China’s economy is slowing but no need for Kiwi exporters to panic - economist

China has been a headwind for New Zealand’s economy this year with slower-than-expected growth dampening consumer demand.

Second-quarter Chinese GDP data released today confirmed what commodity markets were already telling us - the giant economy is struggling to get up to speed as it reopens from the pandemic.

China grew at an annual rate of just 6.3 per cent to the end of June, compared with market expectations of 7.3 per cent.

But while there was no denying the cyclical slow turn play, New Zealand businesses should have confidence in the long-term resilience of the economy, ANZ chief economist for Greater China Raymond Yeung told the Chinese Business Summit in Auckland today.

China’s growth rate was slowing, says Yeung.

But even at an annual growth rate of around 5 per cent per year, that still represented a nominal expansion of US$1.1 trillion a year for the next few years, he said.

“You can’t ignore that.”

By comparison faster-growing markets getting a lot of attention, like India and the wider Asean region, were growing at annual rates of US$224 billion and US$450b respectively, he said.

“It is very important that we pay attention to the short-term challenges because cyclically we see a slowing economy,” he said.

Financial markets were seeing deflation risk with Consumer Price Index inflation now at zero per cent and the Producer Price Index in negative territory.

The Central Bank has been cutting interest rates.

“China is one of the few economies in the world that does not have an inflation problem right now,” he said.

Yeung highlighted the reasons for the slowdown this year - primarily a combination of youth unemployment, consumer confidence and a retrenching property market.

More than 21 per cent of the urban population aged between 16 and 24 is currently unemployed according to new data released today.

Beijing was trying to address this issue which had emerged as the economy evolved faster than many workers were able to adapt, Yeung said.

“The transition is painful,” Yeung said.

It was a side-effect of the rapid shift from low-quality assembly jobs to a higher quality service-led economic model, he said.

We should expect to see more policies targeting significant investment in research and development and education.

“I believe this is the most immediate challenge for the Chinese policymakers, not trying to boost GDP,” Yeung said.

Meanwhile, the uncertain future for many young Chinese workers was prompting their parents’ generation to pay down debt and save more aggressively.

“People are paying off debt to protect the next generation,” he said.

That combined with the falling property prices meant people were keeping money in the bank and this was affecting short-term confidence across the economy.

Yeung said he expected a shift in policy around the regulation of property investment later in the year as Beijing moved to break the cycle.

However, regardless of the short-term challenges, we should be confident that China was still a big growth market for New Zealand experts.

China’s progress in lifting GDP per capita was more important for New Zealand than topline GDP, he said.

China has a stated goal of doubling its middle-class population by 2035 - from 400 million to 800 million.

“The key point is high-quality growth,” Yeung said. “So we talk about the level of consumption we expect from the Chinese consumer. That’s very important.”

On a GDP per capita basis China still lagged Japan by 40 years, he said.

ANZ Greater China chief economist Raymond Yeung.

A lot has been made of China’s slowing population growth and fears it was following the Japanese economic path to long-term recession.

The Chinese Government was well aware of this risk and working hard to avoid it.

The mass urbanisation in Eastern China, which had driven enormous GDP gains in the past decade, was now happening at pace in Western China, Yeung said.

“That will continue to boost GDP per capita. We don’t need to worry about China’s long-term outlook,” he said.

Meanwhile, there was “nothing personal” about New Zealand’s dip in trade with China this year.

The trend for New Zealand export volumes and prices was mirrored almost exactly in the trends for the rest of the world, he said.

It was not the case that New Zealand’s relations with China had deteriorated, he said.

Speaking earlier at the Chinese Business Summit, Fonterra chief executive Miles Hurrell said he remained optimistic about the growth prospects for trade with China.

“China continues to move at pace,” he said. “I’m not concerned about the economic outlook. I’m quite bullish on that in the medium term.”

Auckland International Airport chief executive Carrie Hurihanganui noted the number of visitors out of China was picking up fast.

With five airlines and 27 flights a week to China out of Auckland Airport, the Chinese market was back to 86 per cent of pre-Covid capacity.

Zespri chief executive Dan Mathieson also observed that the Chinese market remained strong.

But he noted that it was evolving fast and we couldn’t afford to relax.

“I do think we’re going to have to work harder to convince consumers to buy our products at the prices we’re charging,” he said.

Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist, as well as presenting and producing videos and podcasts. He joined the Herald in 2003.