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China’s growth was larger than the entire Australian economy last year, but how good really is that?

The US remains streets ahead of China on all metrics
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Storm clouds over China?
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Even communists need PR these days.

Even as the powers-that-be in China were setting the official growth target for 2019 at the very upper limit of analysts’ expectations, sophisticating messaging was going out to reinforce the idea of Chinese economic strength.

The most interesting one to those involved in the commodities space was perhaps the notion that China’s growth last year was larger than the entire Australian economy. That puts the huge dominance of Australia in iron ore markets, its sizeable stake in the global gold market and its significant contributions to global copper and base metals output into serious perspective.

On the other hand, although Australia ranks thirteenth amongst the world’s top twenty economies by GDP, it’s never been a serious contender as an economic power-broker in its own right, having been protected until 1941 by the Royal Navy, and after that time by the US.

So, although it may be useful for the Chinese to tout comparisons to Australian economic muscle in dealings with commodity suppliers from Queensland or the Pilbara, when it comes to the real competition the spin looks more hollow.

After all, the US itself, with an economy worth more than US$20tn remains significantly larger than the Chinese economy, and is growing at almost, though not quite, as fast a rate.

It doesn’t really serve US policy makers to argue that economic growth last year nearly matched the overall size of the Australian economy, simply because they have no need to make such comparisons.

What a difference a couple of years can make. Before the Trump Presidency it was a commonplace that the Chinese economy would catch and overtake that of the US by the middle of the current century. Of course, going by the growth rates that the Chinese economy had been putting in right up until 2015 or so, that might have been feasible.

But the reckoning is coming. Such stellar levels of growth that the Chinese have enjoyed since 1989 are not sustainable in the long-term, and while the Chinese are known for taking the long view, the Americans aren’t bad at it either. After all the US economy has been the world’s largest since 1871, and continues to grow at a healthy 4%.

The obvious conclusion is that if Chinese growth rates continue to decline at the rate that they’ve been declining in recent years, US growth may start to outpace Chinese growth again, at least periodically. And on such a scenario China’s path to becoming the world’s number one economic power by overall GDP looks unsustainable, never mind GDP per head.

It’s an issue that will be high on the agendas behind closed doors at the country’s second session, especially since sentiment seems to be moving away from the recent narrative of steady and continuous growth.

On Friday the Shanghai composite index dropped 4%. Although no doubt those gains will be recovered at some stage in the future, what was more interesting than the specific gyration was the reason given: pessimism about reported trade numbers. This is now a market that is willing to sell into the downside, whereas only a couple of years earlier everyone was buying into growth.

Donald Trump can’t really claim much of the credit for this, as GDP trends go back much farther than his presidency. But he has been a significant factor in changing the mood, both in the US, in China itself, and internationally.

Whereas before China’s growth into the number one economic power globally had been taken as a given, now that idea looks eminently doubtable. Mr Trump’s willingness to stand up to China on trade has shown just how much bluff there was in China’s trade posture before he came along.

Markets will continue to trade on sentiment for or against a China-US deal, and with particular regard to the tariffs issue. But if a deal doesn’t come through, it’s clear which country has the most to lose: the one that’s employing the most PR.


© mining Capital 2019

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