Numerous global and domestic factors are influencing a slow but steady shift in China’s economy from industrial- to consumer-driven. Among these are the severely negative impacts of the Covid-19 lockdowns and the subsequent supply chain disruptions, the resultant longer processing times and higher transportation costs, the tightening of the global monetary policy and the recession risks many of China’s trading partners are facing.
Bianca Botes, Director at foreign exchange and treasury experts Citadel Global, explains how this shift could impact countries such as South Africa and Australia.
DOMESTIC DRIVERS OF CHANGE IN CHINA
The Chinese government is driving efforts to promote domestic consumption, meeting the increasing demands of a growing middle class and dealing with the increasing cost of labour in manufacturing. This is moving concentration from an export-driven economy to one relying on domestic consumption. In turn, this has both positive and negative implications for hard commodity exporters such as South Africa and Australia.
THE POSITIVES AND NEGATIVES OF THE TRANSITION
Increasing demand for consumer goods could result in a higher demand for raw materials such as metals, minerals and energy which holds potential gains for export revenues and economic growth for both South Africa and Australia.
However, a greater focus on the provision of services and the subsequent decline of the resource-intensive economy could also lead to a decreased demand in these commodities, with damaging impacts on the economies of both countries.
On the other hand, China’s growing emphasis on a consumer-driven economy could also hold potential for different export opportunities to be exploited. Retail goods, predominantly high-end consumer goods and luxury items are increasingly sought after. This, together with a growing preference for online shopping, has led to a shift in the types of commodities being imported.
Both the South African and Australian tourism industries could focus more attention on providing the needs of ever larger numbers of Chinese tourists whose rising incomes are encouraging overseas travel.
The expansion of e-commerce and online platforms could open doors to a greater demand for technology and related services. The automotive industry is developing with an upsurge in car sales, and the rise in the consumption of agricultural products, especially healthier or organic items, could offer new avenues to exporters to China.
IMPACT OF A DECREASE IN COMMODITY IMPORTS
Overall, however, a decrease in commodity imports by China could lead to a decline in demand for commodities from both South Africa and Australia; gold, platinum and diamonds from the former, and iron ore, coal and natural gas from the latter. For Australia this could result in a decrease in the value of the Australian dollar against not only the Chinese yuan, but other currencies too.
South Africa could face a similar decline in the value of the rand. The challenge South Africa is faced with, is the significant dependence on China for commodity exports, and the subsequent need to diversify its commodity markets.