Ben Bernanke. Source of picture: Wikipedia
By John Richardson
OUR next three blog posts will examine some of the threats to a recovery in China's chemicals and polymer demand growth over the next 12-18 months.
We will look at:
*Debt. Is China already confronting a Ben Bernanke moment? (In November 2007, the Fed chairman told Congress that estimates that set the total losses from US subprime mortgages at about $150bn were probably "in the ballpark".)
*Deflation. Only a few months ago we were talking about the inflation threat in China. Now the concern is over deflation as a disincentive to consumer spending and investment. What latitude might deflation give to the government to re-stimulate the economy, given the counter-pressures of debt and the economic reform process?
*Will China export deflation in response to overcapacity in some of its domestic industries, creating further international trade tensions? Tensions are already on the rise, as a result of China's competitive devaluation of the Yuan during 2012, which late last year we warned was a possibility, and its VAT rebate policy.
*Politics. What are some the scenarios for government policy post-October, following the leadership transition, and what could these outcomes mean for the medium-term future of China's economy? BASF flagged up some of the uncertainties surrounding the leadership transition in June.
This is, of course, not all-inclusive list (we would have to be amazingly arrogant to pretend otherwise) and our coverage of each of these issues can only scratch the surface, as China has now reached a VUCA stage (Volatility, Uncertainty, Complexity and Ambiguity).
In the past, to a large extent, all you needed to be successful as an exporter was to hand over your chemicals and polymers to a trader and they would be guaranteed to sell every molecule at decent margins. The only real debate was the size of positive demand growth as a multiple over GDP growth.
This is no longer the case.