Shanghai And The Real Pessimists

Uncategorized

SHARE THIS STORY

By John Richardson

shanghai_street_market7-06THE blog is used to being told “you are too pessimistic on China”, and is used to ignoring such comments, because they miss the point about what we have long being trying to convey. We challenge anybody to read yesterday’s post and reach the conclusion that we are pessimistic.

What is remarkable about our current trip to Shanghai is that people are instead telling us that we are guilty of being overly optimistic about China’s future!

The mood on the ground is very worrying. We have been told that:

  • Plastic processors, especially the smaller ones, are struggling to source financing because of the slowdown in credit growth.
  • Higher labour costs are putting them under further pressure as more low-value processing drifts away from China.
  • There is nothing new, of course, in either of the above points, but the scale of difficulties with credit and with costly labour feel as they have become worse over the last few months.
  • And here is another problem that we didn’t notice before: A dearth of experienced workers in the plastic processing sector is making it very hard for converters to move up the value chain to compensate for more expensive labour – to, for example, move from making cheap plastic garbage bags to making sophisticated multi-layer packaging films.

It was amusing when we raised the point of China’s official GDP growth numbers being largely a fiction at one meeting.

“Tell us something new. We have known that for years. What matters is the growth in credit and electricity consumption. These tools are the only useful ones in measuring chemicals and polymers demand growth,” we were told.

When we made our argument that in the long term China would be fine because of its visionary new set of leaders, people didn’t disagreed on our second point – that they were visionary.

But they worried that building a new Silk Road from western China to Europe, that we again discussed in our post yesterday, wasn’t going to work. Foreign manufacturers would rather up sticks and move overseas because of the uncertainties over whether inland logistics would be cost effective, we have been told.

“We have two-to-three years, I think, before our global manufacturing dominance is over. At the moment we have great supply chain efficiencies in lots industries in the eastern and southern provinces. But after two or three more years, other countries will have successfully copied us,” said one of our sources.

And the  people we have spoken to also worried that the reform agenda in general would be derailed by “vested interests”.

Returning to the more immediate term, nobody has so far so much as blinked when we have suggested that real GDP growth, as opposed to the government’s official numbers, might end up being negative over the next couple of years. They agree that the official data as a whole is understating the scale of the problems being created by the deflation of the  property bubble – especially in China’s third, fourth and fifth tier cities.

PREVIOUS POST

China Deals With Demographics In The Right Way

02/09/2014

CHINA’S approach to its challenging demographics are in complete contrast to t...

Learn more
NEXT POST

Asia Chemicals Will Need To Cut Operating Rates

04/09/2014

By John Richardson THE above chart, from Paul Satchell’s latest Volume Proxy*,...

Learn more
More posts
Coronavirus, impact on the developing world and the scale of demand losses
29/05/2020

By John Richardson ALL OF us are struggling to come to terms with a collapse in the global economy t...

Read
Coronavirus, reshoring and the polyester industry: Good luck with that
27/05/2020

By John Richardson POLITICIANS, not just including the Populist variety, are talking a lot about res...

Read
Beware of the fragile nature of the oil and petrochemical price recovery
22/05/2020

By John Richardson RECENT rises in oil and petrochemicals prices should not in my view be taken as a...

Read
China petrochemical inventories build on what could be false hopes of a V-shaped rebound
19/05/2020

By John Richardson AS PETROCHEMICALS storage space in China fills up on the hope that the country ca...

Read
Further polyethylene rate cuts seem inevitable with no certainty on who will blink first
18/05/2020

By John Richardson IT IS NOT just a razor-like focus on petrochemicals demand that will get you thro...

Read
What petrochemical companies must do to adapt to a smaller coronavirus economy
15/05/2020

By John Richardson PETROCHEMICAL companies can adapt to the coronavirus New Normal by running their ...

Read
Coronavirus and the way forward: Forecasting micro surges in petrochemicals demand
11/05/2020

By John Richardson THE MONTH of May is normally a low season for toluene di-isocyanate (TDI) demand ...

Read
Southeast Asia polyolefins demand may fall by as much as during Asian Financial Crisis
08/05/2020

By John Richardson HOW do you replace anywhere between 9% and 18% of GDP when it has virtually disap...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more