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The Rupp Report

The Rupp Report: China Is Keeping Up

Jürg Rupp, Executive Editor

On recent tours through Germany and Switzerland, the Rupp Report encountered some of the most important European textile machinery manufacturers. Here and there, the subject discussed was China — about its current economy and doing business with China.

After some modest decline last year, it seems that the Chinese economy is back on track these days. Unanimously, all interviewed people replied the same way: China is keeping up again. The business with China is — almost — on the same level as it was before the decrease. Most companies are back to business as usual and looking forward to a successful 2013 — and, hopefully, the same for 2014. All companies that are fortunate to have local production facilities in China are recording increasing business.

No Problems
This news is in line with what the Rupp Report mentioned some weeks ago, when some augurs and so-called experts predicted that “China is on the way down, the Chinese dragon is sick, and so forth. An abrupt drop in exports and a disappointing import demand could foreshadow a weaker growth of the second-largest economy.” The Rupp Report countered that “It is the other way around: Official statements by high officials could indicate that the weaker growth is deliberately accepted. Premier Li Keqiang said China must restructure and modernize its economy in order to achieve a healthy development” (See “ The Rupp Report: Problems In China,” TextileWorld.com, July 23, 2013).

Positive Rebound
Recent figures show and confirm this statement, as does the optimism of the machinery builders in Europe: Official sources say surprisingly openly that “China’s economic rebound in the third quarter of 2013 has taken some pressure off its leaders, but weakening economic trends toward the end of the period left them still needing to further steer structural reforms.”

China’s gross domestic product (GDP) rose 7.8 percent in the third quarter of 2013 compared with one year earlier, and faster than the 7.5-percent second-quarter increase and 7.7-percent first-quarter increase. Overall growth in the first nine months of the year averaged 7.7 percent, according to data from the National Bureau of Statistics (NBS).

It seems that the third-quarter result is absolutely in line with expected market development and brings China into position to meet its goal for 7.5-percent annual growth for the current year. Experts predict that the GDP growth will achieve 7.5 percent in the fourth quarter. Also, a rebound is expected for the first half of 2014.

As everybody knows, the positive mood in China and around the world was somewhat distorted in September, when a slower industrial output growth was in evidence. The slower growth was also caused by the ongoing problems in the eurozone and consequently dropping retail sales.

More Independence Needed

For more than three decades, China grew to become the powerhouse of the world. The single goal was to be the number one in terms of export sales and very high export figures. However, after a rethinking of the general policy, one of China’s targets today is to focus more on the domestic market and to be less dependent on export markets with their problems, such as the recent U.S. budget showdown and the problems in the eurozone. This move, of course, also provoked some slowdown from the double-digit growth China recorded previously.

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However, the figures are impressive: For the first nine months, domestic consumption helped increase GDP growth by 3.5 percent, less than the 4.3-percent increase contributed by investment. Meanwhile, exports lowered the third-quarter growth by 0.1 percent.

Lian Ping, chief economist at the Bank of Communications, said that in order to ensure the health of China’s long-term growth, the country must change its growth model from one that depends on investment and exports, and reform is key to a successful transformation.

Since the new Chinese government has come on board, it seems that it is showing a more open mind toward the public. That’s probably one reason why government leaders are showing more tolerance for slowing growth as they seek to stabilize it and rebalance the economy. Even President Xi Jinping said in a speech delivered at the G20 summit last month: “China’s economic fundamentals are sound. China has realized that it has to advance structural reforms in order to solve the problems hindering its long-term economic development, even though it will mean slower growth.”

And to emphasize Xi’s words, Premier Li Keqiang added: “As long as the economy runs within the reasonable range, we will keep the macro-economic policy generally stable, and focus on shifting the growth model and on structural readjustment.”

Reforms In Sight
Global experts are certain that comprehensive reforms will be laid out when the Third Plenary Session of the 18th Communist Party of China Central Committee convenes in November. Many analysts expect to see administrative, financial and tax reforms coming out of the meeting, thus establishing the agenda for economic changes in China.

That is good news for the global economy in general, and for the textile machinery suppliers in particular, especially those who have their own production premises in China. And it seems one comment made in the Rupp Report a few weeks ago wasn’t that wrong: “Are there truly some problems in China? No, not really.”

October 29, 2013