By Eun-Young Jeong and Tom Fairless
Getting the global economy back on its feet this year won't be
easy. But it will be even tougher without more help from China, the
locomotive that powered recoveries from the world's last economic
emergency.
During the 2008-09 financial crisis, China's soaring demand for
raw materials and other goods boosted growth across the world,
underpinning rebounds in places like Brazil and Germany. Some
countries, like Australia, avoided recession almost entirely thanks
to trade with China.
China isn't poised to help as much this time. Despite signs of a
solid rebound recently, its economy has been hit much harder than
in 2008-09, limiting its ability to lift other nations from
recession prompted by the coronavirus pandemic.
China is showing more restraint on stimulus spending compared
with past downturns. It is also more self-sufficient in some
industries than previously, meaning it may need to buy less from
abroad.
Thomas Nuernberger, Greater China chief executive of ebm-papst
Group, a fan and motor manufacturer based in southern Germany, says
demand from Chinese hospitals and data centers has recovered. But
sales have fallen sharply to the auto industry and to Chinese
manufacturers that ship their products elsewhere. He expects
caution among Chinese consumers and businesses to weigh on growth,
reducing odds of a "V-shaped" recovery.
"For 2020 it is not possible, I think, that China does the job"
it did in 2008-09, said Thilo Brodtmann, executive director of the
German Mechanical Engineering Industry Association, a trade body.
"Quite a few companies in China are struggling."
China is still expected to post the strongest growth of any
major economy this year. The International Monetary Fund projects
that China's gross domestic product will expand 1% in 2020. This
follows a 6.8% contraction in the first quarter. The U.S., Germany
and Japan are expected to contract more than 5% this year.
Any growth in China's economy -- the world's second-largest --
can make a big difference. China's purchases of soybeans are
helping American farmers, even if they don't fully add up to totals
promised in the U.S.-China trade deal. In Ireland, pork exports to
China jumped 80% in the first four months this year compared with
the same period in 2019 as China dealt with a swine fever
outbreak.
Still, on balance, economists say China's demand isn't providing
as much oomph as it did during the last recession. Some countries
have been hit so hard that even solid Chinese demand can't get them
out of trouble.
In 2008, Beijing rolled out a $586 billion stimulus package
worth about 13% of the country's economic output at the time. That
was followed by a boom in lending. China's economy grew 9.7% in
2008 and 9.4% 2009.
Much of its spending went into infrastructure like roads,
airports and housing, driving Chinese demand for imported materials
like iron ore. Australia, a major beneficiary, saw its economy
expand by 3.7% in 2008 and 1.9% in 2009.
This year, annual iron-ore supply contracts with Chinese
customers are running ahead of levels at the same stage of 2019,
according to a senior Australian mining executive. Some of that
reflects demand shifted to Australia from Brazil, another big
iron-ore player that has been hit harder by the coronavirus.
Yet that isn't the kind of demand surge that Australia, which
saw a sharp drop in consumer spending, needs to avoid slipping into
its first recession in nearly three decades, with annual GDP
contracting 4% or more, according to some forecasts.
Uncertainty over fresh Covid-19 outbreaks is further clouding
the outlook.
Geraldton Fishermen's Co-operative Ltd., which exports 90% of
its rock lobster catch from Western Australia to China, saw export
volumes to China return to historical averages in April and May
after a monthlong pause in fishing, said Matt Rutter, its chief
executive.
But demand from China fluttered again in June, when new
coronavirus cases connected to Beijing's largest food wholesale
market surfaced.
"It could take six to 12 months or more for the market to
recover," said Mr. Rutter.
The picture is similar in Thailand, whose economy relies heavily
on China. Chinese demand helped stabilize prices for rubber, a
major Thai export. Raweeploy Yutthacharoenkit, manager of Bothong
Rubber Fund Cooperative Ltd., says some Chinese companies are
expanding and it has been hard to keep up, especially since Thai
rubber farmers cut production because of Covid-19.
Thailand's economy is still expected to shrink as much as 8%
this year, though, in part because Chinese tourists are largely
staying away.
In South Korea, semiconductor-equipment maker YoungjinIND Co.
has resumed production thanks to orders from chip-making facilities
in China. Orders from China dropped to zero in February and
March.
But the orders are still only a third of last year's, says Park
Jong-jin, head of YoungjinIND's planning team.
Concerns over rising debt have made Beijing warier of
engineering more growth through stimulus this year. Its fiscal
measures are estimated to amount to 4.6% of GDP, according to the
IMF. Christine Wong, a visiting research professor at the National
University of Singapore's East Asian Institute, figures it may add
up to 7% of GDP when all government budgets are taken into
account.
In some cases, though, China is better-placed to supply its
needs than before. In the construction sector, sales of excavators
jumped 68% from the previous year in May, according to the China
Construction Machinery Association.
But this jump was driven by a 76% increase in sales by domestic
producers, which include Sany Heavy Industry Co. Purchases from
foreign sources, which include Caterpillar Inc. and Komatsu Ltd. in
Japan, rose just 3%, according to Goldman Sachs.
Somchai Techapanichkul, chairman of the Thai Plastic Industry
Association, says his members have seen a similar trend.
"China has developed their own plastic, and the price is
cheaper," he said. "They may not want our products anymore."
China's longer-term shift toward more reliance on services
instead of manufacturing has further curbed demand for the
specialized machinery and equipment that helped turn China into the
world's factory floor, says Joerg Kraemer, chief economist at
Commerzbank in Frankfurt.
Consumer spending has helped create new demand in some
industries, while others have been left out.
Germany's premium-auto manufacturers recently highlighted a
strong rebound in Chinese sales after auto factories and
dealerships reopened there in March. BMW AG recently reported a 17%
year-over-year increase in sales of its BMW and Mini brand vehicles
in China in the second quarter, partly compensating for a sharp
decline in the first quarter.
But overall, China's passenger-car market is likely to shrink by
10% this year compared with 2019, according to a July 3 report by
the German Association of the Automotive Industry. Germany's large
auto suppliers have recently announced tens of thousands of job
cuts.
A deterioration in the broader trade environment between western
countries like Germany and China has further complicated matters,
said Lars Feld, chairman of the Council of Economic Experts that
advises Germany's government. Mr. Feld points to increased barriers
to Chinese investment in Germany, a response to perceived Chinese
protectionism.
"China is generally not a growth machine at the moment," said
Wolfram Eberhardt, a spokesman for Claas KGaA mbH, a large
agricultural-machinery manufacturer in northwest Germany. Industry
officials complain the global agricultural-machinery sector is
being weighed down by weak Chinese demand and unfair
competition.
Mark Zandi, chief economist at Moody's Analytics, says that it
is now the U.S. that may be in a better position to lead the global
economy out of recession. Washington's fiscal-policy response to
Covid-19 amounts to 13% of GDP this year, according to Mr.
Zandi.
However, the U.S. and some other developed economies have rising
coronavirus cases, threatening their ability to lead a global
recovery. That leaves many companies counting on China.
"China will still be a growth engine for the world," said Ms.
Wong at the National University of Singapore. But "if China grows
at 1%, it's barely inching forward. So it's not going to be pulling
anybody very fast."
David Winning in Sydney, Bingyan Wang in Beijing and Wilawan
Watcharasakwet in Bangkok contributed to this article.
Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com and Tom
Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
July 12, 2020 08:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.