Although the outbreak of SARS is likely to knock some of the shine off it, the strength of China's economy is having a growing impact on world trade
THE full effects of Severe Acute Respiratory Syndrome (SARS) have yet to be felt, and are bound to act as a brake on economic growth. Yet China's economy is still likely to grow far more quickly than most this year: it expanded by more than 9% in the year to the first quarter, its fastest pace for six years. Thanks to its membership of the World Trade Organisation (WTO) since the end of 2001, and the increasing contribution to growth made by its own voracious consumers, the economy now depends far less on the state. As a result, it is also exerting an unprecedented degree of influence over world trade.
Last year, China’s imports and exports had a combined value of about $620 billion and accounted for 4.7% of world trade—nearly double the country’s share of 2.7% as recently as 1995 (see chart). Such is the speed with which China’s industries are growing that the share is expected to jump again over the next few years.
Take the steel industry. China's steel producers are developing so fast that the country is likely soon to overtake Japan as the world's largest importer of iron ore, a crucial ingredient in the production of steel. Before long, China could turn itself from being a big importer into a net exporter of steel. In recent years, the country's steelmakers have invested heavily in new factories and in modernising existing ones. That investment is beginning to pay off. A decade ago, Asia as a whole accounted for about a third of the world's production and consumption of steel. Today, the figure is closer to half on both counts, with China alone accounting for a quarter of the world's output and demand.
China's oil companies May 22nd 2003 China's economy Feb 13th 2003 China's economic success
Feb 13th 2003 China as a great power Feb 13th 2003 Trade in Asia Oct 31st 2002 Hong Kong and the Pearl river delta Oct 10th 2002 China's roads Apr 18th 2002 China's challenge Aug 23rd 2001 China’s economic power Mar 8th 2001
China
China’s Ministry of Commerce posts trade statistics and information on a range of economic issues. The WTO publishes international trade statistics. The World Bank reports on China.
American interest rates Jun 26th 2003
Reforming Europe's agricultural policy Jun 26th 2003 Wall Street's misdeeds Jun 27th 2003
Talk of a Middle East ceasefire Jun 26th 2003
Fiat’s latest rescue plan Jun 26th 2003
Buttonwood: stockmarkets Jun 24th 2003
About Global Agenda
China also boasts one of the world's most competitive steel industries. And the quality of its output is high. World Steel Dynamics, a consultancy, reckons that the cost of building steel plants in China may be up to 60% lower than most other big steel-producing countries. This gives the country's steelmakers a big advantage which, in turn, could help to boost the competitiveness of their customers.
One reason for the rising consumption of steel in China has been the insatiable demand for cars. They have been rolling off assembly lines in unprecedented numbers since the country's accession to the WTO pushed down prices of imports and so helped to stimulate the market as a whole. Last year, sales of new cars in China jumped by 56% to a record total of 1.13m units. Sales of new cars are likely to suffer from the travel restrictions imposed on China's population in order to defeat SARS, but the medium-term outlook for carmakers remains rosy.
Steel is not the only industry where China is starting to have an impact internationally. Energy is another. The growing need for cheap fuel with which to generate electricity to feed the country's economic boom is stoking demand for oil and liquefied natural gas (LNG). China is already the world's third-largest consumer of oil after the United States and Japan. The US Energy Information Administration reckons that, if China's demand for oil grows by a modest 3.3% a year, the country will be importing nearly 11m barrels per day by 2025. Poten & Partners, an American shipping broker, estimates that, by 2012, owners will need another 70 very large tankers just to supply China's imports of oil.
Energy is only one area where the rapid growth of China's economy is having an effect on shipping and cargo rates. Because of rising demand for capacity, the cost of moving a 40ft box container from Asia to markets in the West has jumped from around $1,000 a year ago to nearly double that today. Rates for chartering container ships have also shot up. Indeed, demand for cargo space is so strong that container lines can barely keep up. The reason? Mainly the rapid growth in China's foreign trade.
