When China entered the WTO back in late 2001, experts were expecting a huge boost in trade, with shipping the main beneficiary. Indeed, this scenario unfolded in the most spectacular manner, as the dry bulk market boomed for the next few years. Today, as global trade is facing constraints on the back of increased protectionism, a reverse trend is beginning to unfold, leaving ship owners worried abou the long-term impact.
In its latest policy comment, Affinity Research said that “before US President Trump meets Russia’s Vladimir Putin in Finland today, analysts focus on Chinese GDP growth slowing down. Amid escalating trade tensions, the growth rate of China’s economy fell to 6.7 per cent in 2018 Q2 – the slowest since 2016. The change versus 6.8 per cent in 2018 Q1 may seem marginal but the indication simply cannot be ignored. The drop has been mainly driven by the aggressive deleveraging campaign, and the resulting decrease in investment in infrastructure and manufacturing. This expansion is still above the government’s target of 6.5 per cent for this year, but the slowdown expected in 2018 H2, due to the US trade war, might not allow this target to be achieved. Domestic demand in the property market, for one, will slow down more than it already is, as sentiment adjusts to newfound expectations from the trade spat. The first signals of slowing interest across the property market are already coming to light in first-tier cities such as Beijing and Shanghai”.
Affinity said that “tackling excessive debt and financial risk has been a priority for the Chinese government since early 2017, after more or less a decade of heavy credit stimulus, focusing on fixed-asset investment expanding the country’s economy. But fixed asset investment growth for 2018 H1 hit a record low, after having fallen to 6.0 per cent from a year ago. The economy has already felt the pinch from a multi-year crackdown on riskier lending that has driven up corporate borrowing costs, prompting the central bank to pump out more cash by cutting reserve requirements for lenders”.
“Beijing currently finds itself in a conflicting policy dilemma between whether to implement tight monetary policy to force financial deleveraging, or to promote easier monetary conditions to maintain strong growth rates. The People’s Bank of China has been continuously cutting banks’ reserve requirements this year, making the most recent one the third of 2018. Beijing is expected to proceed with its easing monetary policy in the near future, although the risks of the US trade war are to add further pressure to the overall growth in the years to come, assuming the country’s trade surplus against the US narrows. The tariffs imposed between US and China since July 6th have totalled at a whopping USD 34 Bn, with the negative impact yet to settle in”, said the shipbroker.
According to Affinity, “GDP growth in the second half of this year will most likely take the bigger hit, especially if both the US and China become more aggressive and impose even higher tariffs on each other’s goods. Assuming tariffs remain at current levels, GDP growth is only expected to drop by 0.1 percentage point for the full year, as the central government has several policy cards to play to meet its target. But if the US slaps 10 per cent tariffs on an additional USD 200 Bn worth of Chinese imports from September or October, as recently threatened by officials, pressure against the Chinese economy will be much more severe. If that happens, JP Morgan expects at least another 0.2 percentage point drag on full-year GDP growth. This could reduce exports to the US by 8.6 per cent. Moving to the country’s stock market, all benchmark indices in Hong Kong and mainland China fell after the GDP report, with the Hang Seng Index down 0.2 per cent and the Shanghai Composite Index down 0.5 per cent, while the Shenzhen Stock Exchange Composite Index fell just under 0.1 per cent”, the shipbroker concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide
