2013-10-26

Chinese Economy To Slow in 2014

Here's a look at the Canton Trade Fair and what it could mean for the economy next year.

Export Fair in China Loses Steam
For the first time in recent record-keeping, the number of companies with exhibits has declined in both the spring and autumn sessions of the 56-year-old Canton Fair compared with a year earlier. Even during the global financial crisis in 2009, the number of exhibitors dropped in the spring but rebounded in the autumn.
One major factor is the rising renminbi, which hit 6.08 per U.S. dollar this week.
The slow but steady rise of China’s renminbi against the dollar, at about 3 percent a year, is another concern among Chinese exporters. Mr. Li said his costs for plastic and other raw materials were also rising 5 to 10 percent a year, while a shortage of blue-collar labor was driving up workers’ wages 15 percent a year.
There's only so much inflation the stagnant Western economies can take, and the result is they are looking for little to now price increases. Firms that can cut costs continue selling, others exit. The big story though, is the slowdown in emerging markets:
A bigger export problem for China and its neighbors these days is that demand is now drying up in emerging markets. Economic growth in these markets, increasingly important for China in particular as the United States and European economies have slowed, has weakened in recent months as investors shifted money to industrialized countries in anticipation of higher interest rates.

China’s exports to the member countries of the Association of Southeast Asian Nations rose 9.8 percent last month compared with a year earlier, an anemic pace versus the 30-plus percent growth rates in previous months.
Bulls will tell you that slowdown is taper related, the knock-on effect of currency depreciation in Turkey, India and Indonesia. Bears believe it is the business cycle.

Here's a graph showing the change in visitors and the change in export growth.
What does the Canton Fair tell about Chinese economy?

I'm sticking to my short positions on industrial metals and copper miners.

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