End of an era: why China no longer grows at "Chinese rate" and what impact on Latin America

"We will face a more serious and complicated environment, as well as greater risks and challenges. We must be prepared for a tough fight, "Prime Minister Li Keqiang said Tuesday at the opening of the annual session of the National People's Congress.

Hours before, his government had announced the reduction of the growth target for 2019 of 6.6% between 6 and 6.5%. To find a lower figure, it is necessary to go back to 1990, when GDP had increased by only 3.9%, in the context of the cimbronazo, which was the process of dissolution of the Soviet Union.

The concern is logical. After several years of double-digit rates, China has posted growth of less than 7% since 2015. Far from being an accident, it has become a trend. According to the forecasts of the International Monetary Fund, the deceleration will intensify: it would be 6.2% in 2020; 6% in 2021; 5.8% in 2022 and 5.6% in 2023.

"China will experience lower growth rates in the future, which is not surprising, given the 10 years of average annual growth with more than three decades." Asian countries that have experienced high rates in the past, such as Japan and South Korea, have their indexes fall after 30 years, so would be unprecedented if China continued with the previous level"he said to Infobae economist Rhys Jenkins, professor at the School of International Development of the University of East Anglia in Norwich and author of books How China restructures the global economy: development impacts in Africa and Latin America.

Xi Jinping's cabinet announced a series of measures to revive the economy: Tax cuts and social contributions paid by companies for their employeesand an increase in public spending, which will lead to a 0.2% increase in the budget deficit. They can be used to cushion the slowdown, but no one expects them to be enough to reverse it.

"No economy can maintain a growth rate above 9.5% forever. When the per capita income of a country approaches $ 10,000, the rate decreases. Now, China's figure is $ 9,758, so the slowdown is inevitable, "said Le Xia, chief economist for BBVA Research, interviewed by Infobae.

This change of era is not simply a Chinese affair. Being the most populous country on the planet and the second largest economy, its expansion led to many others, reinforced by the satisfaction of the voracious demand of the People's Republic.

Latin America is a region particularly affected by the stagnation potential of China. The extraordinary manna that lived in the first decade of the 21st century was largely due to mbadive purchases of raw materials by Beijing. The partial closure of this door has already been felt for some time and the prospect that it will not reopen a rather mediocre future for countries that could never break their dependence on the sale of basic products.

"China's contribution to the Latin American economy is mainly focused on the purchase of agricultural and mining productsand in infrastructure investments. As a result, the slowdown can be expected to negatively impact the prices of these goods, affecting the value of exports. It is also expected that Chinese investment in the region will decrease, especially in the mining sector, "he said. Infobae Juan Manuel Gil Barragan, Professor of International Business at Columbia University EAN.

The end of "Chinese taxes"

At the beginning of the millennium, it seemed that China was about to erase everything. Between 2000 and 2007, GDP grew at an average annual rate of 10.5%, reaching a peak of 14.2% in the last year..

The boom was cut in 2008 with the international financial crisis. However, it managed to stay close to double digits and returned to 10.6% in 2010. A slow but decided deterioration then began, which intensified from 2015.

"This reduction in growth is based on a number of underlying long-term factors," Jenkins said. Due to demographic change, the Chinese population is aging and the proportion of people of working age is decreasing.. In addition, Chinese exports have grown three times faster than their entry into the World Trade Organization in 2001, but now, with penetration already high in most markets, it is harder to do it as much ".

Several data light up an alarm light. Manufacturing activity, for example, was reduced for three consecutive months and recorded its worst result in three years in February..

"The fruits of the Chinese government's investments in infrastructure and construction have come to an end. China has a serious problem with the works that have been made but that no one uses. This led to the outsourcing of the real estate sector. Secondly, part of China's growth has been achieved through debt, a situation that is becoming less and less sustainable as it has reached levels so high that it accounts for almost three times its GDP. Third, wages have increased, which has shifted the manufacturing industry to lower-income countries such as Vietnam, the Philippines or Bangladesh, "said Gil Barragan.

