 2006 it has been the single largest contributor to global growth, making an average annual contribution of more than 30% of world economic growth.
By Helmo Preuss
The Chinese economy kept growing in October despite power cuts and supply chain disruptions.
These constraints were in part due to flooding which disrupted transport links, but these were temporary, so by the end of October they had eased, and the data showed that there was a recovery in October compared with September.
Two data points in particular show the recovery.
The first is the Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which rose to rose to 50.6 in October from 50.0 in September and 49.2 in August, when flooding was at a seasonal peak. The October survey highlighted that the total new orders index rose to the greatest extent in four months.
Dr Wang Zhe, the Senior Economist at Caixin Insight Group said the manufacturing sector featured a combination of strong demand and weak supply last month.
"Suppliers’ delivery times rose sharply as the power crunch and raw material shortages disrupted logistics. The gauge for delivery times hit the lowest point since March 2020. Manufacturers cut purchases due to multiple factors including weak supply, the power crunch and raw material shortages. Surveyed manufacturers remained optimistic about the outlook for business and market demand, but some expressed worries about the nominalization of supply chains,” Wang said.
“Policymakers should not only take effective measures to stabilize commodity supplies and prices, but also pay close attention to downstream firms, especially small and midsize ones. In addition, a new wave of Covid-19 outbreaks has reappeared in many central and western regions since late October, which means re-emerging economic disruptions. It is critical to balance the goals of controlling the outbreaks and maintaining normal economic activity,” Wang concluded.
The second data point was the October foreign trade data. This showed that exports extended their double-digit growth for the 13th month running, rising by 27.1% year-on-year (y/y) to $300.2 billion after a 28.1% y/y jump in September and compared with the consensus forecast of 24.5% y/y growth. The export performance was based on solid global demand ahead of the Black Friday and Christmas retail holiday seasons with exports to the European Union (EU) surging by 44.3% y/y. The October performance meant that China was able to export as much in ten months of 2021 as it was able to do in the 12 months of 2020, when the world endured the global Covid-19 pandemic. Exports in the first ten months increased by 32.3% from a year earlier to $2.7 trillion.
Imports to China rose by 20.6% y/y in October to $215.68 billion after 17.6% y/y growth in September. Imports of coal surged by 96.29% y/y so that they could supply power stations, which at the beginning of October only had two days’ worth of stocks. Chinese power plants now have 16 days’ worth stocks, which means that the number of Chinese provinces with significant power shortages eased to only two in mid-October from 18 at the start of the month.
Chinese companies in the electric vehicle (EV), battery and renewable energy sectors have been rallying recently due to a Chinese government-supported shift towards clean energy and environment protection, amid a global campaign against climate change which culminated in the COP26 Climate Change talks in Glasgow, Scotland last week. The People’s Bank of China has therefore introduced a new lending tool meant to support green initiatives by providing institutions with low-cost loans to help cut carbon emissions.
The importance of China to the global economy is highlighted by the fact that since 2006 it has been the single largest contributor to global growth, making an average annual contribution of more than 30% of world economic growth.
China is the largest trading partner of more than 50 countries and regions, including South Africa, and one of the top three partners of over 120 in total. China is offering bigger markets, better cooperation opportunities, and greater development space to businesses from all over the world.
China is our top trading partner in both exports and imports. In September 2021 it took 10.1% of our exports and supplied us with 19.1% of our imports, so we can be glad that we are able to share in China’s journey towards “common moderate prosperity” that is done in a sustainable environmentally friendly way.
* Helmo Preuss is an Economist at Forecaster Ecosa
** The views expressed here may not be that of IOL.