China Eco

Translation of the below on the Chinese economy.

http://www.lefigaro.fr/economie/le-scan-eco/dessous-chiffres/2019/03/22/29006-20190322ARTFIG00003--quel-point-sommes-nous-dependants-de-l-economie-chinoise.php

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source: Le Figaro LeScanEco 22/03/2019

author: Wladimir Garcin-Berson

translation: doxa-louise

How dependent have we become on the Chinese Economy?

LE SCAN ÉCO - Increasingly dependent on the  Middle Kingdom,

emerging economies are concerned about the slowdown in Chinese growth. On the occasion of a visit by president Xi Jinping to Italy and then France, le Figaro reviews the question.

After decades of remarkable growth and ‘hyper’ economic development, the Chinese giant is showing signs of being winded and has transited to a slower pace. For 2018, 

GDP in the Middle Kingdom went up by 6.6%, the lowest rate sin ce 28 years. Other than 

this unique indicator, there are multiple alarming signs: growth has gone down incessantly 

throughout the entire year, the commercial war with the US shows no sign of abating while 

other statistics such as retail trade and public debt are also worrisome. worse still, the Commerce Department has warned that ‘very probably’ the slowdown in consumer spending would 

continue in 2019, a pattern that won’t hearten international decision-makers.

Indeed, the health of the Chinese economy is of interest beyond its borders, given that the 

country has become, in a few decades, a motor of global growth. Moreover, if the stronger 

economies such as France, the United Kingdom, Germany or the United States, all possess 

a security mattress and diversified economies making these less dependent on China, others,
such as emerging countries, are more vulnerable, and fear the loss of an essentiel economic

ally. A difficulty that would add on to the current list of challenges, such as the slowdown in the global economy, higher American interest rates or again a drop in commercial exchanges in the 

last few months.

Such apprehension became quite evident at the last World Economic Summit, in Davos, at 

the end of January. Outside the conference rooms, the president of the African Development 

Bank, Akinwumi Adesina, thus made clear that ‘the Chinese slowdown is on the mind of 

everyone’ because of ‘the impact on Chinese demand’, and thus on ‘exporting countries’. 

The leader (from Nigeria) promised to ‘follow the situation closely’, in an echo to the leaders 

of other developing economies. The stakes are enormous, with many countries finding 

themselves in a state of dependence on the chinese giant. Four indicators are relevant, in this 

matter.

1-Commerce: the Chinese motor is slowing

A vacuum suction for primary resources, China imports a good deal of world materials 

to transform these into finished products exported the world over. A situation that is positive for exporting countries, but which also makes them dependent on Beijing: ‘Africa natural resource exports - close to 85% of these -  go toward Beijing’, reminded us Akinwumi Adesina at Davos. 

Thus if world demand goes down, China will produce less, and might well decide to put the breaks on imports. This scenario is troublesome for emergents, where China is a big client for all exports, while developed countries such as France, Germany, the United States and Japan have a more balanced array of commercial partners.

According to the World Bank, China accounts for at least 15% of exports for twenty countries, in Latin America, Asia, Africa and Oceania. Among these one finds, Uruguay, South Korea, Japan, Chile, Burma, Peru and even Australia. The weight of China for exports from these countries can go to 43.2% for Angola, up to 54.16% for Hong Kong and almost 80% for Mongolia. As an example, the Democratic Republic of Congo sends a bit more than a third of its exports toward Beijing: the later being mostly cobalt, copper, oil and gold. Chile, where a quarter of exports go toward China, sends principally copper, iron, fruit and wine.

A historian specializing in China and consultant for Asia at the Institut Montaigne, François Godement is of the opinion that the real risk is for the long term: ‘If demand goes down, the 

price for primary resources will go down with it, and emerging countries that finance their development on this will go under’, is his analysis.

2-Investment from others: an essential aspect of development

Other aspect of the Chinese presence abroad, the flux of funds could dry up if the slowdown in economic activity persists. according to the United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment (FDI) out of China for 2016 came to more than 1300 billion dollars in the world, of which a mere 14% goes to the developed world (Europe, North America, Japan, Israel, Australia, New-Zealand...) and from the bulk of those funds marked for the developing world, 3.5% goes to Africa, 18% to Latin America or the Caribbean and more than 78% to Asia. The below map summarizes the Chinese presence abroad, in terms of its FDI.

‘We risk a domino effect’, according to the analysis of the chief economist at Coface,

Julien Marcilly. ‘If china has a lesser need for primary resources, it will invest less in angola, for example, while Beijing will continue to invest in tech or in other domains with high added value in Europe’. All the while, according to this institution, many african countries are highly dependent on the Middle Kingdom for growth, like south sudan, Gambia, Guinea, the congo, Mauritania or angola. ‘The countries that have the most profited from the expansion of China should be the most severely hit’ by its slowdown warned Coface in 2017 with a study classifying African countries with respect to their reliance on China. François Godement confirms this view in reminding us that ‘ if slowdown becomes the norm, the great infrastructure projects will go down in turn, and China will have a lesser need to invest abroad’, in particular in the context of the Belt and Road Initiative.

3-Debt: the double-edged sword

China makes large loans to emerging countries to finance their development... and gets

important advantages in return. ‘This enables Beijing to make sure it has access to a stable 

source of primary resources exports from Africa’, explains Julien Marcilly, who speaks of the ‘consideration explicit or implicit to the loan deals made’ with emergents. In recent years, we 

have many examples: Angola paid back part of its debt of two billion Euros to China with oil, 

and a similar strategy was used in Nigeria as well as South Sudan. ‘Often the countries who have debts towards China are those that have let them import primary resources’, points out the expert.

This strategy goes through, notably, the Asian Infrastructure Investment Bank (AIIB),

working arm of this new Silk Road, as well as the China Development Bank (CDB), both public institutions. Debt is thus a double-edged weapon, helping along the development of nations but all the while making their sovereignty more fragile. The most spectacular example comes out of Sri Lanka: in 2008, China put up 307 million dollars of the 360 million necessary for the construction of a new commercial port in Hambantota. Seven years later, the government is no longer capable of paying back the loan to Beijing. Back to the wall, it finally turns over a concession of the port to the China Merchants Port Holdings for 99 years. The Middle Kingdom in this way acquires a strategic point

on world commercial routes. There has been no checking of appetite since then: a multi-million Euros investment was announced just last year... interestingly for a project near the port of Hambantota.

4-Tourism: the great windfall

Last concern: Asia is, by far, the continent that profits the most from the presence of Chinese tourists. According to the World Tourism Organization (WTO), twenty countries were the main hosts to visitors from the Middle Kingdom in 2017. Among these, Thailand (9.8 million), Japan (7.3 million), South Korea (4.1 million), Singapore (3.5 million), Taiwan (2.7 million), Malaysia (2.2 million) and Indonesia (2.0 million) get the lion’s share but remain well short of Macau (22.1 million), and most of all Hong Kong (44.4 million). Considered among the heavy spenders, the Chinese are sought after by rich countries, including France, who want to profit from this windfall. In total, according to the WTO, 130 million Chinese went abroad, a significantly growing number. 

Tourism is not incompatible with economic slowdown’, points out Julien Marcilly. everything depends on the sectors touched by downturn: the upper middle classes or higher strata of society could very well not feel the pinch of sluggish growth.