My current favourite blogger is Michael Pettis, professor at Peking University’s Guanghua School of Management, who, in his latest post, makes a very worrying point below.
As an aside, and without wanting to take the 1930s analogy too far, this debate in China is a little like the split in the 1930s between the internationalists in the US who favored hard money (incorrectly, I think) and a rapid liquidation of overcapacity (painful but probably correct), and who vehemently opposed measures, including tariffs and competitive devaluations, to boost employment via boosting the export of overcapacity, versus the large and powerful constituencies, dominated by local congressmen, miners, farmers and many industrialists, who stressed immediate moves to weaken the currency, boost production, and resolve US unemployment even at the expense of the global system. In part because the 1929 stock market collapse thoroughly discredited bankers and economists, and in part because politicians are always more likely to be influenced by large domestic constituencies than by internationalists, the latter group pretty resoundingly won the debate, at least in the early part of the crisis, and clearly not to the US’s obvious benefit.
Economic stimululs packages the world over seem to be attempting to turn the clock back to 2007 – thus adding to the imbalances that caused the crisis in the first place.
In the case of China, short-term political expediency might be causing more damage to the global economy as the country tries overproduce its way to higher growth.
Overproduction in China might be the reason why polyolefin prices continue to defy reason.
Despite a fall in naphtha prices on what we earlier predicted on this blog – a big increase in naphtha supply in Asia – polyolefin prices continued rising last week.
Naphtha had fallen by $13/tonne to $437.25-438.25/tonne CFR Japan while polyethylene prices rose by $20-70/tonne in Northeast and Southeast Asia and polypropylene by $30-60/tonne.