The influence of Europe’s decrease in consumption over China’s economy

Scris de Maria Constantin

China’s economic growth remains at a high level compared to other economic powers, although the country exports were affected by the decrease in consumption in Europe.

Reducing wages and increasing unemployment in Europe also influences China’s economy, as one third of the country’s exports are directed to this area.

Although compared to the data in the first quarter China’s economic growth decreased by more than one and a half percent, it still remains at a high level compared to other economic powers.

Reductions in growth rate were also recorded in industrial production and retail.

Approximately one third of Chinese exports bound for European countries. The reduction of public spending in most European countries will reduce consumption. In addition, the devaluation of the dollar compared to Euro will affect even more China’s exports.

In the first semester of this year China’s economy grew by 11.1% over the same period last year.

Investments in urban areas, one of the engines of the Chinese economy, grew by 25.5% in the first semester, while industrial production increased by 17.6%. Moreover, retail rose by 18.2%.

According to the Beijing authorities, this year the economy will grow by about 8%.

The National Bureau of Statistics (NBS) announced that in Q2 of this year, Gross Domestic Product grew at 10.3 percent annual rate. Even if it is the third consecutive quarter when China’s GDP is growing by two digits, there is a slight slowdown compared with the 11.9% advance registered in the first three months of the year and the increase by 10.7% in the last quarter of last year.

According to NBS, in the first half of this year the Chinese economy grew by 11.1 percent compared with same period last year. In the first quarter China’s GDP amounted 17,280 billion yuans, the equivalent of 2,550 billion dollars.

Investments in urban areas, one of the engines of the Chinese economy, grew by 25.5 percent in the first quarter, while industrial production grew by 17.6 percent. Also, fixed investments grew with a 25 percent annual rate up to 11,418 billion yuans, the equivalent of 1,670 billion dollars. In the first six months retail rose with 18.2 percent up to 7,270 billion yuans, the equivalent of 1,060 billion dollars. In the first semester the inflation was of 2.6 percent.

“China’s current pace of development is due to measures taken during the crisis. Domestic consumption, exports and investments are three very important factors”, believes Liu Zengwen, the Ambassador of People’s Republic of China in Romania.

According to the Ministry of Economy, Trade and Business Environment in Romania (METBE), although the 2009 growth of China was estimated at 8%, it reached 8.5% at the end of the year, due to several factors such as investment and consumption rate.

Consumption had a dynamic growth throughout 2009, although the context at the beginning of the previous year was rather unfavourable. Retail rose with 16% compared with the previous year, especially in the automobiles and electronics.

China’s exports had a less favourable evolution in 2009. The trade balance decreased by approximately 30% compared to 2008, due to stronger exports decrease (-13.8%), compared to imports (-6.4%).

At the end of 2009, China surpassed Germany, occupying the third place after USA and Japan in the GDP ranking of big global economic powers.

Economic relations between EU and People’s Republic of China

For EU’s economic relations, China is a very important partner. Thus, according to Chinese customs’ statistics, centralized at the end of 2009, the European Union is the main trading partner of PRC, with a total of 364,042 billion dollars, down with 14% compared to the 2008 levels, followed by U.S., amounting 298,259 billion dollars, down with 11% compared to the 2008 levels.

The total volume of trade between PRC and EU represented 16% of the Chinese foreign trade in 2009, a positive trade balance of 108,527 billion dollars being registered for PRC.

The exports of the 27 EU member states have reached at the end of 2009 the value of 127,758 billion dollars, with a decrease of 4% compared to the value recorded in 2008, meaning 13% of the total imports in PRC in 2009. EU ranks in the top two exporters in China, being surpassed by Japan (130,938 billion) and followed by the ASEAN countries (106,714 billion USD) and the Republic of Korea (102,552 billion USD).

In terms of imports from China, the 27 EU member states occupy at the end of 2009 the first place, registering a value of 236,284 billion USD, with 19% less than in 2008, being followed by USA 220,816 USD, Hong Kong (166,233 billion) and ASEAN countries (106,297 billion).

For PRC are essential both the commercial trade of member states and the volume of European direct investments in the country.

Although the volume of EU investments in PRC doesn’t yet compare to those made in the USA, they follow a growing trend because increasingly more companies want to locate their production in China in order to benefit from the existing facilities in this country – lower standards regarding wages, environmental conditions, intellectual property and grants from the Chinese government.

Concerning PRC’s 2009 commercial trade with the 27 EU member states, Germany holds the leading position in terms of total volume – accounting for 29% of the total trade between China and EU, with a value of 105,684 billion dollars, in terms of export – with a rate of 44% of total EU exports to the Chinese market, with a value of 55,764 billion dollars, and in terms of imports – registering 21% of total EU imports amounting 49,920 billion dollars. Germany also holds the top position among the four EU countries which had a positive trade balance with China at the end of 2009 (+5,845 billion dollars), followed by Austria (+1,977 billion dollars), Sweden (+1,297 billion dollars) and Ireland (+1,252 billion).