Even taking SARS into account, the number of containers needed to shift goods from one place to another is likely to continue growing fast. In the past, says Drewry Shipping Consultants, the container trade has increased by between two-and-a-half and three times the rate of GDP growth. The trade could grow even more quickly than that over the next few years, thanks partly to the pace at which China's foreign trade is growing, and partly to the speed with which its companies are switching to containers and learning to manage their supply chains more efficiently.
This is likely to put severe pressure on China’s fast-growing ports, says a joint study by Drewry and APL, a shipping line. On Wednesday June 25th, the southern Chinese city of Shenzhen said it had overtaken Kaohsiung in Taiwan to become the world’s fifth-largest container port. In the five months to May, container traffic in Shenzhen was 43% up on the year before. The Chinese city of Shanghai, which last year overtook Kaohsiung as the world's fourth-largest port (after Hong Kong, Singapore and South Korea’s Pusan), saw traffic rise by an almost-as-impressive 35.6%. Thanks to a surge in exports from southern China, throughput at Hong Kong's container terminals is soaring. Traffic at the Kwai Chung terminal, for instance, was up by 12.8% in the first quarter compared with the same period in 2002, according to the territory's Port and Maritime Board.
Freight costs for dry cargo—bulk commodities like grains, coal and steel—have also jumped of late. Again, this is mainly the result of increasing demand from China. Not only is the country shipping in more commodities like iron ore; it is also having to go further afield for it, with the result that more vessels are being chartered for longer periods of time. Unable to secure all the iron ore they need from Australia, a traditional source, traders in China have recently started to import from such places as Brazil.
Is the resulting bonanza for ship owners likely to last? It is hard to tell. The more that China's economy relies on the private sector and the less on pump-priming by the state, the faster it is likely to grow. Standard & Poor's, a credit-rating agency, reckons the private sector accounted for about 40% of the country's industrial output in 2000. The effect on the economy once that proportion rises above 50% is anybody’s guess.
THE full effects of Severe Acute Respiratory Syndrome (SARS) have yet to be felt, and are bound to act as a brake on economic growth. Yet China's economy is still likely to grow far more quickly than most this year: it expanded by more than 9% in the year to the first quarter, its fastest pace for six years. Thanks to its membership of the World Trade Organisation (WTO) since the end of 2001, and the increasing contribution to growth made by its own voracious consumers, the economy now depends far less on the state. As a result, it is also exerting an unprecedented degree of influence over world trade.
Last year, China’s imports and exports had a combined value of about $620 billion and accounted for 4.7% of world trade—nearly double the country’s share of 2.7% as recently as 1995 (see chart). Such is the speed with which China’s industries are growing that the share is expected to jump again over the next few years.
Take the steel industry. China's steel producers are developing so fast that the country is likely soon to overtake Japan as the world's largest importer of iron ore, a crucial ingredient in the production of steel. Before long, China could turn itself from being a big importer into a net exporter of steel. In recent years, the country's steelmakers have invested heavily in new factories and in modernising existing ones. That investment is beginning to pay off. A decade ago, Asia as a whole accounted for about a third of the world's production and consumption of steel. Today, the figure is closer to half on both counts, with China alone accounting for a quarter of the world's output and demand.
China's oil companies May 22nd 2003 China's economy Feb 13th 2003 China's economic success
Feb 13th 2003 China as a great power Feb 13th 2003 Trade in Asia Oct 31st 2002 Hong Kong and the Pearl river delta Oct 10th 2002 China's roads Apr 18th 2002 China's challenge Aug 23rd 2001 China’s economic power Mar 8th 2001
China
China’s Ministry of Commerce posts trade statistics and information on a range of economic issues. The WTO publishes international trade statistics. The World Bank reports on China.
