The United States has the largest economy in the world, with a gross domestic product (GDP) of an estimated $16.8 trillion. Nipping at the U.S.’ heels is China, with a GDP that’s valued at $16.7 trillion. The rapidity with which the world’s most-populated country is approaching the U.S. appears to be slowing, however, evidenced by reduced activity at China’s ports.
China Merchant Holdings International reported a 7.4 percent increase in net profits last year, handling 80 million 20-foot containers, the Journal of Commerce reported. That’s the equivalent of $584 million in net profit on the year, with revenues rising nearly 6.5 percent to slightly over $1 billion.
The port industry’s growth, while positive, seems to be slowing. JOC noted based on information from China’s ministry of transport, throughput at the Far East country’s ports amounted to 201 million 20-foot equivalents, or TEUs. Though up 6.3 percent on a year-over-year basis, it was off 0.4 percent when compared with the growth rate in 2013.
In a statement, CMHI acknowledged the fact that business seems to be cooling, pointing to the global economy as the main reason as to why.
“With the combined effect of the slow recovery in global economy and the stagnant growth in consumption demand, growth in global ports industry continued its decelerating trend,” JOC quoted from the CMHI statement.
A telling example of China’s weakening consumer demand is evident in the precious metals market. According to the World Gold Council, China’s is the world’s largest producer and consumer of gold, accounting for 60 percent of global demand, up from 47 percent back in 2009. Private sector demand has been forecast to reach 1,350 tons by 2017.
However, due to the rising value of the dollar, gold has become less attractive among Asian investors. Generally speaking, as the value of the greenback goes up, gold prices go down.
“Most of the buyers [of gold] are buying it not in local currencies, but in terms of U.S. dollars,” Erin Gibbs of investment firm S&P Capital IQ told CNBC. “So as we see this continued dollar appreciation, that makes gold expensive for foreign buyers.”
This has resulted in reduced demand in Asian markets, Gibbs stressed.
Reduced use of yuan globally
Also emblematic of China’s slowing economy is the reduced use of its currency at the global level. The yuan, otherwise known as the renminbi (RMB), is handled comparatively lower today in Europe and the Americas versus yesteryear. This is particularly true in Canada. At 3 percent, the United States’ neighbor to the north is the second-least likely country to use RMB, according to a Nielsen poll commissioned by HSBC. Other countries’ use of the yuan is not much better, averaging 17 percent of the 14 countries surveyed and 10 percent in the U.S.
China’s slowing economy traces back to 2014, particularly at the country’s ports. CMHI stated that the country’s 7.4 percent GDP touched off a weakening of its foreign trade, as total import and export value reached $4.3 billion in 2014. JOC noted that while this was an increase of 3.4 percent, it wasn’t as substantial when comparing 2013 with 2012, when growth was 7.6 percent.
Economists say that China may be able to get back on the right track by liberalizing its economy, making it easier for foreign countries to engage in trade with it. It’s going to have to make some reforms for that to happen, though.
“China knows it can enhance its economic growth by opening its economy, but many barriers will need to be removed to achieve this goal,” said Jacob Lew, secretary for the U.S. Department of the Treasury at a meeting for Asia Society Northern California, a nonprofit organization. “It is in our common interest to continue to break down barriers to trade and investment, maintain open markets, and protect our workers and the environment by setting high standards.”