Recent data has shown that growth in China has slowed to its lowest rate in the almost 25 years.
Despite the slowdown, China is still a steadily growing economy and has become the world’s largest importer of crude oil, almost a third of which comes from Gulf countries.
We still believe that this year the Chinese central bank will manage to reach its target of 7%
China and the Middle East say they have a win-win partnership, in which they have increased the proportion of trade exchange.
Beijing considers the Gulf region the most attractive destination for its export market. Data in April showed China’s economy slowing despite a rise in policy easing programmes.
According to the International Monetary Fund (IMF) the Chinese economy grew 7.4% in 2014 and the most recent forecast is 6.8% for this year and 6.3% for 2016.
In light of a slowing economy, the People’s Bank of China (PBOC) announced that it would reduce the rate on a one-year loan by 0.25 percent. This is the second interest rate cut to take effect this year.
The Chinese yuan rose against the US dollar last Thursday after the central bank set the the currency’s average price at its highest level in 15 months. At the same time, the yuan renewed efforts to join the global currency basket.
The energy sector reached a record level, putting China at the top of oil import countries, surpassing the United States.
Chinese Customs Administration data showed that foreign purchases of oil hit a new record high at 7.4 million barrels per day last April, and in doing so passed US imports that amounted to 7.2 million barrels per day.
A third of oil imports come from the six Gulf Cooperation Council countries. China has increased its presences in the Middle East in several different ways. Recently, Beijing announced intentions to advance free trade talks with the GCC.
An analyst’s view
For an analysis of China’s growth and currency issues Daleen Hassan spoke to Mathieu Ghanem, Market analyst and Head of Sales, Asia Pacific for ADS Securities in Hong Kong.
Daleen Hassan: “The latest Chinese economic data is significant ,do you agree with analysts saying it is a hard landing?”
Mathieu Ghanem: “I do not agree. The Chinese economy is currently in a mutation period; it has reached a certain level of over capacity, especially in the industrial and real estate sector.
This combined with the intervention of the government to cool down shadow banking is resulting in what we believe is a soft landing, and so a healthy re-balancing for China. We still believe that this year the Chinese central bank will manage to reach its target of 7%.”
Daleen Hassan: “What are the expected trends of the yuan now? Could the Yuan gain Reserve Currency Status later this year?”
Mathieu Ghanem: “So, though in a deflationary environment where oil prices remain weak, we have seen the POBC allow its currency to appreciate, to export its inflation. They have decided to continue to appreciate the yuan, also because (possibly) they want to liberalise their currency. So we think the yuan is already an international reserve currency and it’s used by many central banks already. We expect this trend to continue as China will keep on pushing this year to have the yuan adopted by the IMF to be one of their currencies.”
Daleen Hassan: “China has become the largest importer of oil in the world. Do you believe that their recent activity and
stockpiling of crude oil could affect market prices?”
Mathieu Ghanem: “With still high growth prospects and weaker oil prices it seems very logical that China is increasing its purchase of crude oil. It’s a good time and a cheap time to buy. However, with oil supply from both the OPEC and US shale drillers set to expand over the year we don’t think that China can effectively or strongly impact the prices.
“In addition to possibilities for the US dollar to resume its bullish trend, if the US economy outlook becomes better in the third quarter, we don’t think China would tremendously affect prices on the short term.
Daleen Hassan: “The Middle East is opening up to China.
From your position in Hong Kong, how do you see two-way investment partnerships growing?
Mathieu Ghanem: “We are witnessing this every day in Hong Kong – Abu Dhabi-based companies highly committed in Asia, with growing human capital, investment and growth prospects for our business. This represents an incomparable opportunity for GCC economies, and not only in the commodity business but in the financial business too.
“As Asia became the main engine of growth we have seen numerous investment deals where GCC countries are investing massively in China – and vice versa – to secure their market share for both countries or both regions. Finally, we think that with these free trade partnership discussions between China and the GCC our common future looks bright.”
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