China’s Consumption Recovery Fuels Rise Of Global South – OpEd
Setting aside the international information warfare, China’s consumption is strengthening. Global South stands to benefit.
Launched in 2018, the China International Import Expo (CIIE) is an important barometer of Chinese consumption and set to begin on November 5 in Shanghai. Latest data shows that the consumption recovery is accelerating.
China’s consumption recovery
In the third quarter of the ongoing year, China’s economy grew at a faster-than-expected pace from a year earlier. Consumption recovery is supporting the central government’s full-year growth target of “about 5 percent.” In the third quarter, China’s gross domestic product (GDP) grew by 4.9 percent year-on-year, beating projections.
The acceleration of consumption recovery is evident on a quarter-by-quarter basis. From July to September, the country’s GDP grew by 1.3 percent quarter-on-quarter, almost three times more than the second quarter and higher than the 1.0 percent forecast. Consumption is driving GDP growth.
Retail sales reflect broad-based advancement, as headline growth hastened from 4.6 percent year-on-year in August to 5.5 percent in September. Relative to the 2019 pre-pandemic levels, domestic tourist traffic and tourism revenue increased by 4 percent and 2 percent, respectively. The trend is likely to be sustained in October, due to the eight-day Mid-Autumn Festival and National Day holiday.
Despite being weary of external and internal headwinds, Chinese consumers are back in full force, but more discriminate and cost-conscious.
Nonetheless, China’s industrial profits – that is, profits of its major industrial firms – rebounded with 7.7 percent year-on-year in the third quarter.
Stimulus and infrastructure spending
Along with consumption, fiscal stimulus will also strengthen the economy. In September, infrastructure and other state investments grew by 6.2 percent and 7.2 percent, respectively, with railways and electricity recording double-digit growth.
Last week China also approved $137 billion in sovereign bond issuance to rebuild areas hit by floods and to improve the urban infrastructure to cope with major disasters in the future.
Infrastructure investments support imports like as iron ore, crude oil, and copper, which bodes well for commodity exporters to China.
What could consolidate the consumption recovery? Watch the labor market. As the headline jobless rate fell to 5 percent in September, wage income increased by almost 7 percent year-to-year in the third quarter. The question is: Can such employment growth be sustained in months to come.
However, the real challenge remains the ailing property market. One promising sign, though, is that the recent property stimulus may have had a positive effect in the first-tier megacities, such as Shanghai and Guangzhou, and some second-tier cities.
As long as policy authorities can minimize the downside risks in the property markets and revive confidence, growth and stability will strengthen. In this challenging balancing act, positive outcomes are premised on reforms.
The task is to “cross the river by feeling the stones”, as late leader Deng Xiaoping used to say.
Boosting the least-developed economies
In September, China reported a smaller-than-expected decline in exports from a year ago, while imports missed. As a result of misguided protectionism and geopolitics by the West, global trade and investment have taken one hit after another since 2017.
By contrast, China has pushed for global economic cooperation and development. A year ago, China granted zero-tariff treatment to 98 percent of taxable items originating in 10 least-developed countries (LDC). The move will raise China’s imports from LDCs, which in turn will expedite economic development in those countries.
China is also deepening trade and investment ties with the member states of the Regional Comprehensive Economic Partnership (RCEP), which are the source of nearly a third of China’s total trade value.
Similarly, the huge Belt and Road Initiative (BRI) has facilitated Southeast Asia’s economic recovery. China’s trade with ASEAN member states has been growing 2-3 times faster relative to the EU and the US, respectively. The Belt and Road projects are moving ahead from South Asia and Eurasia to Latin America, the Middle East and Africa.
Lethal headwinds of geopolitics
Indeed, China is projected to contribute more than 30 percent of global economic growth in 2023, as Kristalina Georgieva, head of the IMF, affirmed a week ago.
The quest for global development hasn’t been easy. In each case – from China’s trade with LDCs to RCEP, BRI and ASEAN – the West has engaged in efforts to divide these blocs to check China’s rise, through client states and proxies.
Worse, the ongoing Hamas-Israel War – which itself is a result of 50 years of misguided policies – has already caused energy prices to climb. A prolonged conflict would result in an energy shock, which would translate to higher food prices; that is, another Ukraine-style proxy-war devastation.
Still worse, a regional escalation would mean an atrocious dual shock that would have severe global repercussions.
Unwarranted damage in the Global South
Over a decade ago, I met in Shanghai Helmut Reisen, then research head of OECD Development Center. His team was among the first to show that the impact of China’s growth on the low- and middle-income countries grew significantly in the 2000s: about 1 percent change in China’s growth rates would boost expansion by 0.3 percent in low-income countries and 0.4 percent in middle-income economies.
Here’s the implication: if external headwinds caused by foreign interests reduce China’s growth by 1 percent, the consequent negative effect would be especially damaging to emerging and developing economies.
Notice that the OECD work was released well before China further strengthened trade ties with countries through the RCEP, the Belt and Road Initiative and ASEAN. Today, these impacts – positive and negative – would be far more severe.
Those who use unwarranted trade wars and geopolitics to contain China undermine development in and the rise of the Global South overall.
The original commentary was published by China Daily on Nov. 5, 2023, with the opening of the China International Import Expo (CIIE)
