No Big China Relief

Business, China, Company Strategy, Economics, Europe

By John Richardson

Wen Jiabao re-emphasised at the weekend that China’s economic policy would be tweaked rather than radically overhauled because inflation, despite declining further in April, remains a major threat.

Anybody hoping for a stimulus package on the scale of that which was introduced in late 2008 is therefore likely to be disappointed.

And China’s premier also stressed that the clampdown on the property sector would continue.

This means that petrochemicals traders, who frequently dabble in real estate and other speculative assets, are likely to remain under pressure. The “froth” will remain out of demand – i.e. the speculative element that boosted consumption in 2009-2010.

Stock markets have rallied on further government announcements over approvals being brought forward for infrastructure projects.

But while this is, of course, good news in the short term, and might result in a temporary boost in petrochemicals prices, (a great trading opportunity for those with the courage to go “long” for a couple of weeks, or perhaps only days) one has to wonder about further misallocation of capital. Investment-driven growth has run its course.

The key for a sustainable recovery in both petrochemicals demand and pricing is to also tackle what industry sources tell us is weak business confidence. That will as much depend on what happens globally as on action by Beijing, as China remains too heavily dependent on the export environment.

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