Are the good times over?

2012-02-15 00:00

AS the Chinese packed away dragon-style decorations and swept up firecracker debris after a two-week Lunar New Year party this week, the Beijing government was swiftly implementing measures to add fuel to the economy. It is set to be a tougher year for Africa’s most important trading partner, with pain in store for many business operators and investors.

The International Monetary Fund (IMF) warned last week that gross domestic product for China could easily be four percentage points lower than its base case of 8,2%. Some say the IMF view is too bleak, too Eurocentric and that China will cope with the Eurozone crisis, thanks to its healthy coffers.

But, as countries like the United States and Ireland have shown, the good times can end, whoever you are. One day you’re feeling rich and the world is your oyster, the next you’re facing declining asset values, growing unemployment and an unhappy populace.

China has enjoyed three decades of healthy economic growth. It has transformed from a poor, hopeless country into a world superpower, vastly improving the lives of the majority of its 1,3 billion people and becoming increasingly influential in global politics.

The seemingly unstoppable economic juggernaut is facing fresh obstacles. China is bracing for some hard knocks from the world as well as from within.

Demand for its cheap manufactured exports has tapered off. The Chinese government has stepped in with about ¥15 billion (R15 billion) worth of measures to avoid widespread closures of small and medium-sized businesses as a result of the fall in orders from Europe and elsewhere. Casualties will be inevitable, however.

Plummeting property prices in cities across China have wiped the smiles off the faces of real-estate investors. Although China has an affordable housing problem, it also has tracts of empty residential high rises and clusters of eerily vacant new commercial blocks dotted around the country.

Many ordinary Chinese have their life savings riding on property values. Businesses have relied heavily in recent years on turning a profit in the property market to compensate for dismally low manufacturing margins. Local governments have come to depend on land sales.

Food price inflation is persistent, putting pressure on mainland consumers. Consumer gloom is playing out in car showrooms.

Sales of passenger vehicles fell by more than 15% in January compared with the previous year, according to China Passenger Car Association statistics. Car sellers reckon new year festivities deterred consumers from buying cars, but demand has been tapering off for some time. The rate of total car sales’ growth was just over a modest two percent in 2011, according to industry figures.

Although the Chinese government is taking steps to boost its economy, it isn’t taking any political chances. China took note of the swift political change wreaked across the Arab world in 2011 and doesn’t want its cyber-happy citizens to get any cute ideas.

It has changed the rules of the social networking game. Anonymous microblogging of the kind that mobilised millions of unhappy oppressed citizens in North Africa and the Middle East is being swiftly excised from Chinese lives.

China’s microbloggers are being asked to register details. That’s a move that signals that Chinese leaders aren’t confident about mass support for continued undemocratic control of the country by one political party.

So what does this mean for those of us in Africa who are increasingly dependent on the successes and stability of China? The message from China-Africa expert Martyn Davies of Frontier Advisory from this year’s World Economic Forum gathering in Davos is that we have nothing to fear.

He is puzzled by bearish sentiment about China, saying that even questioning whether China will have a hard or soft landing is “irresponsible”. At gross domestic product growth of eight percent, China is “still flying”, Davies told Moneyweb founder Alec Hogg. The only difference is that we won’t be getting “drunk” on growth at nine percent-plus.

A major reason for Davies’s confidence is China’s spending on commodities, which he expects to continue to remain strong as the country continues to build infrastructure. That, of course, is likely to be good news for commodities’ supplier countries, like South Africa, and their currencies.

Davies isn’t alone in his optimism about China. Mainland stocks rallied earlier last week after the Central Bank indicated it would support first-time home buyers — a move that would possibly help get property sales moving again.

Also apparently hopeful that things won’t be as bad as is feared this year is economist Yuan Gangming of the Chinese Academy of Social Sciences, an organisation that advises the government. He believes China could easily move soon with a significant investment of possibly as much as €100 billion to help the Eurozone — and ultimately itself and China’s dependants like us — with its debt crisis.

— moneyweb.co.za

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