26 August 2009 15:15 [Source: ICIS news]
By Paul Hodges
LONDON (ICIS news)--The more I read about ?xml:namespace>
The reason for this concern is that
These exports were due to
Reckless lending by the western financial sector during the 2003-2007 period encouraged many people to borrow money they could never afford to repay. And many of their purchases were in key demand areas for chemicals, such as housing, autos and electronics. In turn,
Now, the party seems to be over. Western lenders have returned to more prudent standards for assessing loan eligibility, while there are increasing signs that the western population is starting to save more and consume less. Both these trends are likely to grow in importance as unemployment continues to rise.
So can we really be confident that
The facts bear out his concern.
Instead, the government has done the only thing it could, and focused on boosting domestic spending on infrastructure. After a disastrous fourth quarter in 2008, when GDP failed to grow at all, and the economy lost 23m jobs, the government extended loans worth $1,000bn in the first half of 2009, three times the amount lent in the same period in 2008.
No, that’s not a misprint. The loans made by the government were equal to a quarter of the country’s total annual economic output. In addition, it introduced a stimulus package worth some 14% of GDP. More recently, it has also reintroduced tax incentives to help boost exports.
What has happened to all this money? John Richardson’s Asian Chemical Connections blog recently reported that downstream inventories, not captured by the usual surveys, are now at relatively high levels for products such as polyethylene. And he also highlighted its impact in helping factories to temporarily sustain production of white goods such as refrigerators and washing machines.
Even more worrying is the assessment by Royal Bank of
This is why I now worry about what will happen next to
If recent levels of Chinese demand have been "real", then there is nothing to fear. But if it has been "apparent" demand, stoked by easy money and the thought of quick trading profits, then there could be trouble ahead.
A worst case would see a fall in crude oil prices, caused by a loss of belief in the sustainability of
By Paul Hodges
+44 20 8652 3214
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