A few more words on China:
Of the Asian economies Australia in particular has benefited from continued Chinese growth. Determined action from a Chinese government that decreed that production should continue ensured continued demand for Australian resources through 2009 – a key factor in averting an Australian recession. The result appears to be a significant oversupply of manufactured products in China.
In a disturbing new report, the European Chamber of Commerce in China lays out the challenge in six sectors: aluminium, where the capacity utilisation rate is forecast to be 67 per cent in 2009; wind power, on 70 per cent; steel, on 72 per cent; cement, on 78 per cent; chemicals, on 80 per cent; and refining, on 85 per cent. Yet vast additional capacity is on the way.
At the end of 2008, China’s steel capacity was 660m tons against demand of 470m tons. This difference is much the same as the European Union’s total output. Yet, notes the report, “there are currently 58m tonnes of new capacity under construction in China”.
Corporations now generate more than half of China’s huge savings (I always wondered how the Chinese citizen managed to save). Since consumption tends to grow more slowly than GDP, excess capacity can only be used up via yet more investment or exports. This year, economic crisis has made the latter impossible. But China desperately needs to expand its exports once again. The result may well be a crisis in the trading system.
Should Australia be concerned?