Bangkok Post

Why China Isn’t Expected to Power a Global Recovery

In the last downturn, Chinese demand helped revive many economies. Economists say it likely won’t come to the rescue this time.

- EUN-YOUNG JEONG TOM FAIRLESS

Getting the global economy back on its feet this year won’t be easy. But it will be even tougher without more help from China, the locomotive that powered recoveries from the world’s latest economic emergency. During the 2008-09 financial crisis, China’s soaring demand for raw materials and other goods boosted growth across the world, underpinni­ng rebounds in places like Brazil and Germany. Some countries, like Australia, avoided recession almost entirely thanks to trade with China.

China isn’t poised to help as much this time. Despite signs of a solid rebound recently, its economy has been hit much harder than in 2008-09, limiting its ability to lift other nations from recession prompted by the coronaviru­s pandemic.

China is showing more restraint on stimulus spending compared with past downturns. It is also more self-sufficient in some industries than previously, meaning it may need to buy less from abroad.

Thomas Nuernberge­r, Greater China chief executive of ebm-papst Group, a fan and motor manufactur­er based in southern Germany, said demand from Chinese hospitals and data centers has recovered. But sales have fallen sharply to the auto industry and to Chinese manufactur­ers that ship their products elsewhere.

He expects caution among Chinese consumers and businesses to weigh on growth, reducing odds of a “V-shaped” recovery.

“For 2020 it is not possible, I think, that China does the job it did in 2008-09,’’ said Thilo Brodtmann, executive director of the German Mechanical Engineerin­g Industry Associatio­n, a trade body. “Quite a few companies in China are struggling.”

China is still expected to post the strongest growth of any major economy this year. The Internatio­nal Monetary Fund projects that China’s gross domestic product will expand 1% in 2020. This follows a 6.8% contractio­n in the first quarter. The U.S., Germany and Japan are expected to contract more than 5% this year.

Any growth in China’s economy—the world’s second-largest—can make a big difference. China’s purchases of soybeans are helping American farmers, even if they don’t fully add up to totals promised in the U.S.-China trade deal. In Ireland, pork exports to China jumped 80% in the first four months this year compared with the same period in 2019 as China dealt with a swine-fever outbreak.

Still, on balance, economists say China’s demand isn’t providing as much oomph as it did during the past recession. Some countries have been hit so hard that even solid Chinese demand can’t get them out of trouble.

In 2008, Beijing rolled out a $586 billion stimulus package worth about 13% of the country’s economic output at the time. That was followed by a boom in lending. China’s economy grew 9.7% in 2008 and 9.4% in 2009.

Much of its spending went into infrastruc­ture like roads, airports and housing, driving Chinese demand for imported materials like iron ore. Australia, a major beneficiar­y, saw its economy expand by 3.7% in 2008 and 1.9% in 2009.

This year, annual iron-ore supply contracts with Chinese customers are running ahead of levels at the same stage of 2019, a senior Australian mining executive said. Some of that reflects demand shifted to Australia from Brazil, another big iron-ore player that has been hit harder by the coronaviru­s.

Yet that isn’t the kind of demand surge that

Australia, which saw a sharp drop in consumer spending, needs to avoid slipping into its first recession in nearly three decades, with annual GDP contractin­g 4% or more, according to some forecasts.

Uncertaint­y over fresh Covid-19 outbreaks is further clouding the outlook.

Geraldton Fishermen’s Co-operative Ltd., which exports 90% of its rock-lobster catch to China from Western Australia, saw export volumes to China return to historical averages in April and May after a monthlong pause in fishing, said Matt Rutter, its chief executive.

But demand from China fluttered again in June, when new coronaviru­s cases connected to Beijing’s largest food wholesale market surfaced.

“It could take six to 12 months or more for the market to recover,” Mr. Rutter said.

The picture is similar in Thailand, whose economy relies heavily on China. Chinese demand helped stabilize prices for rubber, a major Thai export.

Raweeploy Yutthachar­oenkit, manager of Bothong Rubber Fund Cooperativ­e Ltd., says some Chinese companies are expanding and it has been hard to keep up, especially since Thai rubber farmers cut production because of Covid-19.

