As the numbers pile up showing China’s sizzling growth cooling down, industries world-wide—from German paper-cutter makers to Indonesian palm-oil exporters—are confronting an altered landscape of winners and losers.
The ones that benefited the most from China’s rise are now being hurt. Others, aiming at China’s 1.3 billion consumers, are faring better.
Growth in China, the world’s second-biggest economy after the U.S., has been slowing since 2007’s peak, but that slowdown has accelerated recently.
China’s second-quarter gross domestic product released early Monday showed the economy expanded 7.5% from the year earlier, slower than the 7.7% growth in the first quarter.
That matches the government’s full-year growth target of 7.5%, a rate that would make this year the slowest since 1990. Some economists figure China will grow even slower than that.
Maruli Sitorus, 40 years old, a palm-oil plantation owner in North Sumatra, Indonesia, says his income has been halved over the past year as prices for palm oil—used in cooking oil and fuels—have slipped. “Clearly weak demand from China is affecting us,” he said.
China is trying to pull off a tricky rebalancing. It hopes to reshape its economy to be less reliant on construction and heavy industry, and more reliant on consumer spending. This is sparking optimism among industries such as car makers and food producers.
To boost domestic consumption, the government has raised minimum wages to put more money in people’s pockets and loosened controls on interest rates to give household savers better returns. It has tilted tax and land incentives toward industries that cater to consumption, such as food and autos, and away from heavy industries suffering from overcapacity, such as steel making and ship building.
China also said Monday that industrial output rose 8.9% in June from a year earlier, compared to a forecast of 9.1% and lower than May’s 9.2% growth. Fixed-asset investment also disappointed slightly, with 20.1% growth in the first half compared to a forecast of 20.2%. Consumer spending was a bright spot, as retail sales accelerated to 13.3% in June, compared with 12.9% growth in May. But disposable income growth for urban households slowed, to 6.5% year-on-year in the first half, down from 9.7% growth in the first half of 2012.
SK Group of South Korea this month signed a $160 million deal to establish an electric-car-battery joint venture in Beijing. “Most of our China projects are targeting consumers in China, not re-exports to other countries,” said spokesman Jung-min Yoo. “We’ll benefit from China’s new growth model.”
China’s economic growth is still strong, compared with much of the world. But recent single-digit expansion rates are a notable comedown from a 14.2% peak in 2007.
The deceleration is particularly hard on commodities producers—the biggest beneficiaries of China’s boom. A Standard & Poor’s study of more than 90 of China’s biggest companies found they will cut total capital expenditures this year for the first time in at least a decade. Investments in factories, assembly lines, smelters and telecommunications links tend to create big demand for raw materials that China imports.
Mr. Sitorus, the palm-oil plantation owner, had to slash the number of workers on his 25-hectare farm to six from 12 and put off fertilizing his fields and fixing his truck. “I have to be really frugal and have given up thinking about buying a new motorcycle or car,” he said.
China’s slowdown has hit people like Anthony Walsh. He is managing director for Ausco Modular, an Australian company that builds temporary camps for mine workers in places like Karratha, a mining town on Australia’s northwest coast.
“If you had a room in Karratha, 12 months ago you’d have filled it in a second,” he said. Today, a fifth of rooms once occupied by miners flown in from Australia’s east are empty. Rents are down 20%.
“The truth is that the China resources boom is over,” Australia’s prime minister, Kevin Rudd, said Thursday in a speech. The unemployment rate in Australia, a mining powerhouse, is 5.7%, its highest in four years.
While China’s slowing growth hurts in places like Australia, it also means lower energy and raw-materials prices for the rest of the world. This, in turn, has tempered inflation, which has helped make it possible for central banks to stimulate struggling economies.
By contrast, makers of consumer goods—home appliances, clothing, food and the like—and companies that sell sophisticated equipment to businesses are more focused on China’s increasingly prosperous population of shoppers. Dienes Group, based outside Cologne, Germany, makes industrial knives used in machines such as paper cutters. Sales to China have tripled from 10 years ago to around €3 million, or about $3.9 million.
China now accounts for as much as 8% of Dienes Group’s €40 million in revenue. “Unless they completely fall apart, they will increase per capita GDP, and that will create more demand,” said Bernd Supe-Dienes, a managing partner.
In South Africa, demand for chromium and manganese is down. But officials are hoping that will be offset by rising demand for food. “We are more and more dependent on how their stomachs turn when they get out of bed in the morning,” said Theo de Jager, deputy president of Agri SA, a farmers’ association in South Africa.
The U.S. hasn’t felt China’s slowdown in part because demand for some of the top exports to China—airplanes and high-tech computer goods—has remained strong.
China is set to contribute 13% of global economic activity this year, compared with 5% in 2006. So even at a slower growth, China’s effect world-wide is significant.
A more serious decline in China’s growth rate would reverberate around the world. One risk is that Chinese firms, which are reluctant to lay off workers, would be forced to cut staff, hurting spending at home and undercutting the goal of shifting toward a consumer-driven economy.
Consumer demand has remained strong. However, observers caution that China’s shift is in the early stages and that investment growth has continued to lead the economy. Meaningful progress in rebalancing toward consumption could take years.
Asia’s top clothes retailer, Japan’s Fast Retailing Co., said Chinese shoppers’ appetite for its Uniqlo brand clothes remains strong. The casual-clothes chain is picking up its pace of new-store openings in China.
“As far as we are concerned at least, consumer spending has not been affected,” Chief Financial Officer Takeshi Okazaki said Thursday.
Sales of cars have stayed strong, rising 12% in the first half of the year to 10.7 million vehicles. Auto makers predict solid sales for the rest of the year in China.
Chinese are spending outside China as well. The number of Chinese tourists venturing abroad has doubled to 83 million from 2007 to 2012. That is one reason Thailand is expanding three of its airports.
In Australia, weak commodities exports have pushed the Australian dollar down 15% against the U.S. dollar, boosting tourism there by making it cheaper for foreign visitors. Chinese arrivals to Australia this year through May are up 19% to 334,000, compared with the year earlier period.
Russ Elliot, manager of the Reef Gateway Apartments in Cairns, a gateway to the Great Barrier Reef, said local and foreign visitors to the hotel are up 20% from last year.
-Tom Orlik, Patrick McGroarty, Rhiannon Hoyle, George Nishiyama, In-Soo Nam, Brenda Cronin and Brian Blackstone contributed to this article.
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