Origin Africa Magazine

Analysis
China’s Economy is Losing Momentum
Carsten Fritsch
The devaluation of the yuan and
the turbulence on the stock
markets support the view that
we have held for a long time that the
Chinese economy is developing much
worse than is suggested by the official
growth forecast of 7 percent. There
are concerns about imbalances,
such as the surplus of real estate and
the high level of debt among private
enterprises. The growth in industrial
production has weakened from 10
percent in the autumn of 2013, to 6
percent of late. Recently, investment
and retail sales have also been disappointing.
In our opinion, the economic
risks for China will continue to point
downwards. In the new, more flexible
Chinese exchange rate system, China’s
eco- nomic problems will have a
stronger effect on the yuan exchange
rate and become more transparent.
There is currently no uniform
trend or China’s commercial activity:
Although the demand for some
commodities, such as crude oil
and soybeans remains robust, it is
simply collapsing in other areas. This
includes cotton. Not only has cotton
consumption in China been in
decline in recent years; the stocks in
the country are twice as much as the
annual consumption following record
imports in the years 2011 to 2013.
The high stocks will now be reduced
through auctions, which is placing
additional pressure on imports.
However, the auctions, which have
been taking place for two months, are
only proceeding slowly. By the end
of August, only 3.4% of the intended
amount had been sold.
The lack of interest is due to the
high auction prices which are above
the domestic exchange prices. Global
cotton production has been falling
for three years due to the low world
market prices. Nevertheless, until
recently there was a supply surplus,
as global demand for cotton has only
risen moderately, not least because
of the negative development in China.
For 2015/16, however, there is expected
to be a supply deficit again for
the first time in six years as in addition
to China, the US cotton crop is also
expected to be significantly lower. This
should contribute to a stabilisation of
cotton prices.
As long as the Chinese economy
“only” continues to lose momentum
and there is no collapse or a general
emerging market crisis which spreads
to further countries in Asia, the pressure
on Germany and Europe is likely
to be manage- able. The export boom
to China has been over for some time.
In the long run, the German economy,
in par- ticular engineering or the automo-
tive industry, is not immune to the
problems of China. We see downside
risks especially for 2016.”
Carsten Fritsch, Senior Commoditiy
Analyst at Commerzbank
AG, Frankfurt