By Vandré Kramer
After the restrictions to fight the Covid-19 pandemic, which led China to two years of weak growth (2020 and 2022), expectations are for a resumption of economic expansion.
After a 3% increase in GDP last year, the intention is to grow around 5% this year.
Analysts point out that these expectations may be modest: the International Monetary Fund (IMF), for example, projects a slightly higher expansion of 5.2%.
For Brazil, the characteristics of the Chinese economy seem to point to a promising year for agribusiness, which is already the main exporting sector to the Asian country, and more uncertain for mineral and energy commodities, given the loss of traction of the Chinese real estate sector.
Li Keqiang, outgoing premier, on Friday (3) forwarded a report to the National People’s Congress, China’s Communist Party-controlled parliament, signaling conservative growth targets.
Over the past 40 years, the country has grown an average of 9.2% per year, according to the IMF.
According to Richard Tang, Swiss bank Julius Baer’s Asia analyst, the set targets imply saying there will be no strong monetary or fiscal stimulus, which was already expected.
“Compared to the previous report, this one seems more focused on the achievements of the past five years and has less policy-oriented content going forward. We believe that more detailed policies will be announced after the new government is formed,” he says.
He points out that Keqiang’s report is in line with the Central Work Conference on the Economy held in December, in which it was defined that emphasis will be placed on domestic consumption.
Jacqueline Rong, China’s economist at BNP Paribas, told Bloomberg that the positive spillover effects, compared with the country’s previous recovery cycles, are expected to diminish somewhat due to the reliance on consumers to fuel the economy and the reluctance to stimulate growth through commodity-intensive sectors such as infrastructure and real estate.
Zhang Zhiwei, the chief economist at Pinpoint Asset Management, also told Bloomberg that the GDP target should be seen as a floor, which could cause growth to be higher than the target.
HOW CHINA’S ECONOMIC PERFORMANCE IN 2023 COULD AFFECT BRAZIL
Even with the loss of pace in the growth of the second-largest global economy in 2022, Brazilian exports to China reached record levels: US$89.7 billion were sold, according to the Secretariat of Foreign Trade (Secex).
It is an expansion of 2.1% compared to the previous year and the highest level in the historical series, which began in 1997.
However, in the first two months of 2023, there was a 4.9% drop in Chinese imports of Brazilian products and goods.
According to the Secretariat of Foreign Trade, the business amounted to US$10.2 billion.
According to XP Investimentos, the reduction reflects a slowdown in Chinese foreign trade, reflecting lower global demand amid tighter financial conditions and lower commodity prices.
The drop in Chinese imports from all countries was stronger in the period, by 10.2%.
Economist Sophie Altermatt of Julius Baer says that this overall retraction is related to still slow domestic demand in the Asian country, as the recovery has just started and, for now, is more oriented to domestic consumption of services.
The director of investment management at Nova Futura, Pedro Paulo Silveira, says the market has been a little more cautious about the effects of the Chinese recovery after easing sanitary measures.
“We can see this in the prices of raw materials, which interrupted the rise they had been making for a few weeks.”
“International commodity prices are still attractive, making us optimistic about the year.”
“The new harvest and ore exports will benefit from the prices, which should boost these sectors”, he evaluates.
Silveira believes that the relationship between Brazil and China should remain strong.
According to him, on the side of our imports, the growth should depend on the expansion rate of the Brazilian GDP.
“There is no sign that the Brazil-China trade flow will suffer any restriction due to geopolitical events,” he says. President Luiz Inácio Lula da Silva (PT) is scheduled to travel to China at the end of the month.
Brazil can also be impacted by the change in the Chinese growth profile, highlights Heitor Paiva, an analyst at hEDGEpoint Global Markets.
China’s expansion is more oriented to the services sector than to civil construction, which accounts for 30% of the Asian giant’s GDP.
In the fourth quarter, service-related activities had strong growth.
The financial sector’s GDP grew 5.9% compared to last year’s period, and the software and technology services sector grew 10%.
The real estate sector, in turn, shrank by 7.2% when comparing the last quarter of 2021 to 2022, which may have implications for the Brazilian economy.
“It may imply a lower demand for mineral and energy commodities, as is the case of iron ore and oil, two important products in the Brazilian export agenda,” says Paiva.
