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China Consumer Confidence “The Worst In 17 Years”

Business, China, Company Strategy, Economics, Polyolefins, Styrenics
By John Richardson on 27-May-2014

PE28May2014

By John Richardson

LAST year, the blog was told that business at some high-end restaurants in Beijing had fallen by as much as 90% because of the government’s crackdown on corruption.

And China’s top military officials are scared to even park their cars in the vicinity of high-end restaurants in case they are accused of corruption, according to several recent newspaper reports.

Now there is evidence that retail sales are suffering from the determination by China’s new leaders to sustain their crackdown on the hidden economy.

“The anti-corruption campaign has significantly affected the order flows for consumption goods from the state-owned enterprises and government bodies,” Dong Tao, analyst at Credit Suisse, wrote in a recent report, which was quoted in this Financial Times article.

And Shaun Rein, managing director of China Market Research, told the newspaper that there were other factors involved in driving down retail sales growth.

“From a consumer confidence point of view, this is the worst I have seen in my 17 years in China,” he said.

“Consumers are concerned about wage growth and rising housing prices [but maybe  not for much longer] so they are cutting back on spending. They are moving away from shoes and apparel but spending it on experiences, such as tourism and movies.”

China’s leaders are without doubt, not going to blink and so things will have to get worse before they get better.

Not surprisingly, therefore, petrochemicals demand in China remains weak.

For example, slowing domestic demand combined with increasing capacity has driven purified terephthalic acid (PTA) prices down by 12% so far this year, points out fellow blogger Paul Hodges in this post.

And in the polyethylene (PE) market, which we most closely track, domestic prices in China fell last week in response to weak buying interest from converters. This led to a decline in the prices of some imported grades of PE.

“Supply remains tight because of shutdowns in China, South Korea, Taiwan and Japan and so the overseas producers feel as if they are still in a fairly comfortable position,” said a Singapore-based PE trader.

“The problem is that the market has been like this for weeks – a standoff between the producers and the buyers.”