To all these long-term changes a circumstantial factor is added: the trade war with the United States. The dispute began last March, when Donald Trump announced a 25% tariff on steel imports. It was the first of a series of protectionist measures aimed at reducing red in trade with China.

Although Trump failed in its goal, because in 2018, the United States had recorded the largest trade deficit in ten years, it has indeed hurt its rival. Produces tariffs, Chinese exports to the North American country collapsed in 20.7%.

"You have to recognize the role you can play in these numbers. Although China has been able to some extent to reduce its reliance on exports, it remains a highly exposed country to international markets.. The trade war had an impact on industrial production, particularly because it was a direct blow to the sectors included in the "Produced in China 2025" plan, such as heavy manufacturing and technology. This generates an accumulation of inventories, a reduction in production plans and a situation of uncertainty which undoubtedly generates an additional burden, "said Camilo Pérez Restrepo, coordinator of the EAFIT Center for Asia-Pacific Studies in Medellín, when a dialogue with Infobae.

In recent months, delegations from both governments have maintained high-level contacts in order to alleviate tensions and reach an agreement. Zhong Shan, Minister of Commerce, offered the minister Tuesday a dose of bitter realism: "there is still much to do."

The impact for Latin America

"Chinese demand has been a fundamental impetus for the growth of the region until the years 2011 and 2012. For several South American countries with which China had virtually no trade relations before 2000, China became the first or second largest export destination.. The cases of Brazil, Peru and Uruguay may have been the most affected, but also Chile and Argentina. That is, in 2000, 15 to 20 percent of goods exports were created almost in 2000, "he said. Infobae Gustavo Bittencourt, researcher at the Department of Economics of the University of the Republic, Uruguay.

The correlation between Chinese and Latin American growth trends is quite obvious. After a fall in the first years of the new millennium, the region has experienced a resurgenceresulting in average annual growth of 5.4% between 2004 and 2007, with some countries at double digits.

Clearly, the negative effects of the 2008 crisis have been felt, implying a decline of 2% in 2009, but, like China, a rebound in 2010 allowed growth of 6.1%. Since 2011, the gradual decline began and increased from 2014, with rates still below 2%..

A similar correlation is found between the evolution of Chinese imports and Latin American exports. The cause is obvious: there is an important complementarity between what is needed on one side and what is offered on the other. Latin America offers you various raw materials, such as soy, minerals and fuels, which are very important for the Chinese industry.

Whatever the case may be, the slowdown in the expansion of Chinese purchases in the region was to be expected. "This growth was linked to an emergency process of the Chinese economy as the main importer of goods for which it had been closed. Bittencourt continued. As with any opening, there is a one-time jump. The growth rate badociated with the rise of the step is enormous, because it starts from scratch. Some of China's imports depend on the growth of the economy, but we do not know to what extent this may affect the exports of the countries of the region. "

It is no coincidence that Chinese imports grew by 33% a year in 2003, the highest level in 20 years, and Latin American exports almost reached their peak at 11% in 2004. the steady decline in Chinese purchases until 2009, the 2010 leap and the new downward trend observed since, was accompanied by a very similar trend in sales from the region to the period.

"In spite of the current situation, China and Latin America will continue to maintain a strategic relationship," said Pérez Restrepo, "according to figures consolidated by the International Trade Center, Latin America's exports to China increased from $ 102,100 million in 2017 to about $ 134,800 million in 2018.. A careful examination of the figures shows that although there has been a slight reduction in the value of the basic products, is due to the fluctuation of their prices on the international markets and not to a contraction of Chinese demand ".

What one has to keep in mind, is that the bulk of this sales volume came from a handful of countries. Agricultural products from Brazil, Argentina, Chile, Peru and Uruguay. Manufactures of Mexico and Brazil. Other Latin American countries experienced a decline in their exports.

"The other economies of the region, led by Colombia, Venezuela and Ecuador, which are essentially exporters of basic products l & # 39; energy, they have a big challenge to reach for positioning new products in this Asian market, so as not to depend too much on fluctuations in international prices, "concluded Pérez Restrepo.