There are signs of further slowdown ahead, with Chinese exports to the U.S. and Europe dropping sharply. Iron ore stocks are a third more than average, now piling up into three-storey mounds at Qingdao port, while copper stocks are double the usual average, filling Shanghai’s bonded warehouses and spilling into their parking lots. Property developers are complaining of slower starts and fewer purchases.
Yet China’s policy makers are so far staying the course. This spring a new 20-per-cent “windfall” tax on property sales sparked a flurry of selloffs, followed by a downswing, in efforts to further cool a market rife with speculators. They are restructuring the deeply corrupt and ineffective Ministry of Railways, breaking up its regulatory and operational sides, and promising further reforms to state-owned enterprises and a banking sector teetering under a mountain of bad debt. On Wednesday, an official also suggested that the yuan’s trading band would widen further, likely within weeks, opening the door to more volatility at a time when global markets are already jittery.
Now China watchers are trying to figure out what the new economic run rate will be.
“If you’re talking about the new normal, we think 7.5-per-cent growth is not necessarily the new normal. We think the new normal is an ongoing deceleration of growth over the next decade,” said Andrew Polk, resident economist for the Conference Board China Centre in Beijing, which says China’s trend growth – the amount the economy can sustain without exceptional inflationary pressures – should look more like 5.5 per cent between 2013 and 2018.
For now, that structural shift means lower prices for Canadian resource firms, which have benefited for years from the high demand and prices created by China’s double-digit growth and incredible urbanization.
“For a commodity exporter like Canada, that’s not a good thing. But for global growth, it doesn’t necessarily have to be a bad thing,” Mr. Polk said.
Trade Minister Ed Fast – in Beijing this week on his third sales trip in two years promoting Canadian commodities and tourism – is still relentless in his official optimism, maintaining that even a small share of an enormous market like China’s is still significant for Canada.
“We have said time and time again that the global economic recovery is fragile, whenever there are major events within the global economy, whether in the United States, whether in the euro zone or whether in China, it does have an impact on Canada,” he said. “Given our marked increase in trade over the last two years, despite tough times for the global economy, I think it’s safe to assume that China represents one of the most positive opportunities we have to continue to drive economic growth and long-term prosperity in Canada.”
China’s maturing economy will force Canadian exporters to adjust their trade strategies and move up the product value chain, said University of Alberta’s Mr. MacIntosh.
“China is slowing down and it will affect Canada,” Mr. MacIntosh said. “But there’s no reason to doubt the long-term trajectory of what’s going on there ... China will continue to be a huge market.”
And the country will continue to consume massive amounts of energy – a market Canadian oil and gas producers want to supply if they can build the pipelines and ports to get it there. “Of all the commodities, I worry less about energy. The demand in China is exponential,” Mr. MacIntosh added.
Canada’s interest in China was clear at a recent investor forum in Beijing that linked interests from the two countries, said Sarah Kutulakos, executive director of the Canada-China Business Council. Still, the country’s shift was evident even at lunchtime. Gone was last year’s stately served luncheon for the event’s VIP guests; instead, guests filled their own plates from a buffet of modest Chinese cooking, including scrambled eggs with tomatoes and a simple tofu dish.
“That was a real style change,” she said, illustrating that the government’s promotion of a “Chinese dream” of a moderately prosperous society is being felt from the top down.
“With all this austerity and so on, you do see it in the consumption figures a little bit,” she said, adding that while there is concern about the impact of falling prices on investments in Canada’s resource sectors, Canada’s overall interest in China is little diminished. “Urbanization is still a huge push in China. It may take a different shape with the promise of the Chinese dream, and everybody moving towards the smaller cities. But that just means the building continues.”
Carolynne Wheeler is a freelance writer based in Beijing.