China is still the object of critical analysis and pessimistic forecasts. The country is used as an excuse, if not an alibi, about the slowing of the world growth. But its last results are not confirming these negative judgments. If 2018 growth rate has been very slightly weaker than during 2017, it is still inside, with 6.6%, the objective determined by the government, i.e. between 6.5 and 7%. It is possible to say that it is the weakest number for a long period but that doesn’t make sense. The size of the Chinese economy is two to three times bigger than ten years ago. So, what is important are the absolute values because it is them which feed the world exchanges.
Financial markets are aware of that. Shanghai Stock Exchange rebounded by near 15% since the beginning of the year and accelerated after Lunar New Year. Yuan is stable and should remain because Beijing doesn’t want to be accused to manipulate its currency, especially at a moment when trade discussions with the U.S. are entering their final phase. Monetary policy will remain accommodative and inflation will stay around 2%, which is now a kind of world reference. China central bank reserves don’t change a lot, around 3 300 billion dollar. Current balance of payments surplus reached 49 billion dollar, a lot under trade surplus. So, there is no need to intervene on the level of the Yuan, which is going through its internationalization process. Transactions on the London exchange market have reached a record high in 2018 after having been multiplied by two during the last three years. The City has dethroned Singapore as the most important market place outside China for its currency. At last, Beijing doesn’t want to be confronted again with the same market turmoil as these which occurred during 2015 summer when declarations by the chairman of the central bank had been misinterpreted by the markets.
In January, commercial banks have been incited by the government to increase their long term financing in favor of private sector to allow them to invest more and to pursue their transformation objectives toward productions with higher value-added under the Made in China in 2025 program. The private sector contributes to 60% of the economic growth but it is not without risks for lending institutions. Payment defaults reached 18 billion dollars in 2018 against 4.5 billion in 2017. It is possible to have a negative interpretation of these figures. The Chinese economy is too much indebted and, due to that, is vulnerable. But there is also a positive and structural character. Through leaving enterprises to cope with their responsibilities, China is moving more and more toward a real market economy.
Efforts in favor of energy transition need also the continuation of investments increase. The power mix evolution is testifying about that: between 2013 and 2018, the share of coal in power generation fell from 85 to 65% and this trend would amplify in 2019, as the increase of production capacities in solar and wind energies. The effort is also about oil exploration which is intensifying. Oil production has increased by 2.2% during 2018 last quarter. It is the first time since 2016. This trend would also continue in 2019.
Foreign trade figures for January and the first estimations about family expenditures during Lunar New Year festivities do not show any weakening, at the contrary, despite difficult weather conditions which made travels more complicated. Exports increased by 13.9% and imports by 2.9%, due to a heavy fall of supplies from the U.S., which is not without link with trade tensions occurred during last autumn. Spring Festival events generated 420 million travels in the country, with a 7.6% increase compared to last year. This vacation week is traditionally the moment when families who are living dispersed in the country are getting together. The first estimation of the expenses, which correspond to travel and holiday accommodations would reach 76 billion dollar, an 8% increase compared to 2018.
To the opposite, new vehicles registrations strongly fell in January (-18%) and this sign, along with the fall of smart-phones orders announced by Apple, were interpreted as concrete signs of the economy slowing. During the previous six years, the rise of car sales, from 18 to 28 million units, was so strong that a consolidation was essential, especially since in many cities in the country, traffic jams and pollution have incited local authorities to restrain registrations. January fall results also of the perspective from many customers, which has been confirmed, of incentives by the State to support consumption through tax reductions. But that fall definitely did not affect electric vehicles and plug-in hybrids whose registrations increased by more than 50% with respectively 75 000 and 21 000 units. Sales on the Chinese market represent half the whole world registrations of this kind of vehicles. That situation is not, all the same, transposable because Chinese drivers are making few long distance trips, to the opposite of their European and American counterparts. The issues of vehicle autonomy and recharging equipments availability are not raised.
Regarding the orders fall announced by Apple, it much more reflects the growing success of Chinese or Korean brands than a consumption turnaround. Major French luxury companies, like LVMH or L’Oreal have not noticed, to the opposite, any slowing of their sales and have not included such changes in their 2019 growth forecasts which are heavily dependent of the Chinese market evolution.
At the end, the main incertitude regarding this year, which, so, has had a much better start than commentators and economists had forecasted, is about the trade negotiation with the U.S. High worries did appeared at the end of last year which had triggered American and Chinese stock markets fall. The appeasing and optimistic message of the American president and the considered postponement of new custom levies have generated a spectacular markets rebound. Negotiations are going on and Donald Trump has declared in several occasions that he was confident about their conclusion. It is legitimate to expect that these ones will succeed because the responsibility of a break with Beijing will be put on Washington. It would provoke an even more brutal fall on Wall Street than at the end of last year. It is difficult to imagine that the White House tenant is ready to take such a risk, especially as American companies have a lot to lose in the case of a crisis.
For years, it is forecast the “Chinese miracle” will come to the end and every year this forecast is invalidated. In France that has generated a large skepticism inside the business community which has not made the strategic choice, to the difference with its German counterparts and with some exceptions like power and luxury products, to take interest about the huge Chinese market. Let’s hope that, this time, the lesson of the past mistakes will be taken and during the Year of the Pig, the French companies will really start, alone or through well chosen partnerships, to profit from the opportunities offered by China.