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CHINESE INVESTMENTS IN EUROPE AND U.K. FALL TO TEN-YEAR LOW
In 2022, Chinese investment in Europe and Britain sank to €7.9 billion, 22 percent below 2021’s level and the lowest since 2013, according to a new study by Rhodium Group and Merics, a German think tank.
The slump reflects Europe’s decision to screen China’s investments more strictly, with an eye toward broadening the continent’s supply sources. Post-COVID, the region’s dependence on China’s factories and companies led to shortages of merchandise and skyrocketing shipping costs.
At least ten of the 16 investments China had sought to make in 2022 in technology and infrastructure failed to materialize, the study found, chiefly due to objections among regulators and other authorities in Denmark, Germany, Italy, and the U.K.
In one instance, Germany forbade Sai Micro-Electronics, a Chinese company, to buy the vehicle-related computer chip assets of Elmos Semiconductor. In another, U.K. regulators blocked Super Orange in Hong Kong from taking over Pulisic, an electronics design firm.
Italian authorities rejected the sale of Alpi Aviation, which makes military drones, to a group of Chinese state-owned firms.
“Increased scrutiny of inbound investments will likely continue in coming years,” the study concluded.
Governments are not only tightening current scrutiny but also are asserting their power to revisit their approval of past deals, the study noted.
The investigators emphasized that their study was far from exhaustive because government proceedings around some transactions were not made public.
TREND FORECAST: Despite pushes by NATO and the U.S. to distance their nations from trading with China, as the world dives deeper into recession, retailers and manufacturers will do all they can to sell more products in China which we forecast will be the dominant economic power of the 21st century.
As Gerald Celente has long noted, “The 20th century was the American century, but the 21st century will be the Chinese century because the business of China is business while the business of America is war.”
FALTERING DEMAND SINKS CHINA’S IRON ORE PRICE
Weak demand for steel by the world’s sluggish economy has scuttled the price of China’s iron ore by 23 percent, its lowest since the year began, according to the Financial Times.
Earlier this month, the price of ore delivered at the Chinese port of Qingdao fetched $102.70, compared to more than $135 in March.
The price is likely to spend time below $100 this year, analysts told the FT.
Year on year, China’s steel production jumped 6.1 percent in this year’s first quarter to 262 million tons but now demand has waned sharply.
As the world’s largest customer for iron ore, China’s demand benchmarks the global price for producers such as Australia’s BHP and Rio Tinto, mining giants that rely heavily on iron ore sales.
“The demand for steel has collapsed since the start of April,” an unnamed trader in Hong Kong told the FT. “The market was expecting a 10-percent increase in steel demand for infrastructure but our most optimistic estimate [for this year] is 2 percent.”
In the past, China has often relied on infrastructure spending to drive its GDP. General construction, which takes as much as half of China’s steel output, slowed surprisingly.
In March, housing starts were 29.1 percent lower than a year earlier.
Also, China’s factory activity shrank in April, according to the country’s purchasing managers index. The index fell from 51.9 in March to 49.2 in April. Readings below 50 indicate contraction in business activity.
The auto industry uses 10 to 15 percent of China’s steel but demand in that sector also has been weaker than expected.
Demand for China’s steel also slumped among carmakers in Japan and South Korea, where a continuing shortage of computer chips has hobbled vehicle production.
TRENDPOST: China is trying to wean its economy from dependence on public infrastructure construction to a balance among export manufacturing, public, and consumer spending but the transition has faltered.
The country’s long-extended anti-COVID lockdowns prevented the development of a healthy consumer economy; the end of those lockdowns late last year merged with a global economic funk that slashed the country’s export volume.
Meanwhile, new regulations on borrowing have tamed the real estate development industry, which once accounted for a third of China’s GDP.
The decline in iron ore demand is emblematic of a longer-term trend that will restrain China’s economic growth at least into next year.
WORLD’S CHIEF PULP PRODUCER MULLS USING YUAN IN CHINA SALES
Brazilian firm Suzano SA, the world’s biggest producer of hardwood pulp, is considering pricing its sales to China in yuan, CEO Walter Schalka told Bloomberg in an interview last week.
China buys 43 percent of Suzano’s pulp, the company said.
Schalka noted that smaller customers are increasingly asking that their prices are linked to China’s currency, which is growing as a medium of international exchange, as we have reported in “Yuan Replaces Dollar as Most-Used Currency in China’s Foreign Trade” and “Argentina Switches from Dollar to Yuan, Taps China Swap Lines Amid Peso Crisis” (both 2 May 2023).
The dollar will become less dominant as the currency of international trade, Schalka said, but added that there has been no “major transition” yet to the yuan or renminbi.
Suzano needs to keep its options open between the two competing economies, Schalka explained.
“It would be much better to have a long-term collaboration between West and East, but what we see is increasing tension at this point of time,” he said.
TRENDPOST: A growing number of countries are now trading directly with China, accepting yuan and paying China in their own currencies without first converting to dollars as a standard of value, as we reported in “Spotlight: Bye Bye Bucks – Death of the Dollar,” (18 Apr 2023).
Although the yuan accounts for just 4.5 percent of trade, the currency game is changing. According to SWIFT, trading in the yuan was just 1.8 percent a year ago—and as the Financial Times reported last month, the Renminbi’s share of trade finance has doubled since the start of the Ukraine war.
As Gerald Celente has forecast, the 20th century was the American century and the 21st century will be the Chinese century. The stronger the Chinese economy grows, so too will it continue its ascent as the world’s largest trading partner.
As China dominates world trade, its yuan will dominate world trade and rival the dollar, if not supplant it, as a reserve currency.
While the dollar will not collapse as the world reserve currency overnight, its erosion has begun and, minus a wild card such as the end of the petro-dollar, will be slow and steady.