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Moving Beyond A World Of Myths: Steps One And Two

Business, China, Company Strategy, Economics, Oil & Gas
By John Richardson on 28-Aug-2015


By John Richardson

We are living in a world of myths that are at long last being exposed as such, although I worry that this could be too late for some chemicals companies.

One myth I discussed yesterday is the idea that because Chinese consumption of petrochemicals is so much bigger than a decade ago, the slowdown in its economic growth doesn’t really matter.

The above chart, from this excellent series of graphics in The Guardian newspaper, exposes another myth: That the rest of Asia will be fine if China’s GDP growth collapses.

Any sensible look at the data would have told you a long time ago that this was just a plain silly notion.

But looking sensibly at any set of data has been out of fashion for many years now. The reason is that too many of us have been sucked into all the hype surrounding emerging markets in general, with the hype driven by vacuous slogans such as “the rise of the Asian middle classes”.

We should have asked questions such as these: Who is telling us that everyone will become middle class by Western standards in developing countries in Asia virtually overnight, and why are they telling us this?

It was of course the financial world that pushed the Asian middle class myth because they were busy talking up equities and oil prices.

Now, though, equities and oil prices are in trouble as the full extent of China’s economic problems becomes more broadly understood.

What chemicals now need to do is to go back to real supply and demand analysis. Sadly, this will lead them to conclude that we are in a low growth deflationary world.  This is Step One

Step Two involves completely reassembling your strategies in order to take advantage of the new growth drivers.