CGTN Europe interviewed Marc Ostwald, Chief Economist & Global Strategist, ADM ISI
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00:00Well, let's talk now to Mark Oswald, the chief economist and global strategist at ADM Investor Service International.
00:07Mark, welcome back. What are your main takeaways from China's economic figures,
00:12particularly this worsening producer deflation and weak consumer prices?
00:19Well, I think in terms of the inflation numbers or other deflation numbers,
00:25one also has to sort of have a look at some of the breakdown of this.
00:30We all recall that BYD introduced those massive auto price cuts last month,
00:36which obviously have been very effective, given that the new auto sales this month were up 13.3 percent,
00:43with new electric vehicles up almost 28.1 percent.
00:48So when one looks at the breakdown of consumer prices,
00:52you see that there's a 4.3 percent drop in transport and communications,
00:58which is the biggest negative in year-on-year terms within there.
01:04That said, it still reflects a lack of pressures elsewhere.
01:12Basically, you know, lack of demand basically is not creating any sort of spikes higher in inflation.
01:19On the producer price fund, I would be a little bit more careful.
01:25Energy price is clearly a big consideration.
01:28That's true across the world.
01:30It's driving down inflation in the eurozone.
01:33To a certain extent, the UK is capping it in the US.
01:36It's all down to lower oil prices.
01:40It's also in China, you know, coal prices have fallen quite substantially,
01:45which also distorted some of the trade numbers in terms of the weakness in imports,
01:50was due to much more competitive domestic prices.
01:53So some of, you know, coal is being competed with both by, you know,
02:01there is a certain lack of demand in demand from power,
02:05but that's also a reflection of a massive boost to renewables output.
02:10So this is the stuff of transition.
02:14But in effect, China is still basically a inflationary influence upon the rest of the world.
02:22To what extent would you say these figures reflect structural issues versus short-term shocks,
02:30such as the trade tensions or perhaps policy shifts?
02:36It's a mix of the two.
02:38In terms of the trade numbers, you know, that big drag from the US,
02:44you know, I think it's important to understand just how big a shift there has been
02:49in Chinese exports over the last 10 years.
02:53You know, just before the Trump 1.0 tariffs,
02:57the US accounted for 27% of external demand for China.
03:02That's now below 18% and it's going to sink even further with these tariffs as they are at 40%.
03:08On the other hand, there are structural issues.
03:11I think, above all, the problems from the property sector
03:16and the fact that so much money in terms of private savings is locked up in it.
03:22And, you know, it's an enormous drag.
03:25And the fact, on the other side,
03:27that there needs to be a development of some form of social security,
03:32a social security net.
03:36Now, there's work being done on that,
03:39but as long as it's not there,
03:41the propensity to spend,
03:43particularly in an environment where demand,
03:47the demand outlook is, you know, is very uncertain,
03:50not only because the property sector is not contributing what it was,
03:55but also because of the external factors due to trade tensions.
03:59You know, pay has not been rising much for the best part of 18 months.
04:06You know, the propensity to save rises,
04:09we saw that in the Eurozone when, you know,
04:12rates were zero for so long,
04:14and people said, well, people will probably go out and spend it.
04:17Well, actually, that particular part of economic theory doesn't work at all.
04:21In fact, what people tend to do is double down on their savings.
04:24And I think we're seeing this phenomenon repeated in China.
04:28Given all of that, then,
04:30could continued weakness in imports and domestic demand derail China's broader growth this year?
04:38I think it's going to continue to be a mixed story.
04:44There are areas where there is a huge amount of excess capacity,
04:48particularly those areas on demand from the real estate sector,
04:53be it commercial or residential.
04:56There are other areas which are still rapidly growing,
04:59particularly the high technology areas,
05:01anything to do with renewables,
05:05areas where China just has such a quantum advantage over the comparative advantage over the rest of the world.
05:14Remember that China accounts for 70 percent of all intermediate goods production in the world.
05:20If anyone thinks they can decouple from that,
05:23they really need to think again unless they have a long term plan.
05:27And I'm talking decades to revitalize their own industries and very deep pockets,
05:33which, as we know, in a very indebted world is not the case.
05:37Mark, good to see you.
05:38Thank you for that.
05:39Mark Oswald, the chief economist and global strategist at ADM Investor Service International.