The slowdown in China’s economy is no cause for panic for agricultural exporters , says an economist.
China’s gross domestic product increased 6.9 percent in 2015, the worst annual growth rate in a quarter century.
Many economists believe the real growth rate is much lower than the official number provided by the Chinese government.
Some believe that is a worrisome development for Canada’s agriculture sector because China is a top buyer of canola, flax, peas and pork.
However, J.P. Gervais, chief agricultural economist with Farm Credit Canada, is not worried about China’s slumping GDP growth because disposable income in China increased more than nine percent last year. Disposable income is what consumers use to buy food.
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GDP comprises investment dollars, consumer spending, government spending and net exports.
Gervais said China’s GDP is slowing primarily because of a reduction in investment money, which he called a good thing because the rate of investment in China was unsustainable.
“Investment has to slow down, and consumers have to gain more weight in the economy,” he said.
Gervais said investment fueled China’s economy for decades.
“(Chinese) cities were getting bigger and bigger and you needed infrastructure. It was easy to pick an investment project with a double digit return on investment,” he said.
It is harder these days to find in-vestment projects that deliver those kinds of returns.
“All that low hanging fruit is gone,” said Gervais.
It is time for the Chinese economy to begin relying more heavily on consumption as the driver of GDP growth, which is what is happening.
“The problem I see is we’re not moving fast enough away from investment. I see that as the risk right now,” he said.
Gervais said China needs labour reforms to increase productivity and boost wages so it can sustain the impressive growth in disposable income.
He said China will likely import less feed grain in 2016, but that isn’t the result of a slowing economy. Instead, it is because of China’s overproduction of corn spurred by lucrative support prices for the crop.
Gervais is confident China’s feed grain imports will resume once it has chewed through what some believe is a government stockpile of 175 million tonnes of corn.
As well, he believes imports of other food products will remain strong despite the slumping GDP figures.
“They’re still going to buy pork. They’re still going to buy canola and buy more beef,” he said.
