Optimism Grows Around Chinese Growth But Headwinds Remain

Economists have become more optimistic about the growth of the Chinese economy, according to Bloomberg survey of economists.

According to the median forecasts of 68 estimates, economists see that the world’s second largest economy could expand 5% this year, un upward revision from the same survey conducted in May. This comes as exports are forecasted to rise to 4.3% with global demand rising as inflationary pressures ease and central banks look to loosen monetary policy, simulating growth.

Concerns however remain over tariffs that could be applied on Chinese exporters. For example, earlier this week we looked at how Brussels was considering putting 48% tariffs on electric vehicles imported into the single market from China. This comes as the EU looks to toe a tougher line heavily subsidised Chinese exports and protect car manufacturing across the bloc.

Furthermore, earlier this year, the Biden Administration announced that Washington would increase tariffs on $18 billion worth of Chinese goods, from steel to aluminium and computer chips to electric goods.

This comes under a backdrop of Presidential hopeful, Donald Trump’s, intention to apply a 60% tariff on all Chinese goods, hindering stability in the Chinese export market. (It may be worth noting here that the Peterson Institute for International Economics said that this could costing US consumers at least ½ trillion dollars each year, equivalent to 1.8% of GDP.

Economists have also raised renewed concerns over the health of Chinese consumer spending, as the country’s property sector continues to face major headwinds and youth unemployment remains significant.

Economists’ predictions come as Beijing’s “around” 5% growth target remains in play. On the topic of growth targets, in March, Premier Li Qiang said, “The foundation for the continuous recovery and improvement of our country’s economy is still not solid, with insufficient demand, overcapacity in some industries, weak societal expectations and many lingering risks”.

The owner of Vauxhall, Peugeot, Citron and Jeep, has threatened to cease production in the UK if Westminster does not do more to support EV production across the country. Stellantis also expressed desire for the government to change its electrification policy and position towards EV quotas, as attention turns to how a future government will tackle challenges facing the industry.

Speaking to industry members at the Society of Motor Manufacturers and Traders yesterday, Stellantis’ boss Maria Grazia Davino said that “Stellantis UK does not stop, but Stellantis production in the UK could stop,”

Given that the company employees as many as 2,500 people in the UK and produced 4,500 EVs in Q4 2023, its importance to the industry and wider economy is hard to understate. It also previously said that it was looking to start producing electric vans in Luton next year.

Stellantis maintains that the government should do more to attract consumers to EVs, especially given the governments quotas around EV sales imposed on car companies. For example, the government has a target for EVs to make up 22% of car sales over 2024, and 80% by 2030, with companies potentially exposed to penalties for missing these quotas. As such, Davino believes that Westminster should do more to help companies meet regulations.

According to the SMMT data, fully electric cars only made up 16% of sales to May, with many arguing that government subsidies should be increased to stimulate demand.

This morning, German consumer confidence came in lower than expected and marked a fall from the previous month as consumers remain anxious over the health of the Europe’s largest economy. French consumer confidence also fell from last month’s survey according to GfK, in a month where the French electorate heads to the polls to decide on the make up of the National Assembly.

In the UK, Sunak and Starmer will also go head-to-head in the final debate between the two party leaders before the general election next Thursday. This is aired on BBC tonight at 20:15.