More shaky “he said, she said” journalism from the AFR today, this time from Karen Maley about China, interviewing Byron Wien:
“I don’t think they’ll let it get lower than 6 per cent,” Mr Wien, who is vice chairman of Blackstone Advisory Partners, told The Australian Financial Review. “You have to remember that the move from 7.5 per cent growth down to 6 per cent growth is already a pretty big move for them.”
…But should Australian investors be fretting about the looming Chinese slowdown?
“I don’t think they should be too worried,” Mr Wien said. “Six per cent is still faster than the growth rate of any other major economy by a factor of two or three.
“If it keeps coming down, they should worry. But if it stabilises around these levels, it’s not too big a problem. And the Chinese economy could re-accelerate if Chinese consumers start spending. After all, there are one and a half billion of them, so that could start the economy going at a pretty rapid rate.”
Given China is widely regarded to be still growing above 7% today and steel production is growing at 2%, it is fair to say that if it slowed to 6% and retained its current composition of growth, then demand from the steel sector would likely turn negative and iron ore would go straight through $100 and stay there.
That would be a problem for the terms of trade, national income, nominal growth, corporate profits, stock values and the Budget.
The big question, though, is would the current composition of growth hold? Given the entire point of reform is to reduce investment and boost consumption, if we added a little successful rebalancing to the equation, as Mr Wien argues we should, and fixed asset investment growth fell closer to GDP growth rates, but the consumer boomed at 20% per year, then we’d find ourselves with $60 iron ore in a jiffy as Chinese steel production went into sharp reverse. The offset would be a few extra Chinese tourists and maybe some more food exports at the margin.
China at 6% is either painful or excruciating, I’m afraid.
