Chinese economic concerns grow
Concern about the state of the Chinese economy increased last week with Stock Markets around the world falling as a result.
The reason behind these stock market movements lies in the economic powerhouse that China has become. With annual growth at around 10% for nearly thirty years up to 2011, it has become the world’s second largest economy. However, while Chinese growth rates are still high in comparison to the Euro area and the UK, they are slowing significantly. The Chinese government has implemented a number of measures to address this slowdown and boost their economy, including cutting interest rates and devaluing the yuan.
A reduction in the official growth forecast for 2015 to 7%, along with an underlying suggestion that even this revised figure may be slightly optimistic, means markets across the world have responded to the possibility of a slowdown in growth of a previously rapidly expanding export market. Among the knock-on effects has been some strengthening of the euro against the pound, reversing the trend seen over the last two years. This may provide some relief to UK agricultural markets, as the exchange rate has contributed to low prices across many sectors, including the pig market.
This slowdown could cause concern amongst global food exporters. China’s rapid growth, and the emergence of a Chinese ‘middle class’ consumer, has provided huge opportunities for other countries to satisfy a growing demand for western goods and services. In 2014/15, USDA figures show that China accounts for over 60% global imports for whole milk powder, 60% for oilseeds, 12% for pig meat and 5% of beef and veal. Current forecasts show these percentages set to increase significantly over the next two years but that growth must now be in some doubt.
Most forecasts anticipate an increase in Chinese pork imports this year and shipments were up 11% in the first seven months of the year and by more than a quarter in the latest three months. Reports suggest they have remained strong since then. Trends for UK exports to China have been similar. This is down to a fall in production after a sharp decline in the pig herd, driven by poor profitability last year. Chinese pork prices have increased by a third since March and are at their highest level for over two years, meaning the production decline may reverse next year.
While current prices suggest that demand is still running ahead of supplies and there should still be scope for higher pork imports, the economic concerns may temper expectations to an extent. Slower economic growth may also hit consumption levels in the longer-term, particularly if it affects confidence among Chinese consumers. Early indications are that the situation may not have too much impact on pork imports in the short-term, however. This will be welcome news for pork exporters around the world, including those from the UK. The Chinese situation is particularly important as demand from other major pork importers looks likely to be lower in the coming months and prices are already subdued in most exporting countries.