Shipping awaits Chinese stimulus salvation
Sales of diggers in China are leaping fast, a hopeful sign ahead of tomorrow’s National People’s Congress in Beijing where shipping could be set to profit from a giant stimulus package.
In the wake of the global financial crisis of 2008 shipowners looked to China for salvation – and Beijing delivered with a hugely important RMB4trn ($564bn) stimulus package that bolstered global seaborne trading volumes dramatically. Tomorrow, shipowners across the world will be watching closely for any news of a new stimulus as China convenes its annual party congress with speculation that the Xi Jinping administration will announce a package in excess of $1trn to get the Chinese economy back on track.
Following the financial crisis, the Chinese authorities in December 2008 enacted a two-year stimulus package heavily focused on steel-intensive infrastructure projects such as railways, roads and housing. As Lorentzen & Stemoco noted in a recent report this RMB4trn package caused a boost in commodity prices such as iron ore, and triggered a major upturn in the dry bulk market in the ensuing two years to peaks in the Baltic Dry Index of 4,340, the highest since the peak in May 2008 of 11,793.
During 2010, over 1,000 bulk carriers were ordered, which in turn sparked the next dry bulk downturn.
Shipping awaits another Chinese bailout with bated breath tomorrow. An intriguing data point ahead of Friday’s meeting comes from the China Construction and Machinery Association, which showed total excavator sales of the country’s top 25 manufacturers jumping 60% in April. Excavator sales have proved to be a good leading indicator for construction activity and steel demand in the past.
China’s economy has taken a major hit over the course of the coronavirus outbreak with the country’s GDP contracting by 6.8% year-on-year in the first quarter, according to official statistics and it is likely to remain weak in the second quarter.
Earlier this month, China’s finance minister Liu Kun revealed that China will increase fiscal expenditure in 2020 to help offset the damage to the economy resulting from the coronavirus outbreak.
China’s central bank, the People’s Bank of China (PBOC), also announced last week that it will implement greater policy support to stablise and boost the economy with measures to help businesses tide over difficulties.
Beijing has vowed to boost investment in infrastructure and authorise local governments to increase their borrowing to fund fixed-asset investment projects.China’s total fixed-asset investment (FAI) declined 16.1% in the first quarter of 2020.
Manufacturing FAI took the biggest hit, down 25.2% year-on-year as construction activities halted. Property FAI appeared to be the most resilient, and declined 7.7% year-on-year on support from contracted sales in 2019; infrastructure investments declined 19.7% year-on-year.
Optimists hope that much of the stimulus fund likely to be unveiled tomorrow will be injected into major infrastructure development projects, which is expected to drive up demand for commodities from iron ore to copper to diesel.
Wei Jie, director of the Institute of Cutural Economy at Tsinghua University, said infrastructure investment is expected to be the number one driver of GDP for China in 2020 and 2021 and the consumption will be back as the lead GDP driver after the economy has stablised.
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