Thailand’s economy is still expected to shrink as much as 8% this year, though, in part because Chinese tourists are largely staying away.

In South Korea, semiconduc­tor-equipment maker YoungjinIN­D Co. has resumed production thanks to orders from chip-making facilities in China. Orders from China dropped to zero in February and March.

But the orders are still only a third of last year’s, said Park Jong-jin, head of YoungjinIN­D’s planning team.

Concerns over rising debt have made Beijing warier of engineerin­g more growth through stimulus this year. Its fiscal measures are estimated to amount to 4.6% of GDP, according to the IMF.

Christine Wong, a visiting research professor at the National University of Singapore’s East Asian Institute, figures it may add up to 7% of GDP when all government budgets are taken into account.

In some cases, though, China is better-placed to supply its needs than before. In the constructi­on sector, sales of excavators jumped 68% from the previous year in May, according to the China Constructi­on Machinery Associatio­n.

But this jump was driven by a 76% increase in sales by domestic producers, which include Sany Heavy Industry Co. Purchases from foreign sources, which include Caterpilla­r Inc. and Komatsu Ltd. in Japan, rose just 3%, according to Goldman Sachs.

Somchai Techapanic­hkul, chairman of the Thai Plastic Industry Associatio­n, said his members have seen a similar trend.

“China has developed their own plastic, and the price is cheaper,” he said. “They may not want our products anymore.”

China’s longer-term shift toward more reliance on services instead of manufactur­ing has further curbed demand for the specialize­d machinery and equipment that helped turn China into the world’s factory floor, said Joerg Kraemer, chief economist at Commerzban­k in Frankfurt.

Consumer spending has helped create new demand in some industries, while others have been left out.

Germany’s premium-auto manufactur­ers recently highlighte­d a strong rebound in Chinese sales after auto factories and dealership­s reopened there in March.

BMW AG recently reported a 17% year-overyear increase in sales of its BMW and Mini brand vehicles in China in the second quarter,

‘‘ For 2020 it is not possible, I think, that China does the job it did in 2008-09. Quite a few companies in China are struggling. THILO BRODTMANN Eexecutive director of the German Mechanical Engineerin­g Industry Associatio­n

partly compensati­ng for a sharp decline in the first quarter.

But overall, China’s passenger-car market is likely to shrink by 10% this year compared with 2019, according to a July 3 report by the German Associatio­n of the Automotive Industry.

Germany’s large auto suppliers have recently announced tens of thousands of job cuts.

A deteriorat­ion in the broader trade environmen­t between Western countries like Germany and China has further complicate­d matters, said Lars Feld, chairman of the Council of Economic Experts that advises Germany’s government.

Mr. Feld points to increased barriers to Chinese investment in Germany, a response to perceived Chinese protection­ism.

“China is generally not a growth machine at the moment,” said Wolfram Eberhardt, a spokesman for Claas KGaA mbH, a large agricultur­almachiner­y manufactur­er in northwest Germany.

Industry officials complain the global agricultur­al-machinery sector is being weighed down by weak Chinese demand and unfair competitio­n.

Mark Zandi, chief economist at Moody’s Analytics, said it is now the U.S. that may be in a better position to lead the global economy out of recession. “Washington’s fiscal-policy response to Covid-19 amounts to 13% of GDP this year.’’

However, the U.S. and some other developed economies have rising coronaviru­s cases, threatenin­g their ability to lead a global recovery. That leaves many companies counting on China.

“China will still be a growth engine for the world,” said Ms. Wong at the National University of Singapore. “But if China grows at 1%, it’s barely inching forward. So it’s not going to be pulling anybody very fast.”

David Winning in Sydney, Bingyan Wang in Beijing and Wilawan Watcharasa­kwet in Bangkok contribute­d to this article.

 ?? STR/AFP ?? A port in China. Economists say China’s demand isn’t providing as much lift to the global economy as it did during the last recession.
STR/AFP A port in China. Economists say China’s demand isn’t providing as much lift to the global economy as it did during the last recession.

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