China’s economy has promising prospects even as it adapts to a ‘new normal’ stage of its economic development. So what impact will a lower Chinese growth rate have on Papua New Guinea? Business Advantage PNG asks three regional analysts.

Shanghai’s Lujiazui financial district, China. Credit: Chuyu

China’s economy posted an annual seven per cent GDP growth in the second quarter, its slowest pace in 25 years, and down from 7.4 per cent in 2014.

That growth rate is ‘steady’, says BRICs specialist David Thomas, and should not be of concern to either the global economy, or Papua New Guinea. And, as its economy transitions to a consumption-based economy, it will provide opportunities for PNG.

‘It’s slower than it was,’ he tells Business Advantage PNG, ‘but it’s growing at about 6.5%, which is about right. Many parts of China are growing a lot faster than that.

Pacific Islands Forum’s David Morris

David Morris, the Pacific’s Beijing-based Trade and Investment Commissioner, agrees:

‘There is plenty of growth yet to come from China,’ he told Business Advantage PNG.

‘The China of today and the coming decade has a much larger, cashed-up consumer base and much greater potential for outbound investment and tourism.’

Story continues after advertisment...

‘While that growth is unlikely to be at the same mind-numbing speed as China’s growth over the last 30 years, China is now a bigger, more mature market.

Changing economy

‘The China of today and the coming decade has a much larger, cashed-up consumer base and much greater potential for outbound investment and tourism.

‘Chinese demand for energy and commodities will continue to be important for exporters such as PNG but we are only at the beginning of a new phase of Chinese demand.

‘The growing consumer market in China is looking for a whole range of products, from foods and health products to unique tourism experiences. This is where there are new opportunities for PNG businesses.’

David Thomas says even at a growth rate of 6% to 7%, China ‘is basically fuelling the global economy’.

China is Papua New Guinea’s third-largest export market (after Australia and Japan), so dramatic falls in its growth rate or its stock market could be felt locally, according to the PNG Institute of National Affairs Executive Director, Paul Barker.

The Institute of National Affairs’ Paul Barker

But China’s recent stock market crash (which saw US$3 trillion wiped off its value) ‘probably won’t have too much impact on the overall Chinese economy or commodity markets, as the stock market is still relatively small compared with bank lending’, Barker told Business Advantage PNG.

China major source of capital

Barker points out that for many major global resource projects, China is becoming an increasingly major investor, ‘because Chinese companies and financiers seemed the only ones with the level of available international capital’.

‘The [Chinese President’s] ‘new normal’ in China is about adjusting to a slower, but more sustainable and more balanced, economic growth,’ explains David Morris.

‘But this does not mean Chinese outward investment will slow. On the contrary, it’s just getting going.

‘China is now a net capital exporter, with Outward Direct Investment [ODI] of US$116 billion, exceeding capital inflows for the first time in the first half of 2015.

‘..the key message for PNG policymakers is that China is going out and is looking to invest in five key sectors – mining and resources, food and agriculture, healthcare, education and tourism.’

‘Chinese firms are looking for international investment opportunities to supply their huge domestic market and our challenge is to find the right partnerships that will ensure these investments can work for both PNG and China, creating jobs and prosperity, into the future.’

PNG opportunities

David Thomas says the key message for PNG policymakers is that China is going out and is looking to invest in five key sectors: mining and resources, food and agriculture, healthcare, education and tourism.

‘Food safety and security, and access to sustainable supplies of food are important to China, and PNG has a lot to offer in that regard.’

‘And those are the big five opportunities for any country to position itself as a destination for Chinese investment—and PNG ticks a number of boxes there.

Think Global Consulting’s David Thomas

‘Food safety and security, and access to sustainable supplies of food are important to China, and PNG has a lot to offer in that regard.’

PNG’s own food and agriculture sector is still to be developed but that’s the challenge and that’s the opportunity, he adds.

‘The key is to develop a platform for investment in production and the supply chain, and to be able to guarantee supply and maintain standards of quality and safety.’

Thomas says cultural ties are critical to success in China, and suggests that the Papua New Guinea government establishes and maintains a strong sister-city relationship with a province in China.