Coatings World - October 2013

China’s Economy

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So, the question of the hour becomes, “what’s next”? Has the global downturn impacted China such that what we are seeing today is the new normal for China?

This is a very difficult question to answer. According to a number of economist, the Chinese economy’s potential growth rate may have already moderated, from 10 percent in 2000– 10 to an estimated 8 percent overall in 2010–20, and will slow further to 6 percent over 2020–30. If these figures are roughly correct, then the 7–8 percent range that we have witnessed over the past couple of years may have become the ‘new normal’ of Chinese growth. Of course, this raises the question, can ordinary Chinese tolerate growth rates much below 7 percent? The same process that determines the impact of slower Chinese growth on the rest of the world will also determine how it will affect ordinary Chinese. Some economists speculate that the Chinese downturn will be similar to the Japanese downturn we witnessed some years ago. In other words, the Chinese won’t mind a downturn in their GDP growth as long as the average Chinese has sufficient money to maintain a reasonable lifestyle. I don’t’ subscribe to this theory due to the fact that even in the worst of the Japanese downturn the average Japanese was fairly wealthy. In China, we still have a huge part of the population who are not benefiting from the growth that has occurred inside China. A downturn in Japan had a minor impact on the local population whereas a downturn in China will more than likely have a very serious impact on a large portion of the population.

It would seem that for every theory you may have about China’s economy, if you look hard enough you will be able to find appropriate data to support it. Whether China will enjoy ongoing prosperity or be faced with an ever enlarging financial catastrophe I don’t pretend to know. However, I do know that the current slowdown of GDP growth in China will have to have gut-wrenching effects at some point in the future. There is no such thing as a free lunch in such matters. If China leadership is smart (and a bit lucky) it may be possible to save China from experiencing a hard landing. Unfortunately, regardless of the path Chinas leadership chooses to take in this matter, somebody’s going to be hurt, eventually.

The impact of the slowdown in GDP growth on the coating industry is not known at this stage. China has been enjoying a huge increase in the consumption of coatings over the past few years (see Fig. 1.0). In 2012 this historical growth slowed to a total in 2012 of 11. 5 million tons of coating. Projections for 2013 indicate only a modest change from 2012 level.

The Chinese coating market is highly diverse with the largest segment being architectural coatings (see Fig. 2.0). This breakdown of coatings may change in 2013 due to the economic slowdown directly impacting the housing market.

Speculation would suggest that with the actions taken by the Chinese leadership to curb the construction of more homes and cities that there will be a corresponding decline in architectural coatings. Although this may be a direct cause and affect happening there is still a huge “recoat” architectural market in China.