China congress: more stress than relief to shipping
China congress: more stress than relief to shipping
Lack of a growth target is unsettling while the economic stimulus announced is below expectations. The proposal for a national security law in Hong Kong has instilled more fear into a shipping market that is already feeling the impact of a decoupling between the world’s two largest economies
THERE seems not much good news for shipping from last week’s gathering of China’s National People’s Congress.
China has given up its annual growth target for the first time since 1994, due to “great uncertainties” - as its premier Li Keqiang put it - including those caused by the coronavirus. That’s a big blow to the demand side.
Some Chinese analysts with a relatively optimistic view argue the missing target is actually “hidden” in the other efforts the government has announced to stabilise the country’s economy, led by aims at ensuring employment, meeting basic living needs, and protecting corporations.
A Sunday report by Citic Securities, a unit of China Citic Bank, estimated these measures can be translated into a gross domestic product growth of 3%-3.5% for 2020.
But other observers are less upbeat as the economic stimulus unveiled by Beijing appears to be below expectations.
The package - including central and local government bonds, fiscal deficits and tax and fee cuts - amounts to Yuan10.9trn ($1.5trn), an addition of only about Yuan3.1trn to the 2019 budget. The amount is “not enough to put the economy back on its normal track”, said Commerzbank’s senior economist Zhou Hao in an article published by Financial Times.
“Therefore, the market will unlikely revise up its previous forecast on [China’s] full-year GDP growth of less than 2%,” Mr Zhou added.
That means one should not get his hopes up for another round of explosive infrastructure investment such as that seen in the post-2008 downturn, as well as the subsequent dry bulk shipping mini-boom it created.
The greater fear, however, derives from a bigger disruption to global trade brought about by China’s decoupling from the US or even the west, with national security laws for Hong Kong also proposed during the NPC.
The political leaders in the Western societies have already voiced their objections — explicitly or otherwise — to the proposal. The US’s National Security Adviser Robert O'Brien even said the legislation could invite sanctions from Washington on China and Hong Kong.
Chinese lawmakers will put the drafted laws to a vote on Thursday, and hopes that they will bend to foreign pressure are unrealistic. The irritation to the democratic world seems an additional risk that Beijing, already facing a global backlash amid the pandemic outbreak, is willing to take.
The escalating tension has in turn led to doubts over how far the world’s two largest economies can carry out their trade agreement, even though Premier Li last week reiterated China’s pledge to honour the deal.
“The outlook for total soyabean trade remains muddied by US-China trade war. We still expect China to satisfy demand with more US supply later in the year, when Brazil’s most recent crop is depleted, but a further deterioration of relations between the two countries represents a downside risk to this trade,” Braemar said in its latest weekly briefing.
Apart from grains, the deal also covers billions of dollars of energy products that China promised to buy from the US, and it will also consider the prospects for tariffs on their containerised trade, which is worth even more.
The concerns are already being reflected by stock market investors.
Share prices of major state-owned Chinese shipping firms - including China Merchants Energy Shipping, Cosco Shipping Energy Transportation and Cosco Shipping Holdings - all fell on Friday. On Monday, container shipping-focused CSH saw its Hong Kong-listed share value drop to historical lows since it began trading on the bourse in 2005.
That comes a few days after China Securities, an affiliate of Citic, gave a “Buy” rating to CSH, citing rebalancing of supply/demand in box shipping in the near term.
Such predictions are not completely groundless. Demand in the sector looks like it is picking up as the US and Europe are gradually relaxing domestic lockdowns. Slots on routes to the US west coast have become tight recently with some carriers considering restoring some of the blanked services, said an Asia-based liner executive.
The trend was noted by Sea-Intelligence in its report published on Sunday, saying the “un-blanking” came following reports of cargo rollings in Asia amid insufficient vessel capacity. But the consultancy argued that development “can in no way be seen as unexpectedly strong demand”.
“The only correct interpretation would be that the demand drop was not fully as catastrophic, as initially expected,” it added.
Nevertheless, the recommendation made by China Securities was still a “quite bold” move, said a China-based shipping equity analyst from a rival brokerage. And it’s not just the impact from the virus that has led to his reservations.
“There are simply too many geo-political uncertainties with the national security laws for Hong Kong,” he said. “The markets are now not just decided by the [coronavirus] infection numbers.”
Still, Citic Securities begged to differ. The report argued that the virus-battered domestic economy is not supportive of the US waging another trade battle with China, at least for the time being.
“The superpower is under the stain of a second wave of outbreaks in the third quarter while facing a recession in production activities and potential inflation pressure. Reigniting a large-scale trade conflict will bring itself more damage than 2018 when the conflict started.”
