China has put an eye on Andorra and knows the advantages that our country offers comparing to other regions, says Pere AUGÉ, Vice-president of the CEA

pere-augePere AUGÉ
Vice-president of the CEA (Andorran business Confederation) Comission of International and Institutional Relations of Andorra:

China: Action and Reaction.

“A few months ago, we announced that something was happening in the Chinese economy, particularly in foreign trade, and that this would surely trigger a reaction from the economic authorities of that hegemonic country. The loss of competitiveness was evident due to the increase in production costs, with a resulting reduction in profit margins. This phenomenon, absolutely normal in an emerging, fast-growing- economy, already predicted the changes and reactions we are experiencing lately.

We are talking about a country with a population of 1.200 million with a stunning growth in its income per capita, but still with a long itinerary. Indeed, it is the second largest economy in the world in terms of GDP, which represents 16 ‘5% globally; however, at an individual level, the GDP per capita in 2014 was still the 85th of 196 countries, way far from what would correspond to the population of a country of this magnitude and potential. But we must pay attention to the whole data. Although we are talking of a slowdown, the GDP keeps growing, albeit at a slower rate. Thus, in 2014 the economy grew a 7’4%, during 2013 and 2012 the growth rate was 7.8% and in 2011 the rate was 9’3%, all of them far from the 14’2% of year 2007. This growth rate, in the end, means a latent need of an economy that has to give an opportunity for the future to a population of such a big dimension.

However, the year 2015 seems to consolidate a deceleration of the economy and a period of moderate expectations, with a growth forecast of 7.3% or less; probably, this has a clear reason, that is no other than the drop of foreign trade and the subsequent contraction of the economy. In the first eight months of the year exports decreased 1’6%, but imports dropped approximately 14%, which puts the trade balance falling into a 7’7% at the moment; in this sense, we must wait for the end of the year to give a better conclusion on this preoccupying situation.

The main affected, as well as China itself, are the countries which traditionally export energy and other commodities, such as Brazil, Chile, Peru and many others. It is clear that if the industrial production slows down, energy consumption does so, and then a negative international impact is guaranteed.

At the same time, the boundless energy of this vast country and its commitment with new technologies has led to 42 companies in the telecommunications, media and technology sector to go public during this year, driven by a clear upward trend of the stock market; as an example, the Shanghai Composite Index has grown since the summer of 2014 until July 2015 close to 140%.

Furthermore, foreign investment, mainly from Europe and other Western countries, has increased by 9’2% during the first eight months of the year, which shows that these countries still continue betting on China.

Among the different strategies to try to encourage exports, there is a classic one which consists on currency devaluation; this is what China has provoked by means of making the exchange rate flexible; although it appears to be controlled, some analysts still forecast some further downward correction in the coming months.

A slowdown in the economy on the one hand, the currency devaluation on the other hand and also a crisis in sight, all together give an uncertain economic outlook. If we add the important profits made by investors / speculators in the stock market until the beginning of summer, we find ourselves in August with an explosion of a hitherto unknown market bubble with drops down to 40%, transmitted to the rest of worldwide stock markets, which also suffer significant fallsdespite the small European exposure to these markets, which reaches 2% of the total.

Unfortunately, the Chinese middle class, which during the year had opted to invest in a stock market reinforced with new IT companies, have seen how part of their savings and their expectations have been volatilized, generating a climate of latent frustration among a population, which has basically been dedicated to work and save money with a lot of effort.

National authorities, who have tasted the effects of the slowdown in the economy and the impact of currency devaluation, are clear that they must also strengthen the domestic market, both at the productive level, with tax incentives and bureaucratic facilities, and at the domestic consumption level, where the potential is really important. In fact, however, they seem go much further than that and are preparing the ground for a transition to a new economic model, adapted to the changes and demands that the new world order requires.

It is at this stage where Europe, and why not Andorra, present its credentials to become qualified travel companions in this transition towards a new economic and social model. In fact, China has begun to look at Europe some time ago. For example, if we analyze the Chinese investment in Spain, we can see that in 2014 it reached the sum of 95,000 million euros, which meant an increase of 14% compared to 2013. Furthermore, we must not forget the Chinese interest to promote the distribution channels for goods in Europe. In this regard, it is particularly significant a pilot prove of a freight train which crosses a 13,000 kilometers route between Yiwu (the main center of wholesale sales in the world) and Madrid, with departure at the end of 2014 and with return a couple of months later.

We also know that other projects exist in our neighboring Spain, aimed to the creation of large logistic and storage centers for a subsequent distribution to the rest of Europe. But, alongside these large infrastructures, other complementary ones could potentially be raised in order to canalize all the logistic business in the style of the great Chinese wholesale centers, and in this sense Andorra could have a main role.

What I can assert, and this is good news, is that China has already put an eye on Andorra and knows the important advantages that our country offers compared to other regions. It depends on us that what now are expectations becomes a reality very soon.

China is changing and it is clear that has suffered some economic shocks in the recent months, but no one can doubt the virtues of this admirable nation and that I already highlighted in another article.

The reaction is on, and the world is expectant in light of the changes this great superpower will command in the coming years. I assure you that China is a great fellow traveler and I hope that Andorra knows how to play its cards well in this new game which has already begun.”

Irina Rybalchenko

Read more: Opinion ...