Coatings World - October 2016

The Chinese Economy – Impact on the Chinese Coating Market

manufacturer of automobiles in the world. They produced over 24 million vehicles in 2015 compared to the combined output of the U.S. and Japan at slightly over 21 million vehicles. Automakers in China rolled out 1,990,500 vehicles and delivered 2,071,000 in August 2016, according to CAAM. Production and sales jumped 26.6% and 24.22% respectively over a year ago. Passenger car sales grew 26.34% to 1,795,500, including 916,200 sedans (up 20.12%), 654,100 SUVs (up 43.86%), 180,400 MPVs (up 35.93%), and 44,800 micro-vans (down 36.88%). Although on the surface this performance appears to be good news for the Chinese economy it is worth noting that various Chinese cities (i.e., Beijing) are pursuing options to limit the number of automobiles on their streets as a means of combating the air pollution that chokes most large cities. Beijing has put forth proposals to have an upper limit of 6 million automobiles in Beijing. It will be interesting to see how this approach works out. Overall, most economist believe that auto sales will decline in the latter half of 2016 with a further cooling off expected in 2017. As such, the expected growth in 2016 versus 2015 has been projected by the government backed China association of automobile manufacturers as 7.3% compared with the 10% growth in 2015 versus 2014.

Most economist feel that China is expected to keep its deep pockets open to both protect and boost its economy. China has done this before with positive results. However, if they choose this method now it will cost them (i.e. fiscal deficit will surpass budgeted target).

The central government’s fiscal deficit will surpass the target of 3 percent of gross domestic product set for 2016, according to economists surveyed by Bloomberg News. The broader shortfall that wraps in revenues from land sales, policy banks and other channels will also sink deeper into the red.

Here’s a snapshot of what the Bloomberg survey of 18 economists conducted Sept. 9 to 13, 2016 revealed.

• 17 expect this year’s budget deficit will be deeper than the government forecast, with nine forecasting 3. 6 to

4 percent and four projecting above 4 percent • 16 expect the broader augmented fiscal deficit will be 10 percent of GDP or more • 16 expect a higher fiscal deficit next year too, with nine forecasting 3. 5 to 3. 9 percent, 6 seeing 3.1 to 3. 4 percent, and one expecting 4 to 4. 5 percent of GDP.

The fiscal tap in China is viewed as remaining well and truly open, in part to compensate for an on-hold monetary stance as policy makers shift from all out stimulus to reigning in asset bubbles.

Although there is a lot of uncertainty about the Chinese economy, there have been some recent bright spots. China’s factory output and retail sales grew faster than expected in August as a strong housing market and a government infrastructure spending spree underpinned growth in the one of the largest world economies.

Industrial output grew the fastest in five
months as demand for products from
coal to cars rebounded, though analysts
do warn that the outlook is a bit clouded
by overall weakness in manufacturing
investment and lack of spending by pri-
vate firms. Some economists have said
“it is very clear that the data is improving
mainly because of the property market
and this area is not sustainable”.
All things considered, looking beyond
2017 a number of economists feel that
China will continue to see a decline in
its GDP growth such that by 2020 that
growth could be down to about 4.8%.