23 January 2022
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Shape shifters

Simon Bond
5 August 2009

Our analyst Michael Knox regularly writes thought provoking pieces and we are supportive of the recovery underway.

We believe that as China recovers, it changes shape

As the economy of China is recovering, so the structure of the Chinese economy is changing shape. In this issue, we look at three surveys of the Chinese economy: Business Climate, National Accounts and Industrial Production.

The Chinese National Business Climate Index was released by the China National Bureau of Statistics on 10 July. This Index showed that the Chinese economy bottomed out in the first quarter of 2009 and began to substantially recover in the second quarter.

We are used to thinking of China as primarily manufacturing and export orientated. That was before the slowdown. The China that is recovering from the slowdown is recovering because of domestic demand. There are four major sections of industry shown in the Business Climate Index: Wholesale and Retail Trade, Transport and Storage, Business Services and Accommodation. In this survey, the Wholesale and Retail sector at 126.5 stood around 20 points higher than the other sectors.

The Business Climate survey also tells us that the conditions for large scale industries stood at an index level of 133, medium scale industries at 116.8 and small scale industries at 98.6 (below 100 output is contracting). Put the information shown above together and we can see that the strongest sector of recovery is in large scale wholesale and retail companies. This recovery seems to be spread across the different regions of the country.

The idea of retail recovery is backed up by what we see in the National Accounts. The National Accounts for China (the GDP numbers) were released on 16 July. For the year to June, the Chinese economy grew by 7.1 per cent. This is slightly faster than for the year to March. The composition of growth is interesting. Primary industry grew by only 3.8 per cent. Secondary industry or manufacturing grew by 6.6 per cent. However, Tertiary industry, which includes the wholesale and retail services sector, grew by 8.3 per cent.

Industrial production

Growth driven by domestic demand is generating quite interesting changes in the Chinese Industrial sector. What we call industrial production, the Chinese call ‘Value Added of Industry’. The previous boom in China was shared by both large-scale public and private sector enterprises. The recovery is leaving public enterprises behind. The National Bureau of Statistics tells us that for the year to June, Value Added of Industry in private enterprises grew by 19.7 per cent. This was far faster than State owned and State holding enterprises which saw Valued Added of Industry grow by only 5.7 per cent.

The National Bureau of Statistics tells us that the export delivery value of industrial enterprises fell by 15.5 per cent for the year to June. For the industrial sector as a whole, the fastest growing sectors were non-metal mineral products processing, which grew by 11.9 per cent, electrical machinery and equipment manufacturing, which rose by 10.4 per cent.

Motor vehicle production rose by 16.4 per cent to 6.23 million vehicles for the half year. Car production was up 16.3 per cent to 3.23 million cars for the first half of 2009.

The impression that we get from these numbers is that strong domestic demand is generating strong demand for motor vehicles. This in turn is generating demand for electrical machinery and equipment manufacturing. This electrical and equipment manufacturing of course involves a lot of copper. This may explain why world copper demand is so strong and stocks are low.


The Chinese economy is recovering. As it recovers it is changing shape. As it recovers, it is being driven by domestic demand rather than exports. Increasing demand for motor vehicles and electrical equipment will become increasingly important as drivers of the Chinese economy.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.


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