By Ulf Bergman
That China has posted strong economic data in the past few month have been some of the very few pieces of good news for the world economy, with most countries seeing contracting economic activity. The strength of the Chinese economy has been welcomed by many observers and seen as the growth engine that will pull the world out of the doldrums. However, some China watchers have urged caution over the strength of the economic recovery, with some underlying data supposedly at odds with the headline numbers. That the third quarter growth was driven by investments rather than consumption is a factor that some pundits believe could raise questions about the durability of the recovery. What the continued recovery will look like remains to be seen, but, regardless, the dry bulk shipping sector and the commodity markets have benefited from the Chinese recovery so far and it looks likely to continue to be a positive influence for some time to come.
Against the background of a recovering economy, the Chinese political leadership are gathering to decide on the next five-year economic plan. The fourteenth national plan will cover the period ending in 2025. The meeting will also decide on the general goals for the coming fifteen years, which may see the Chinese economy surpassing the US in terms of size. That the Chinese economy would clinch the top spot was projected to happen during the coming decade, or so, even before the COVID outbreak, but the pandemic may have accelerated the process. However, some thirty years ago the Japanese economy was widely tipped to eclipse the US one, but this failed to materialize for various reasons.
Source: The World Bank
The new five-year national development plan is likely to focus quite extensively on measures to combat climate change, following the Chinese President Xi Jinping’s recent pledge to make the country carbon neutral by 2060. Thermal coal accounted for around 58 percent of the total energy mix last year and if the carbon neutral goals are to be realistic some experts argue that the proportion need to fall below half by the end of 2025. A reduction of imported coal would decrease the associated tonnage demand, but even with such a decrease the volumes required are still considerable and will employ many dry bulk vessels in the years to come.
Beyond environmental considerations, the Chinese leadership is also likely to make decisions on a raft of other measures. Chinese state media has indicated that there will be a focus on the quality of growth, rather than economic expansion at any cost. The world has also changed considerably since decisions were made for the previous five-year plan, with trade frictions currently on multiple fronts. The outcome of the imminent US presidential election is unlikely to have a material impact on the US policy towards China, with either an emboldened incumbent or a challenger more likely to join forces with traditional allies for a greater effect. There is also an increasing tendency around the world to see trade as a zero-sum game or in the context of national security, which will make any policy considerations more delicate.
Source: The World Bank
In light of a more challenging world, the Chinese leadership is expected to focus on developing a more resilient domestic economy, which is less dependent on the swings of the global economy. The flow of Chinese investments may turn inwards to generate economic growth through investments and domestic consumption. The Chinese leadership has also recently signalled that it wants to ease restrictions on foreign capital, which, if it materialises, could spur additional domestic investments and growth.
If the new five-year plan provides a more domestic focus for investments and developments, China is unlikely to lose its appetite for imported commodities anytime soon. Chinese coal imports may start to suffer in next few years, but other countries in Asia are still increasing their imports. Rising investments in the domestic economy is likely to see a continued need for imported industrial commodities, which will support tonnage demand in the dry bulk shipping sector.