A Looming Economic Storm: The Global Impact of China’s Crisis and Western Uncertainty
A recent article by Australia’s ABC upon the state of the Chinese economy makes for sobering reading for the global economy (As Beijing quietly heads into economic oblivion while Washington lights up, expect tougher times ahead – ABC News). The summation of this article notes that as Graduate Chemical Engineer and Chinese leader Xi Jinping heads into a 4th term (and perhaps a 5th.. and a 6th… and a 7th….), China faces economic challenges that are likely to ripple across the global economy.
Over recent years, China’s economy (and it’s population growth) has been tethering on the precipice of recession. This has been made worse by the meltdown of the property market, with giant players such Evergrande collapsing into liquidation (Evergrande, symbol of China’s property crisis, heads to liquidation | CNN Business).
Not only does this impact foreign investors to the tune of tens of billions they will likely never see returned, but it is also likely to have an impact on those commodities and materials that China imports for its vast construction programmes.
Iron ore, Copper ore, Bauxite (Aluminium), Lime for cement and Silica (for both cement and glass), as well as the imports of coal and oil/gas that powers the “machines of construction” are likely to be impacted.
This has the potential to further worsen China’s balance of trade with its main global partners (mainly the USA (coming into an election) and the EU), especially if it continues to attempt to stabilise a faltering economy with more “forced” stimulus in building more high-rise buildings, bridges, and infrastructure few in China actually need.
Much of this infrastructure is upon, or is planned to be upon, what was previously productive rural lands. There is also the risk (as with the Evergrande collapse) that many of these projects will remain unfinished, and that global investors will think twice before re-investing in Chinese construction projects.
With so many countries’ economies underpinned by commodity exports to China, it would seem to be of importance to us all, especially if China dumps these “unused” commodities back onto the global market.
Adding to this “storm of uncertainty” is the weakening of the US jobs market (Weak US job numbers fuel fears as stock markets plunge (bbc.com)) and fears that the USA is also heading into recession. Given the wobble in the Dow Jones tends to send ripples across most of the European exchanges; then such weakening impacts us all as stock markets fall (US stocks tumble on fears over slowing growth (bbc.com)).
Such is also doubly concerning for UK workers, given the incoming Labour government’s plans of cancelling major infrastructure projects (initiated by the previous Conservative government) so they can (seemingly) pump money into pay rises for members of trade unions.
Such is unlikely to stop at Junior Doctors and the British Medical Association (BMA). Now that a 22% pay increase has been agreed for one unionised sector worker groups, then history shows us that it is likely we can expect the rest of the unions (that fund the Labour party to the tune of £7million – source (The Guardian) Who are the big Conservative and Labour donors? | Party funding | The Guardian) will come for pay rises like (metaphorical) pigs to the feeding trough. Despite Labour promises not to raise UK taxes, even that now seems inevitable as the Labour party seeks to placate their biggest trade union donors.
Uncertainty is rarely a good thing for industry and the engineering (and engineers) that supports it. Both the USA and China seem to be sailing into uncertain times, and potentially a tariff battle (something the EU is likely to follow suit with).
Looming tariffs and the potential for a fall in bulk construction material prices (should China decide to dump their stockpile back on to the global market), might make this European winter a bleak one. It is worth noting that many economists do not support tariffs being applied to global trade, given they are for the most a political tool (especially in election years as we currently have in the USA) and a clandestine way of collecting more tax from consumers.
Tariffs are paid by the domestic consumers and NOT the exporting country (China); effectively further financially penalising “local consumers” in a time that most of us (and the industries we work within) are being squeezed under the weight of cost-of-living increases outstripping income rises (unless you happen to be a Junior Doctor).
Governments forcing higher costs upon industry and businesses rarely fosters economic growth and prosperity – especially at a time when unions are likely to drive higher labour costs for their unionised workers. Perhaps, trade unions will take this “opportunity” to drive into insolvency those unionised manufacturing industries that are left “hanging on” in the UK?
The Unite Union’s recent actions against Tata Steel (Tata Steel workers call first strike for 40 years (bbc.com)) at a time that it is fighting for economic survival is to call for strikes; and thus hasten it’s demise. Is this history repeating given those once great UK industries and companies are no longer with us?
Looking at the Wiki page for “Defunct manufacturing companies of the United Kingdom” (Category:Defunct manufacturing companies of the United Kingdom – Wikipedia) makes for depressing reading. Many of these companies had a strong union presence; something that could be argued was a major factor in making them non-competitive in a global market; and thus, no longer with us.
Unions would of course argue otherwise, however the coal miners strikes clearly didn’t benefit the coal mining industry, so I’d question how the Tata Steel strikes are expected to prolong steel making in the UK??!!
It is no surprise reading the response from Dubai’s Sindara following their withdrawal from the take-over bid for one of the UK’s largest Engineering Service Provider in Wood Group (Wood group takeover Takeover bid for Scottish engineering giant Wood collapses (bbc.com)).
Sindara were quoted as saying that the decision came “in light of rising geopolitical risks and financial market uncertainty“. When commodities wobble, Engineering service providers (who employ so many of us) do as well.
Time will tell how such “uncertainty” impacts Engineering projects in the UK and Ireland (both current and planned). The only certainty seems that taxes will rise, and that the cost of living will squeeze us all even more. A bleak Winter indeed…Time will tell if it becomes one of discontent.
I daresay that you are correct about unions and collapsed businesses but one other factor you do not mention is the UK being outside the Social Chapter. In the pharmaceutical industry, at least, it appears that big pharma closed manufacturing sites in the UK because they could and kept other sites in the EU open because it was so much easier to close the UK site.
This is purely anecdotal but it is something that in my opinion deserves more research.