China’s ‘slowdown’ to impact on SA trade

Experts say biggest trading partner may soon say ‘no’ to goods

HINA’s stock market volatility is a major concern for South Africa as China is the country’s biggest trading partner, economists have said. Nedbank economist Isaac Matshego said China’s stock market volatility could have a knock-on effect on sentiment in the continent’s second largest economy. China’s economic growth is falling sharply from the seven percent projected for this year.

He said if Chinese economic growth weakens significantly, global investor risk aversion could rise, resulting in emerging market assets like South African equities and the rand being dumped by investors.

“On the trade side, China exports more to South Africa than it imports from us. Actually, our exports to China are mainly minerals and we would hurt if global commodity prices are weakened by weak Chinese demand. China is the world’s largest consumer of commodities.”

FNB economists Alex Smith and Mamello Matikinca said in their weekly report last week that a big concern for South Africa is China, where a massive stock market rout is wiping out much of the past year’s spectacular gains.

“High levels of debt and slowing demand in China are placing growth under pressure. This is a significant concern for South Africa as China is our biggest export destination. With persistent electricity constraints, weaker demand and the ever present possibility of labour disruption, we remain concerned about the outlook for full year performance and consequently, the ability to meaningfully narrow the current account deficit,” said Smith and Matikinca.

John Cairns, currency strategist at Rand Merchant Bank said although the fallout on Chinese equities is not a big deal for South Africa’s economy, it will have a big psychological influence on the country’s financial markets.

He said the stock market fall should not impact the Chinese economy materially.

“After all, the equity market capitalisation in China, as a percent of GDP, is still small relative to that in the developed world and even that in South Africa. What’s more, Chinese households only have a small share of their wealth in the stock market, so their overall wealth will not be impacted greatly. The stock gyrations are, nevertheless, having an impact on our local markets, equities most obviously but even too the rand.”

Absa economists Ridle Markus, Peter Worthington, Miyelani Mululeke and Dumisani Ngwenya said in their Emerging Markets Weekly report last week that the key of the week was the release of mining and manufacturing output data for May by Statistics South Africa.

“The SARB will clearly be paying attention to these. However, we still see rising inflation with upside risks and a high likelihood of multi-quarter upside breach of the inflation target.”