Slowing growth in China has been a factor in falling commodities prices.
But China may soon take advantage of lower prices and buy large quantities of commodities in order to satisfy their still-great demand for raw materials. In fact, they did just that a few years ago when commodities prices were very depressed.
And this could put a price floor underneath commodities markets.
For a while around the time of the Financial Crisis some wondered whether or not developing nations were “decoupled” from issues in the developed world. As it turns out, they were not.
A reverse version of this could be developing, as a weakening Chinese economy (that the Chinese government is averse to greatly stimulating) and steady weakness in Europe may combine to potentially create a force of economic weakening that may this time blow west instead of east.
The US economy has gotten a lot of attention recently for its relative economic strength. But we may soon better appreciate the fact that the US economy does not exist in a vacuum.
It seems we’re in a state continued economic and financial globalization. Because of this, and because what happens in one part of the world may have an increasing affect on the rest of the world, maybe we should think less in terms of regional economic/financial events being “European”, “American” and “Asian” (for example) and instead think of these events as global matters that happen to be centered in a particular region of the world. For example, one could think of “European” events as global events that happen to be taking place in Europe.
While there’s no doubt that economic and financial developments will continue to have a disproportionate affect on the region of the world in which they are centered, it would seem prudent for us to think of all events as global events. After all, there is only one world (of which we know) and we are all in this together.
Given the Chinese government’s apparent involvement in its high-tech industry (development, etc.) and the fact that it actually has an equity stake in Alibaba, I wonder: will Alibaba’s future global competitors be competing solely against them, or will they be competing against Alibaba and the Chinese government?
Some might even dismiss such an inquiry as utterly naive and would tell me “That’s just China being China.”
Perhaps, but the Chinese government seems serious in its attempts to liberalize markets and encourage competition (at least so far in words, if not deeds).
It seems the extent to which China attempts to help Alibaba will come down to two questions:
1. How brisk will the pace of Chinese market reforms be?
2. Will the Chinese government make an exception to such reforms in the case of Alibaba because it perceives the stakes to be so high?
The concept of the Chinese government unfairly aiding Alibaba would seem to be very daunting indeed for its potential foreign competitors (and may also materially impact future trade relations).
Though China’s economy is growing at a relatively lower rate than it did years ago, we should keep in mind that absolute demand for commodities from China can still continue to grow considerably because the economy is larger than it was when rates of growth were much higher.
Strong recent Chinese export data could start a virtuous cycle with the following sequence:
strong exports leading to…stronger currency leading to…lower inflation leading to…greater room for economic stimuli
As more reports surface of the Chinese government possibly trying to encourage their people to invest in the stock market, I see two good reasons for this initiative:
1. Long-term economic benefit of promoting capital markets
A thriving stock market seems an essential element of a highly-ambitious developing economy, as it promotes the establishment of (and investment in) businesses
2. Diversion of funds from a bubbly real estate market
Given the extreme ratios to income levels at which Chinese housing is valued, it seems safe to say that bubble-like conditions exist. And given the Chinese government’s aspiration to take air out of the market, a migration of Chinese wealth from real estate and into stocks would seem to help achieve the government’s goal
One last thought: it seems curious that all of this chatter comes right around the time that technology darling Alibaba is set to go public. It wouldn’t surprise me one bit if the Chinese government planned their stock ownership initiative to coincide with Alibaba’s day in the sun to try and gain some favorable free publicity and benefit from the global display of a Chinese company gone good.
Today, I just don’t know. It seems a lot of money is moving out of just about everything and into the US dollar. Stocks are (currently) down. Treasuries are down substantially. If not for the large moves down in precious metals, I might think the markets have geopolitical issues on their minds. If not for stability in both Chinese stocks and copper, I might think the markets have economic weakness on their minds. And if not for the magnitude of the moves (particularly in Treasuries and commodities) I might think that perhaps the day’s price action is just normal market noise. It’s quite possible that it is merely a matter of normal price fluctuation…but I wonder. What do you think?
UnlovedMoney 