

A
report from Reuters seems to indicate that the “Chinese
economy is stabilizing”. This news gave
a fillip to Australian stocks overnight (European time). But buried in the
Reuter’s report is the following:
“Beijing has said it is willing to tolerate slower growth as it
pushes reforms designed to reduce pollution, social inequity and an economic
growth model which has an over-reliance on
debt-financed construction and exports.”
We
suggest that this indicates only that Beijing has
nothing to learn from the West about Public Relations spin. The fact of the
matter is that China has no option but to work to be able to survive in a
period of reduced growth, for the simple reason that a 7 – 8% rise in GDP is
unsustainable, and this would be true even if the country had the most advanced
social, economic and fiscal structures on the planet, which it does not.
The
law of large numbers, which says, among other things, that such growth is only
possible in the short term, is now kicking in.
All
this is having an effect on Australia . China is a major consumer of Iron Ore from
Oz but it also has its own supplies, to the extent that it produces some 75% of
its own requirements. That means roughly one quarter of Chinese needs comes
from imports, mainly but not exclusively from Australia . In the event that there
is a slowdown in demand it is not difficult to see which suppliers it will stop
using first.
OmicronFX
believes that the Australian dollar has some way to go before it reaches its
natural level in the circumstances of the decline in the mining economy there.
Given the nature of these things, it may even overshoot to the downside. We
will not be going long any time soon.
No comments:
Post a Comment