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AB 2000 studies

Alain Boublil Blog


The Chinese economy has recovered ahead

The many international tensions which are opposing China to the United States, to the United Kingdom and to some of its neighbors in Asia must not occult a major economic reality: the Chinese economy has recovered ahead. During the 2nd quarter, GDP grew by 3.2% compared to the same period last year. During the 1st quarter, it had fallen by 6.8% year-on-year. As a whole, the GDP during the 1st half of the year is 1.6% lower, which allows to assuming, if the trend goes on, a positive growth for the full year. So, the Swiss bank UBS has revised upward its forecast for 2020, with a 2.5% growth rate against an initial 1.5% estimation. So China would be the only one, among major economies in the world, to have escaped from the recession this year.

Investors did not miss the point. Chinese financial markets enjoy for the last two months a real rapid rise. Shanghai Market Index has progressed by 10% since the beginning of the year and Shenzhen one, where high-tech companies are listed, by more than 20%, achieving a better performance than Nasdaq (+15%). As a comparison, Paris and Frankfurt fell by 15% and 10%, if we take off from the German index dividends. The Dow Jones index fell by 7%. Chinese markets are not protected against tough corrections, as it occurred in 2015 and some days during these last weeks. But the trend is indisputable and well reflects the positive appreciation about the country ability to get out from the crisis before the other ones.

International tensions do not seem to be able to reverse this trend and to affect the present rebound. The “new cold war” with the U.S. has not had until now real consequences. The American president seems to have changed his strategy. Until now, to be reelected, he had favored Wall Street. The good health of the American market was representing, according to him, the proof of the success of his economic policy. But to obtain that, it was necessary to have a trade agreement with Beijing which would allow American companies to supply themselves, through good conditions, from their Chinese plants. An armistice was signed at the beginning of the year with the apparition of the Phase 1 concept regarding current negotiations and the signature of a trade deal with a limited significance. Through the announcement that there will be no Phase 2, Donald Trump now uses the stigmatization of China as one of the main arguments of his electoral campaign, even if it hurts Wall Street.

That strategy, which relies on the political crisis which hurts Hong Kong, gives him the possibility to push in the background, at least he thinks it, the failure of his sanitary policy and the inability of the country to stop the corona virus outbreak, to the difference of his major Chinese competitor and of several European countries. But the tensions occurred in the former British colony must not be used as a pretext, in Washington as elsewhere. The 1997 agreement was accepted by London because the country had no other choice. The area was composed by the historical metropolis, located near the Pearl River and by the New Territories around it, which were conceded for a period of 50 years by Beijing to the British Crown. During that period, relationships between the city and these territories developed so much that it was not possible to imagine creating a border. The concession was coming to an end in 1997 and the agreement occurred from that year has allowed a political transition which has safeguarded the area economic interests.    

Then, Hong Kong has hugely profited from the expansion of the Chinese economy which has even been more spectacular in the south of the country, with the rise of the Shenzhen area and the millions of tourists which, every year, were crossing the Delta to buy luxury goods. Beijing has even launched major infrastructures projects to connect the three great cities, Macao, Shenzhen and Hong Kong. That has not been enough to impeach the discontent of a share of the population. Tensions were made worse with the support brought by Western countries to the demonstrators and with the foreseeable reaction of Beijing which then took a tougher position. But neither this local situation nor the permanent contests between China and the countries along the China Sea coasts are able to slow the China rebound, especially since Hong Kong financial hub which has plaid an essential role in the financing of the Chinese economy, is not anymore today as indisputable since the Shanghai hub ascension and the emergence of Shenzhen for high-tech companies.

Sanctions against Chinese companies as the restrictions regarding their foreign acquisitions in strategic activities are not anymore able to affect the exit from the sanitary outbreak which is in keeping with the reorientation decided by Beijing. Its partners did not want anymore to be dependant of the “plants of the world”. It comes at the right moment because China doesn’t want anymore to just be the “plant of the world” and has elaborated a program “made in China 2025” having as an objective to produce goods with a high value-added and to guarantee its technological independence. To transform the legitimate will of each country to take profit of current technological evolutions into trade or even ideological wars will make only losers, and, in that case, the major loser will not be the one we are thinking about.

Some days ago, French and Chinese political leaders get together through videoconference and can notice that many projects where in a phase of realization. So a jewel of French tech, Dassault Systems has announced it expected to increase its employees in Shanghai to reach 2000 persons. Discussions have also started about nuclear power. EDF and CGN are partners at Taishan where the two EPR are correctly working for more than a year and in England where the two companies are building two more ones. The cooperation could also be developed in aeronautics due to the violent crisis which is affecting the sector.

The restarting of the Chinese economy is good news. It is even currently the only one about economic issues. But the production has not yet recovered a sufficient level because household, as in France, remain reluctant to consume and it is mainly public and private investments which have been at the origin of the rebound. It is the same about foreign exchanges whose volumes, these last three months, are still very inferior (-10%) to the level reached a year ago under the combined impact of the fall of the demand coming from clients in developed countries and of the adjustment which is resulting from that on the supply chains of major international companies. A new step will have to be passed and the signature of partnerships could contribute to it much better than the persistence of political tensions.

So China has taken the lead against other economies. Instead of denying it or, which is worse, of fighting against this situation, it is necessary to record it and to include it in any strategic thinking about the “tomorrow world”, especially when the priority, during next fall, will be to get out of the major economic crisis to which Western economies including the French one, will be confronted with.



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