China’s reforms go hand in hand with a gradual slowdown.
For some time now, the Chinese authorities have been working on rebalancing the economy by moving away from an export/public spending led growth model to a more sustainable alternative, marked by a rising share of private consumption. Meanwhile, the authorities also aim to contain shadow banking, halt the rise of the debt of local governments and state-owned (or state-backed) enterprises, strengthen the rule of law and fight corruption. These reforms have contributed to a slowdown of domestic demand, feeding into imports as well. This has caused some concern given China’s strong role in international trade. In this report, taking into account our base scenario of a gradual slowdown, we will analyse the development of total Chinese imports and also look at differences amongst sectors/product groups, with a particular focus on metal imports. Potential contagion effects to other regions/countries will be analysed in more depth in subsequent publications.
Import growth has fallen, but will not become structurally negative.
With the economy gradually slowing, the growth rate of Chinese imports has fallen significantly. However, while flattening out in the course of 2014, total imports have continued to rise over the past years (even more so in volume terms), reflecting China’s still high growth rates. Looking forward, while our baseline scenario expects the gradual economic slowdown to continue, we do not expect import growth to become structurally negative in the coming years, although the high import growth rates reached in 2000-08 and 2010-11 will clearly remain out of reach. This picture will obviously change in case of a more adverse scenario; such downside risks will be analysed in other publications.
Despite these overall trends, there are clear differences between various product groups.
Although total imports have continued to edge upwards, this is clearly not true for all sectors and product groups. We have found evidence that imports of gold in particular but also imports of other luxury products including jewellery and precious stones have fallen clearly over the past year. This partly reflects the anti-corruption campaign, which has hit the demand for jewellery and other high-end luxury products in particular. Imports of animal and vegetable oils (including soy bean oil) have also declined clearly since mid-2013. By contrast, imports of food/live animals, and beverages/tobacco have outperformed over the past years. Meanwhile, imports of ‘manufactured goods’ including metals showed a remarkable recovery since mid-2013.
Chinese investment crucial for metal demand.
The level of investment in metal-intensive sectors such as real estate and infrastructure will remain critical for industrial metals demand from China. Construction and infrastructure investments are likely to slow gradually in the coming years, implying slower industrial metals demand growth. Still, the volume of demand will stay elevated from a historical perspective. Import demand for some industrial materials (such as coking coal, nickel ore and bauxite) have decreased this year, while demand for iron ore has stayed elevated. And import demand for industrial materials such as copper ore, alumina and zinc has risen strongly. Going forward, we expect demand for industrial metals to remain relatively high.