Helmo Preuss
In the same way that the Australian and South African economies beat consensus forecasts for economic growth in the second quarter, so the Chinese economy could also exceed current downbeat forecasts.
This upbeat forecast seems to be confirmed by the Caixin China General Manufacturing PMI, which rose to 51.0 in August from 49.2 in July, easily exceeding the consensus forecast of 49.3.
The August reading reflected the strongest pace of expansion in factory activity since February. It was also the fifth time of increase since the start of the year amid multiple efforts from the government to revive a weakening post-pandemic recovery.
Both output and new orders returned to growth while employment gained for the first time in six months.
On the other hand, foreign sales remained weak, with the rate of decline only modest, linked to a growing risk of global recession. The backlogs of work accumulated slightly due to poor weather, which caused flooding in certain areas.
Despite this disruption, delivery times improved as the logistics chain improved performance.
Chinese steel production surged by 11.5% year-on-year (y/y) in July, substantially higher than the 1.3% y/y increase in the first half.
A raft of new policy measures to support economic growth have effectively stabilised confidence and expectations, and economists now expect a notable improvement in the Chinese economy in the second half of the year.
The government is ramping up efforts to financially support debt-ridden real estate developers to ensure the timely delivery of new homes to buyers.
This has resulted in more than 1.65 million presale homes being delivered since the government initiative of “ensuring timely delivery of presale housing” was launched and implemented in July 2022.
China’s renewable energy generation capacity has overtaken its coal-power capacity, and its installed capacity of wind and solar power has topped the world for 13 and eight years, respectively.
“China is the power source of world economic stability and growth, and Standard Chartered is firmly optimistic about China’s long-term development,” Zhang Xiaolei, head of Standard Chartered China, said.
Swiss bank UBS also said in a recent report that it remained bullish on Chinese stocks thanks to measures to boost consumption.
A strong rebound from China would help offset an expected slowdown in other parts of the world, spurred by monetary tightening policies by central banks over the past 24 months as inflation has risen.
In July, China was South Africa’s top export destination taking 8.9% of our exports, while it supplied 21.5% of our imports, as China is the world’s largest supplier of solar panels.
In 2022, China accounted for 9.4% of South Africa’s exports and 20.2% of South Africa’s imports, according to the South African Revenue Service.
In rand terms, exports to China totalled R188.4 billion, while South Africa imported R367.4bn, resulting in a trade surplus in favour of China worth R179bn.
South Africa’s exports to China are dominated by two categories – mineral products as well (as) products of iron and steel.
In the case of exports to China this is dominated by iron ore, but also includes coal, manganese and chrome ores, as China is the world’s largest producer of steel, accounting for 57.3% of global steel production in July, according to the world steel association.
The export of products of iron and steel is dominated by ferroalloys, that is semi-manufactured combinations of iron and other ores such as chrome or manganese, that are inputs into the steel making process.
Imports from China are dominated machinery and products of iron and steel, but together they only account for 55.7% of imports.
Machinery imports amounted to R169.9bn or 46.2% of imports, while products of iron and steel totalled R34.6bn for a 9.4% share.
Chemicals were the third largest import category at R33bn or 9% share. Textiles are next at R27bn with a 7.6% share.
The increased penetration of Chinese brands into the South African vehicle market is shown in the fifth largest import category at R20.5bn for a 5.6% share.
China's gross domestic product expanded 5.5% y/y in the first half of the year, easily exceeding growth in the G7 economies. The World Bank has projected a growth rate of 5.6% for the full year, while the Organisation for Economic Co-operation and Development expects 5.4%, and the International Monetary Fund forecasts 5.2% growth.
Preuss is an economist at Forecaster Ecosa.