AI boom fuels China’s exports

Leanna Byrne (0:00)

China's economy is picking up speed, but can it keep up the momentum? That's World Business Express from the BBC World Service. I'm Leanna Byrne. Protests in France have spooked investors hitting the country's stocks and bonds, and if you play music through your speaker on a bus in England, you could soon face a hefty fine.

China's economy has picked up the pace, helped by the global boom in artificial intelligence. The world's second largest economy grew by 4.5% in the three months to September, but it's still at the lower end of Beijing's annual growth target. Andy Xi is an independent economist based in Shanghai. He says demand for high-tech goods boosted Chinese exports.

Andy Xi (0:47)

The economy is doing better than expected. Export really boomed this year, especially in the third quarter, up like 22%.

On a base of 20% of GDP, obviously, it's a very big boost. So I think it's very much an export story.

Leanna Byrne (1:04)

Something else that caught my eye, the global boom in artificial intelligence seems to be giving China a real boost. So what exactly is China selling to the rest of the world that's benefiting from that demand?

Andy Xi (1:15)

If you look at AI data centers, most of the stuff there is made in China.

Cooling system, gearbox, electricity generators. Apart from the Nvidia chips that are made in Taiwan, most of the other stuff is made in China. So I think this is a very important driver. And also makes the China story kind of vulnerable to correction in AI boom.

Leanna Byrne (1:42)

Now, you mentioned this is mostly an export story, but there's a very different picture at home, isn't there? Chinese consumers, they still aren't spending much.

Andy Xi (1:51)

You look at retail sales, about 2%, so a consumer is still relatively weak. And we know a lot of reasons. One is property market continues to adjust, and household savings are up by over 7%, higher than GDP growth rate, and much higher than retail sales growth rate.

It seems that the household sector is still in de-leveraging mode.

Leanna Byrne (2:17)

And Beijing has introduced measures to encourage people to spend and businesses to invest, but is the government doing enough, do you think?

Andy Xi (2:23)

I think that the government is not considering that as a crisis situation. If the government really wants to stimulate consumption, it has to solve one big problem, that is a declining birth rate. If you don't have children, you're going to save. We have seen that in Japan, in South Korea, if you do not solve this problem, it's very unlikely that the consumption is going to be strong anytime soon.

Leanna Byrne (2:49)

That was Andy G, who's an independent economist based in Shanghai.

Now, French shares have fallen and borrowing costs have risen after violent protests in the country over the weekend. Rachel Winter is partner and investment manager at Killik & Co. Hello, Rachel.

Rachel Winter (3:03)

Hello, Leanna.

Leanna Byrne (3:04)

So, France is the Eurozone's second biggest economy. So, how concerned should we be about this?

Rachel Winter (3:10)

Well, we are seeing some concern amongst investors. We are seeing a reluctance to hold French assets. So, for example, if we look at French equities, French share prices, the main index in France is called the CAC 40 That's down 1.5% today. And if we look over a slightly longer time horizon, it's down 10% since August. And then separately, we can look at the attitudes towards French government bonds. When we look at the yields on these bonds, they tend to rise when bond prices fall. And what we've seen over the last few days is quite a rise in the yields. The yield on the 10-year government bond is now up to nearly 4.9% and that's up from just 3.5% at the start of this year. So it's quite a significant move.

Leanna Byrne (3:51)

Do you think this could spread beyond France because it's weakened the Euro, hasn't it?

Rachel Winter (3:55)

Yes, I mean, it's possible. As you said, France is the second largest economy in the Eurozone. So I'm not surprised at the moment that people don't feel particularly comfortable holding Euros.

Leanna Byrne (4:05)

Let's talk about oil now. Ukraine has launched another attack on Russian oil facilities. But despite that, prices have actually been falling today. So Rachel, what's driving that?

Rachel Winter (4:14)

Yeah, we've had a lot of volatility in oil prices over the last few days. So towards the end of last week, we saw quite a rise in oil prices because we had more unrest in the Middle East. But today, there is an expectation that the US might lessen its sanctions on Russia, and that would ease oil supplies and help the price to fall again. So today, we've seen the oil price coming down to about $107 per barrel, and that's down from about 110 last week.