The world is beginning to realise that lacklustre figures coming out of China may be a very real sign of a longer term slowdown in the Chinese economy. Over the previous 20 – 30 years, we have become accustomed to high GDP and double  digit trade growth, in and out of the Chinese market. Chinese production fuelled an ever growing trade surplus at the same time a growing middle class multiplied the country’s spending power with over 800 million Chinese citizens being lifted out of poverty since the 1980s. Now unsustainable debt levels, creeping deflation and changing trade relations leave China facing a very different future. 

What does the data tell us?

The above graph shows that Chinese GDP and Trade growth has been slowing over the previous 10 years, indicating this is no new phenomenon. However following Covid lockdowns and China’s zero covid approach it appears the market is entering a new low-growth stage where both GDP and trade growth is set to remain at low single digit level (below 5%). This is in contrast to the first 18 years of the millenia (2000 – 2018)  where Chinese GDP growth averaged 9.6% and trade growth averaged 14.8%.

What are the implications of this slowdown on the Chinese logistics markets?

Ti’s 2023 full year market sizing clearly shows the effect of this slowdown in the 2022 – 2027 Compound Annual Growth Rates (CAGR). The Chinese freight forwarding market is now forecast to grow at a CAGR of just 1.4% through to 2027. In contrast, the same market grew at a CAGR of 7.5% between 2010 and 2018. A less extreme but similar story can be seen in the contract logistics market which is a much less cyclical industry and more resistant to boom and bust cycles. However growth between 2022 – 2027 is set to slow by more than a third when compared to 2010 – 2018. 

In conclusion

This news is significant. Indicators suggest the Chinese economy will enter a new stage involving much lower levels of growth. One much also acknowledge that high debt levels and deflation have the ability to make it a much more painful experience.This isn’t a new phenomenon caused by the zero covid policy, although that did indeed hurt the economy, data suggests the Chinese market had`already lost the necessary vigour to bounce back.Those logistics markets most exposed to the boom and bust cycle are set to be affected the most and Ti’s June 2023 market sizing already forecast a period of low single digit growth in forwarding activity in and out of China. 

Author: Nathaniel Donaldson

Source: Ti Insight

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