American interest rates Jun 26th 2003
Reforming Europe's agricultural policy Jun 26th 2003 Wall Street's misdeeds Jun 27th 2003
Talk of a Middle East ceasefire Jun 26th 2003
Fiat’s latest rescue plan Jun 26th 2003
Buttonwood: stockmarkets Jun 24th 2003
About Global Agenda
China also boasts one of the world's most competitive steel industries. And the quality of its output is high. World Steel Dynamics, a consultancy, reckons that the cost of building steel plants in China may be up to 60% lower than most other big steel-producing countries. This gives the country's steelmakers a big advantage which, in turn, could help to boost the competitiveness of their customers.
One reason for the rising consumption of steel in China has been the insatiable demand for cars. They have been rolling off assembly lines in unprecedented numbers since the country's accession to the WTO pushed down prices of imports and so helped to stimulate the market as a whole. Last year, sales of new cars in China jumped by 56% to a record total of 1.13m units. Sales of new cars are likely to suffer from the travel restrictions imposed on China's population in order to defeat SARS, but the medium-term outlook for carmakers remains rosy.
Steel is not the only industry where China is starting to have an impact internationally. Energy is another. The growing need for cheap fuel with which to generate electricity to feed the country's economic boom is stoking demand for oil and liquefied natural gas (LNG). China is already the world's third-largest consumer of oil after the United States and Japan. The US Energy Information Administration reckons that, if China's demand for oil grows by a modest 3.3% a year, the country will be importing nearly 11m barrels per day by 2025. Poten & Partners, an American shipping broker, estimates that, by 2012, owners will need another 70 very large tankers just to supply China's imports of oil.
Energy is only one area where the rapid growth of China's economy is having an effect on shipping and cargo rates. Because of rising demand for capacity, the cost of moving a 40ft box container from Asia to markets in the West has jumped from around $1,000 a year ago to nearly double that today. Rates for chartering container ships have also shot up. Indeed, demand for cargo space is so strong that container lines can barely keep up. The reason? Mainly the rapid growth in China's foreign trade.
Even taking SARS into account, the number of containers needed to shift goods from one place to another is likely to continue growing fast. In the past, says Drewry Shipping Consultants, the container trade has increased by between two-and-a-half and three times the rate of GDP growth. The trade could grow even more quickly than that over the next few years, thanks partly to the pace at which China's foreign trade is growing, and partly to the speed with which its companies are switching to containers and learning to manage their supply chains more efficiently.
This is likely to put severe pressure on China’s fast-growing ports, says a joint study by Drewry and APL, a shipping line. On Wednesday June 25th, the southern Chinese city of Shenzhen said it had overtaken Kaohsiung in Taiwan to become the world’s fifth-largest container port. In the five months to May, container traffic in Shenzhen was 43% up on the year before. The Chinese city of Shanghai, which last year overtook Kaohsiung as the world's fourth-largest port (after Hong Kong, Singapore and South Korea’s Pusan), saw traffic rise by an almost-as-impressive 35.6%. Thanks to a surge in exports from southern China, throughput at Hong Kong's container terminals is soaring. Traffic at the Kwai Chung terminal, for instance, was up by 12.8% in the first quarter compared with the same period in 2002, according to the territory's Port and Maritime Board.
Freight costs for dry cargo—bulk commodities like grains, coal and steel—have also jumped of late. Again, this is mainly the result of increasing demand from China. Not only is the country shipping in more commodities like iron ore; it is also having to go further afield for it, with the result that more vessels are being chartered for longer periods of time. Unable to secure all the iron ore they need from Australia, a traditional source, traders in China have recently started to import from such places as Brazil.
Is the resulting bonanza for ship owners likely to last? It is hard to tell. The more that China's economy relies on the private sector and the less on pump-priming by the state, the faster it is likely to grow. Standard & Poor's, a credit-rating agency, reckons the private sector accounted for about 40% of the country's industrial output in 2000. The effect on the economy once that proportion rises above 50% is anybody’s guess.
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