What to expect from the new China

China is changing, and that has significant implications for businesses trading in the Asia Pacific.

Speaking in Melbourne ahead of the launch of the new 5 in 5 with ANZ podcast, ANZ Chief Economist Richard Yetsenga said China’s slowing (but still impressive) rate of growth, and likelihood any stimulus would be a short-term fix, meant the role of the economy in the region has changed.

“The nature of economic activity in China will be different,” he said, noting its era of construction-intensive demand is over - replaced by later-stage demand for things like renewable energy and aged care.

“There's a big shift there, both in terms of China's contribution to the world, but also in specifically what it's consuming,” Yetsenga said. “[But] in a way, what's China's loss is the gain for the rest of the region.

“You can see business’ eyes, investor eyes very much shifting and looking at the other economies. I think you'll see that adjustment persist over the next decade or so.”

Yetsenga made the comments on a panel hosted by 5 in 5 with ANZ host Bernard Hickey, as well as ANZ Senior Economist Adelaide Timbrell and Head of FX Mahjabeen Zaman. You can listen to a new episode every day wherever you find your podcasts.

Resilience

As China addresses slowing growth, many advanced economies around the world are proving to be surprisingly resilient despite difficult conditions. There are some key reasons for that, according to Zaman.

“We've been in a low-rate environment for a really long period of time, so it has been easy to borrow and spend,” she said. “There's been excess liquidity and as a result, excess demand in the market.

“At the start of this cycle, household saving buffers broadly were pretty high. On top of that, households in the US and here in Australia received COVID payouts, which obviously boosted a little bit of savings. And then on the reopening, we saw pent-up demand contributing to the lasting growth in consumption. I think that's one of the reasons.”

Strength in the job market is a factor, Zaman said, while another is the strength of corporate balance sheets, particularly compared to the lead up to the global financial crisis.

“We've also seen banks lending more responsibly, again as opposed to the GFC,” she said. “With interest rates going up, they've been able to tolerate the tightness in the market.”

Buffers

In Australia, resilience can be seen in parts of the economy, Timbrell said – although “other groups in the economy are already really struggling”.

“But the thing about interest rates is they reduce the amount of time we see the inflation that makes you struggle to buy those groceries and pay that rent,” she said.

Timbrell said it was becoming clear a large section of the Australian community had saved a large amount of money during lockdown through the pandemic.

“What we've seen is even though there's been this huge increase in interest payments, a lot of the people who are most affected by that in dollar terms are also the people who have the buffers behind them,” she said.