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China: The Future Winners And Losers

Business, China, Company Strategy, Economics, Oil & Gas
By John Richardson on 14-Oct-2014


By John Richardson

CONVENTIONAL analysis, which assumes that the world of the last six years will be the world of the next six years, is failing.

One of the most  obvious examples of this is China, where one-dimensional, lack-of-depth conventional thinking still maintains that the rise of the country’s “middle classes” will result in a nation that predominantly drives BMWs.

Economic reality is that most people in Chin will, for a very long time to come, remain a long way from even being able to afford  cars such as the no-frills Renault Dacia.

This is not the end of the world, this is not doom and gloom.  We just  have  to recalibrate our thinking, our expectations, our business strategies, so we can profit from the great new opportunities.

There will no return to the unsustainable, credit-driven “wealth effect” that so badly misled people into thinking that China would end up as  a nation mainly of drivers of BMWs, or, of course, any other higher-end foreign car.

The credit boom mainly benefited a small, rich elite, whilst  also creating a very serious bad debt problem and so had to be brought to an end.

If you still doubt this, listen to China’s government.

In a speech on 11 October, for example, the chief economist of China’s central bank, Ma Jung, became the latest in now a pretty long line of very senior government officials and politicians who have repeatedly stressed, for the last 12 months, that there cannot and will not  be a return to the 2008-2013 credit frenzy.

“Part of China’s ‘new normal’ is that ‘big stimulus’ won’t be called for every time growth decelerates. And secondly, the new normal will involve a lot of rebalancing in terms of changing the economic structure,”  said Ma, in his speech.

Fellow blogger Paul Hodges provided us with the above slide. It shows the wider global fallout of the withdrawal of economic stimulus by China.

Some of his other views on China, which we share, were the subject  of an article in last Saturday’s Financial Times by Merryn Somerset Webb.

And as the Fed also pulls back on stimulus, he makes the following further points:

  • The oil price is falling sharply as supply and demand once again become the key drivers of pricing.
  • The US dollar is strengthening and liquidity is tightening across the world.
  • Equity markets risk sharp falls, as investors realise they have overpaid for future growth and rush for the exits.
  • Interest rates are becoming volatile as some investors seek a ‘safe haven’, whilst others worry that stimulus policy debt may never be repaid.

Today sees the launch of a new subscription service by Hodges, ‘The pH Report’, which, the author says, “aims to guide individuals, companies and investors through the Great Unwinding now underway.”

The pH Report is presented in PowerPoint slide format, and will be supported by a follow-up webinar and detailed Research Papers.  Please click here if you would like to download a free copy of the first issue.