Chinese economic break, export slowdown worry traders
Uncertainty about the effect of measures to slow down the Chinese economy is threatening China’s export boom and sent shares in Singapore-based Neptune Orient Lines and COSCO Corp. sharply downwards earlier today in Asia.
Stock in China-focused transport and commodity trading firms fell today “as investors feared steps taken by the mainland to cool its economy would hurt earnings,” Reuters reported.
The stock price of Neptune Orient Lines dropped 9 percent today to S$1.91 ($1.13), while COSCO Corp., an affiliate of China Ocean Shipping Co., saw its stock price sink 10 percent to 72 Singapore cents (42 cents).
Chinese Premier Wen Jiabao recently said China would take measures to slow down its economy.
Any measures to restrain the growth of manufacturing and exports in China would have a direct impact on cargo trades from China, with the likely result that transpacific volumes will expand at a lesser pace than previously, according to industry sources.
“The Chinese government is under pressure, both internally and externally, to put a lid on things,” said Bengt Henriksen, head of Unaffiliated Shippers of America, who has just returned from China. The Chinese have already cut export tax refunds from 17 to 13 percent, and are now refusing new plant openings “in an effort to cut back on an uncontrolled boom,” he told American Shipper.
The result of new economic measures and the advent of inflation in China will be “lower export growth,” Henriksen said. “Exports from China to the U.S. are going to drop in the next six to nine months.”
A slowdown in Chinese export growth would have a considerable impact on international trade. In the last two years, most of the growth in the transpacific and Asia/Europe container trades has come from China, which now accounts for about half of total Asian exports.
Much of the growth in the China-to-U.S. trade has been the transfer of manufacturing between the two countries, rather than an increase in U.S. consumption. But economists have said foreign direct investment in China is slowing, while consumption in the U.S. may no longer trigger substantial import growth.
Frank Caradonna, consultant with Pegasus Ltd., told the recent Containerization International conference in London that the production shift to China has become the dominant driver of demand in the container trades. “The only difference between the U.S. and Europe in terms of this demand shift is the fact that the process began earlier in the U.S.,” he said.
Henriksen and Caradonna both predict a flat peak season, rather than the traditional cyclical spike in cargo volumes.
“Since virtually all products used on a daily basis emanate from China, the old annual shipping patterns have also altered,” Caradonna said. He added that the historic slack and peak period have moved to a more level pattern.
“The carriers are doing everything they can to convey the perception that there is a peak season,” Henriksen said.