Ups, Downs of China's Economic Growth: What It Means For Us

by on

A series of reports have hit the headlines in recent days, saying the improvement in Chinese GDP growth seen in the last quarter of 2012 will continue well into 2013.

Not only is growth expected to hit 8.6% in 2013, according to Stephen King (no, not the author of “Pet Sematary”; the chief economist at HSBC), but due to the size of the Chinese economy now relative to the rest of the world (China’s GDP should be three-and-a-half times bigger in 2013 than it was in 2000), the country’s contribution to global growth will be substantial.

King was quoted in the FT as saying, “Consistent with this, we forecast that China will add more to global growth in 2014 than ever before, even though the projected growth rate will be lower than in earlier years.

“Even if the Chinese economy is slowing,” he continued, “its impact on the global economy – paradoxically – is rising.”

And therein lies an important point.

We sometimes see ourselves in competition with China, almost along the lines that “if China does well, then it must be at our expense,” but in fact a growing China provides a ready market for Western goods and, increasingly, services.

While China still enjoys a balance of payments surplus, it’s true that the country is exporting more than it is importing, but growth in global trade lifts all boats, ours included. Likewise, the rise in Chinese firms’ profitability will feed through into increased investment and raise living standards, and hence domestic Chinese consumption, over time.

Total profits earned by major Chinese industrial enterprises rose 17.3 percent from a year earlier in December to $144 billion, according to figures released by the Chinese government on Sunday and reported by the FT. Admittedly, the first three quarters of 2012 were weak, but December marked the third month of double-digit profit growth.

Looking ahead, Stephen Green, head of research for Greater China at Standard Chartered Bank, is quoted as saying, “We expect industrial profits to rise 30 percent in 2013 on average, with year-on-year profit growth to peak in the third quarter.”

Continued in Part Two.

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.