Other factors also weigh for the more cautious posture, says the Brazilian Foreign Trade Association (AEB) president, José Augusto de Castro. Among them are:
- problems arising from Covid, such as the emergence of new cases;
- the tensions with the United States, which gained strength with the shooting down of a Chinese balloon on the North American East coast at the beginning of February;
- the revision of global supply chains to reduce dependence on Chinese products.
Another issue to monitor is unemployment among the youth population, which remains high and could hurt consumption growth in the coming months, according to Alef Dias, macroeconomics and grains analyst at hEDGEpoint Global Markets.
“Some volatility in China’s economic data can be seen in the coming months and cannot be seen as a total surprise, even though the overall picture remains very positive.”
Even so, the director of foreign trade of the Brazilian Chamber of Commerce, Industry, and Services (Cisbra), Arno Gleisner, expects that, with the recovery of the Chinese economy, greater participation of the Asian country in Brazilian exports agenda.
Last year, the share was 26.8%, according to Secex data – the lowest level since 2017.
BRAZIL’S AGRIBUSINESS MAY CONTINUE TO SHINE WITH DEMAND FROM CHINA
Agribusiness may continue to have good opportunities in the Asian country, evaluates Castro from AEB.
And one of the main ones is soybeans, whose business benefited last year by good prices.
The volume sold was 11.3% lower, but the revenue increased 16.8%, compared to 2021, according to Secex data.
Data from the United States Department of Agriculture (USDA) indicate that China may import 96 million tonnes this year, 4.8% more than last year.
“China has been consolidating its pig herd at high levels, although recently the government has shown signs of not being comfortable with the oversupply. Nevertheless, feed consumption has remained strong,” add analysts Alef Dias and Pedro Schicchi from hEDGEpoint.
The USDA indicates that global production of soybeans this season should be 1.3% lower due to lower harvests in Argentina, affected by weather problems and a reduction in planted area, and in Ukraine, because of the war.
“Global soybean exports will remain stable, with fewer sales from Argentina offset by higher shipments from Paraguay and Brazil,” analysts at the US department point out in a report.
Good opportunities may also arise for corn.
According to the Institute of Applied Economic Research (Ipea), a branch of the Ministry of Planning, this grain may have greater participation in exports due to an agreement signed with China and the prospect of the Chinese diversifying their suppliers.
China’s internal grain deficit is growing, and due to the problems faced by its main suppliers, such as the United States and Ukraine, China has included Brazil in its list of importers.
“This could displace about 4 to 6 million tonnes of corn from China’s traditional origins,” Dias and Schicchi point out in a report.
China’s purchases of Brazilian corn, which were negligible in the first two months of 2022, have already reached US$293.1 million in the same period of 2023, Secex points out.
“With international demand heated, the expectation is for the maintenance of commodity prices and a greater participation of agribusiness in the country’s trade balance,” say the Ipea analysts in a report on foreign trade in agribusiness.
Another product with favorable perspectives is pork.
The USDA estimates that Chinese production will remain stable, and imports should grow 2.4% to 2.1 million tonnes this year.
According to Itaú BBA, Brazil has opportunities to maintain the flow of shipments to China.
THE CHALLENGES OF CHINA’S ECONOMY
Diego Cerdeiro, senior economist in the Asia and Pacific Department of the IMF, and Sonali Jain-Chandra, IMF mission chief in China, point out that the Asian giant faces several challenges in the economic area.
The downturn in the real estate sector remains a force against growth, and there is still some uncertainty about the evolution of the virus.
Another obstacle is the declining population and slow productivity growth in the long term.
According to them, the economy needs appropriate macroeconomic policies and structural reforms to ensure recovery and promote more balanced, inclusive, and green growth.
“We recommend maintaining a neutral fiscal policy this year, with additional monetary policy accommodation, which will help the recovery despite inflationary pressures and below-potential growth.”
“An orderly restructuring of troubled developers will also help reduce risks,” they write in an article on the institution’s website.
The IMF economists add that with a shrinking labor force and lower returns to capital investment, China’s growth in coming years will depend on a boost to declining productivity growth.
“Without reforms, we estimate that growth will fall below 4% over the next five years.”
With information from Gazeta do Povo