Quick Bites | Snapshot on China

 When participants at the recent Goldman Sachs (GS) Global Strategy meeting were asked, “What will be the main impact of the Trump administration on commodity markets in 1H25?” their number one response was a Chinese reaction to new US tariffs.

Source: Goldman Sachs

There is a lot of uncertainty regarding the future of US/China trade. In the interim, we look at recent data, which shows that China’s economy grew 5% last year on the back of a strong manufacturing sector as companies “front-loaded” exports in anticipation of higher US tariffs and as Beijing stepped up stimulus efforts.

The annual figure, which slightly exceeded economists’ forecasts of 4.9%, trailed last year’s growth of 5.2% and was the lowest since 1990, excluding years distorted by the coronavirus pandemic.

The data comes as Beijing is trying to revive strong growth in a two-speed economy, in which strong exports and manufacturing are offsetting weak household sentiment.

In September, the Chinese central bank announced monetary easing and support for the stock market. Beijing has also launched a programme to refinance local government debt and speed up stimulus spending targeting infrastructure and other areas. But economists worry that China is at risk of entrenched deflation. Producer prices have been in negative territory for more than two years, and consumer prices managed growth of just 0.1% in December.

China’s business cycle used to be highly correlated with the US business cycle because of Chinese exports to the US. But the business cycles in China and the US have decoupled for three reasons: demographics, housing, and trade.

  1. China’s working-age population is declining. The US working-age population is growing.

Source: Apollo

  1. Chinese home prices are falling. US home prices are rising.

Source: Apollo

  1. The US and Europe have imposed tariffs and want to produce more goods at home. This is negative for Chinese exports.

Source: Apollo, Torsten Slok

Why does this matter?

Australia’s economy, particularly commodity exports, is highly dependent on growth in the Chinese economy. If we are to recover from our current economic malaise, we require a strong China to soak up our iron ore, coal, natural gas, copper, gold, and agricultural products.