Peter Nicholl
For 20 years or more, we have been impressed and surprised by the positive economic data that has been coming out of China. Growth has been between 7 and 10 per cent a year over most of that period.
China’s exports have been growing between 10 and 20 per cent a year over the same period and their imports also grew strongly which was good for exporting countries like New Zealand. New Zealand’s exports to China grew from around $3 billion in 2008 to over $21 billion last year.
China is by far our largest export market taking a 29 per cent share last year. Our second biggest export market, Australia, had a share of 13 per cent, less than half that of China. Chinese tourists and students studying here are also important sources of foreign exchange.
Occasionally during this 20-year period there were headlines that said the Chinese economy was facing problems and slowing. But when you read the story, Chinese growth was usually being forecast to slow from 10 per cent a year to 5 or 6 per cent. Growth of 5 to 6 per cent a year would be regarded as a boom in most Western countries.
But this time, the negative headlines about China are backed up by the data in the news-stories. There are still lots of big numbers but most of them have turned negative. Chinese exports fell by 14.5 per cent and imports fell by 12.4 per cent in the year to July 2023. Youth unemployment is over 20 per cent – and there will soon be over 11 million new university graduates coming into the Chinese job market. They have had an enormous building boom, as many other countries have also had. But the Chinese boom seems to have been on a larger scale than anywhere else and there is a huge amount of empty or unfinished property in the country. For example, the value of the country’s biggest property developer, Country Garden, has more than halved since the start of 2023. The economic slowdown has been so rapid and so deep that China is also starting to face the prospect of deflation – falling prices. This is at the same time as most Western countries are still grappling with inflation rates that are well above their target ranges.
If I saw this set of economic data for New Zealand or any other Western country, I would confidently say that country is heading for a major recession. But the Chinese economy doesn’t seem to work by the same rules, in part because its politics are so different.
I therefore hesitate to say the Chinese are heading for a major recession because they have surprised us so many times before. But they have never faced a set of economic pressures that are this large, this widespread and this bleak. It could be too much for even the Chinese authorities to manage and offset.
China is such a major global economic force now that if their economy falters, we will all be hurt by it. New Zealanders should be worried about the economic news coming out of China as they are, by a big margin, our major trading partner. If they falter, so will we.