In terms of total trade volume of PRC with the EU, Germany is followed by the Netherlands (41,804 billion dollars), the Great Britain (39,155 billion dollars), France (34,480 billion dollars) and Italy (31,264 billion dollars). In terms of export Germany is followed by France (13,020 billion dollars) and Italy (11,020 billion dollars) and in terms of import by the Netherlands (36,682 billion dollars) and Great Britain (31,277 billion dollars).

Netherlands holds the first position in the ranking of EU countries that have an unfavourable trade balance with PRC (31,560 billion dollars), followed by Great Britain (23,400 billion dollars), Spain (9,780 billion dollars) and France (9,223 billion dollars).

Although in 2009 Romania registered an increase in exports to the Chinese market worth 20% – while the total EU exports to the Chinese market fell by 4% – Romania holds the 18^th position in the ranking of European exporters to China, accounting for 433 million dollars.

According to the statements of the ambassador of People’s Republic of China in Romania, 2010 is a propitious year for the commercial trade between China and the EU. “The European economic crisis is felt very strongly in China, given that the EU is China’s main trading partner. The first half of 2009 was a difficult moment for commercial trade between China and the European Union and indeed the entire year 2009 was difficult from this point of view, considering that in the first half of 2010 China has exported to EU countries with 20 – 30% more than in 2009. We can say therefore that we have returned to a favourable trend”.

Bilateral economic relations between Romania and People’s Republic of China

People’s Republic of China occupies an important place in Romania’s policy of developing relations with Asian countries and commercially, in the first five months of 2010, the country occupies the first place in the Asian region in total trade, estimate the representatives of the Ministry of Economy, Trade and Business Environment in Romania.

Until 1990, the Romanian-Chinese economic relations were regulated by government agreements, which ensured a balance of economic exchanges and trade. The termination of the agreement consisting of Romanian exports to the Chinese market as compensation for debts led to a sharp decrease in exports during the 90s, reaching the level of 22.8 million dollars in 1998.

Beginning with 2000 there was a trend of recovery, so that at the end of 2009 Romanian exports to PRC reached the value of 296.5 million dollars. In return, due to the Chinese products’ competitiveness on international markets, especially in terms of prices, imports from China have increased sharply in 2008 reaching a value of 3.53 billion, generating a negative trade balance, which has accentuated in recent years .

Although the effects of the global economic crisis were felt in the economic and social perimeter of Romania, Romanian exports in PRC have continued their upward trend in 2009, surpassing the results total registered in 2008 since the beginning of October 2009. This positive evolution occurred in a year when the value of European Union’s exports on the Chinese market fell by about 4%. Comparing the situation of bilateral trade in 2009 with the one in 2008 one can notice a decrease in the volume of bilateral trade (25% compared to 2008) mainly due to reduced imports from People’s Republic of China (about 25% compared to 2008). The beginning of 2010 confirms the upward trend of Romanian exports in PRC (an increase by 214.7% in May 2010 compared to the same period last year).

According to the data provided by the Romanian Ministry of Economy, Trade and Business Environment, on May 31, 2010, the total volume of commercial trade between Romania and PRC was around 1.4 billion dollars, of which export was over 171 million dollars, while imports were over 224 million USD, resulting a balance of about 1.2 billion dollars.

“In 2009, the value of bilateral trade between China and Romania reached the value of 2.81 billion dollars and in the first semester of 2010 the value was of 1.4 billion dollars, accounting for 0.6% of China’s total trade with other countries”, declared Liu Zengwen, the Ambassador of People’s Republic of China in Romania.

METBE believes that PRC is Romania’s main trading partner among countries in Asia and Oceania, followed by India, South Korea and Japan. According to statistics in the first five months of 2010, China’s share in Romania’s total trade with Asian countries increased from 48.4% to 53.7% compared to the same period last year. Regarding Romanian exports to China, larger increases were registered, from 18.4% in 2009 to 34.2% in 2010. In imports, a slower growth of the share is registered, from 48.4% in 2009 to 53.7% in the first five months of 2010.

For this year METBE forecasts a value of Romanian exports to the Chinese market of over 400 million dollars, while the estimates for 2011 show an increase up to 500 million dollars.

The Chinese investments also had an upward trend as at the end of 2009 a number of 9,693 Chinese and joint Romanian-Chinese companies were enlisted, with a total invested capital of approximately 635 million dollars, registering an increase almost two times bigger than the value recorded at the end of 2008.

“In 2009, the fund made by Chinese companies was of 400 million dollars and in the same year China was ranked the 16^th within the top 16 foreign investments in Romania”, said Liu Zengwen.

According to the data available at the Romanian Trade Register, in the first two months of 2010, the number of Chinese companies registered in Romania grew to 9,793 and the total value of the social capital in foreign currency equivalent of 704,440 million dollars.

China’s ambassador in Romania believes that road infrastructure and agriculture are the main areas of interest for Chinese investors in Romania. Infrastructure is the main sector where both the Romanian and the Chinese are interested in bilateral projects. China has the necessary experience in this regard, for example, in China there are now over 60,000 km of highways and each year China can build 5,000-6,000 kilometres. Agriculture is another sector with investment potential, both on the exploitation of land, construction of irrigation systems and fishing.

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