Chinese EVs save economy from a serious slowdown

**Bissi Adebayo** (0:01)
China's economy is sending mixed signals. It's World Business Express from the BBC World Service. I am busy at Depeyo. Also, Spain and Gibraltar mark a historic border agreement. And 20 years since Twitter launched, what's its business legacy?
China's latest economic figures are telling two different stories. Exports are continuing to grow. But at home, consumers are still spending cautiously and businesses are investing less. While the world's second largest economy grew by over 4% between April and June, and that's its slowest pace in more than three years, I've been speaking to Xiana Yu, Senior Economist at Oxford Economics.

**Xiana Yu** (0:47)
It's really the households that have been holding back on the Chinese economy.

**Bissi Adebayo** (0:52)
Exports remain the bright spot here, and that's driven by AI and electric vehicles. So can China actually continue to rely on exports when demand at home is so weak and trade tensions are even rising geopolitically?

**Xiana Yu** (1:09)
Yes, China would be able to continue relying on exports for at least the next couple of years.
That's primarily because the policy makers have already set out a plan for the next five years, focusing very heavily on advanced manufacturing. So that's going to be the key way forward for the next couple of years. Unfortunately, the problem here is that that's not translating yet into a broader improvement in the domestic economy. So right now, we think that exports will remain the key growth driver for this year, and probably into next year. Thereafter, we expect some of that to begin trickling down into household spending. So eventually, some of that household spending finally start to recover in earnest.

**Bissi Adebayo** (1:55)
How much of today's slowdown is linked to the conflict in the Middle East?

**Xiana Yu** (2:00)
Well, I think the slowdown that we've seen in the data released today, what it actually suggests is that the Chinese economy has actually absorbed the initial shock fairly well. It doesn't seem to have materially derailed the economy. For instance, we said exports is still doing really well. From the inflation data, what this has suggested or this is telling us rather, is that a lot of this higher cost is being absorbed by the producers. It's not really reaching the households yet. Consumer price inflation has been pretty stable and very low compared to what we're seeing elsewhere in the world.
So for now, China has been able to tide through what's been the initial shock. However, moving forward, what we're seeing is that if geopolitical tensions persist, such as right now where oil prices have once again risen, and if that stays that way, it would present another headwind for Chinese growth.

**Bissi Adebayo** (2:57)
Shiana Yu from Oxford Economics there. Well, one positive has been electric vehicles though, because Chinese EV exports continue to surge and higher oil prices are prompting more people at home to switch from petrol cars to electric vehicles and taxes. Bill Russo is former chief executive of Chrysler China and now founder of the Shanghai-based consultancy Automobility.

**Bill Russo** (3:20)
China's advantage right now is being able to scale electric transportation and the ability to produce three out of every four electric vehicle batteries are now made in China.
Having a supply chain to produce the highest cost components of these types of vehicles gives Chinese companies decided competitive advantage. And as demand increases, that's the supply side advantage. The demand increase has been largely a fact of something that China couldn't create on its own. External factors have driven energy prices for fossil fuels higher. And that has created a huge tailwind for Chinese companies now prepared to handle demand for a lower cost of operation electric vehicles.

**Bissi Adebayo** (4:10)
Bill Russo there. Well, let's bring in Dani Houston, who's head of financial analysis at AJ Bell. Dani, how are markets reacting to this data from China?

**Dani Houston** (4:20)
Yeah, it's of global significance what we see from China in terms of its economic power. And we've seen London listed miners, really investors being spooked by this surprising fall in growth. So we've seen a sell-off because there's fears that, you know, with economic growth falling back, that we might see a scale back in commodity purchases. So the likes of Fresnillo and Antofagasta significantly down today.

**Bissi Adebayo** (4:46)
Away from China, Dani, one of the biggest names in online payments, PayPal, could soon have a new owner. What's going on?

**Dani Houston** (4:53)
Absolutely. A household name for a lot of people. It really got caught on the hop by the advent of Apple and Google Pay, and it's struggled over the last few years, particularly after the pandemic boom. So now we've got Stripe, which is a payment startup and a challenger to PayPal, joining forces with private equity group Advent International and jointly offering to snap up the company for more than $53 billion, which is a premium to where it was at its close on Tuesday, but still significantly down to where it was even last year, and certainly way down on the highs of 2021