Experts weigh in on impact on SA of Chinese slowdown

Data released last week has raised further concerns that economic growth in China is faltering, and the question being raised is just what effect this may have on SA trade with this global giant. Credit growth numbers out of China, released on August 12, fell far short of expectations. According to a report by the Standard Bank economics team, the increase in local currency loans was the smallest since 2009, and less than half what was anticipated in the Bloomberg consensus of analysts’ expectations. Adding to concerns over China economic momentum, year-on-year (y/y) growth in industrial production and retail sales for July were both below market expectations. Industrial production growth edged lower to 9.0% from 9.2% in June, and retail sales fell to 12.2% from 12.4%. And all these figures are very much in focus with market participants, according to Standard. “(They) have paid close attention to credit data out of China this year in order to gauge the success with which the authorities have balanced the need to rein in excessive credit expansion without putting the country’s growth objective in jeopardy.” The economists felt that speculation about the latest credit news could weigh on commodities and commodity currencies. FTW also quizzed trade analyst Duncan Bonnett of Liz Whitehouse & Associates on the impact on SA-China trade. On the SA export side, he suggested that our export basket to China was “not particularly sophisticated” – with a primary focus on commodities. And his view of pressure on SA commodity exports pointed to there possibly being a drop-off in their value. In line with the Standard viewpoint, Bonnett said: “If Chinese demand drops, then world prices similarly drop.” But with SA’s exports in general goods being relatively small, this trade category is unlikely to result in any major decline in overall SA-China trade stats. And on the SA import side, Bonnett again noted little effect. Despite market speculation that tight times in China may lead to cuts in that country’s export prices – “A natural result of the supply/demand factor,” one shipper told FTW – Bonnett begged to differ. “I can’t see any significant cuts in prices,” he said. “Because the US and EU markets have been so tight in their import offtakes in recent years, China’s margins are likely to have already been trimmed to the quick.” He also noted that the SA economy was “anything but buoyant”, and felt that – even if there was the encouragement of lower prices – the consumer market buying power just wasn’t there to justify increased imports. The overall effect on SA-China trade from a tight Chinese economy? “Hardly significant,” Bonnett said. CAPTION The Port of Shanghai... Economists say South African commodity prices on exports to China are unlikely to be significantly affected by a tightened Chinese economy.