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Feb.8, 2016

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INTERNATIONAL MARITIME IMPORTING | EXPORTING | PORTS | CARRIERS | BREAKBULK | GLOBAL LOGISTICS 16 THE JOURNAL OF COMMERCE www.joc.com FEBRUARY 8.2016 By Greg Knowler NEWS THAT CHINA'S GDP had slowed to 6.8 percent in t he four t h qua r ter of 2015, with full-year economic growth of 6.9 percent, set off the usual frenzy of anal- ysis across financial media platforms, with little useful information to be gleaned from the chatter. Some analysts are deeply pessimistic about an economy mired in huge levels of debt with overcapacity in many sectors undermining growth prospects. Others believe that while growth was soft, it's not collapsing. There is no shortage of theories, but there are some unexpected benefits for a beneficial cargo owner sourcing products from Chinese manufacturers, driven by a strong U.S. dollar and some curious policies. Many of the factories in China are state- owned and they appear to be under orders to maintain high employment, the Asia sup- ply chain head of a global shipper explained. "This means we are able to buy goods at well below the actual cost of the materials, because the objective of the factory isn't to make money, (but) to provide full employ- ment and collect hard dollars," he told The Journal of Commerce. "Getting the stuff is so cheap now, but it is a desperate strategy. I see deflation coming howling down the pipeline." China's manufacturing industry is in an increasingly dire state. Even as labor costs have risen sharply across coastal production centers, export orders have been falling, and factory output declined in December to its lowest level in three months. The weakness of global trade growth this year — expected to be around 1 percent — is linked to China's downturn in industrial production, which has had a domino effect on supply chains and on general demand, according to New York-based corporate bank HSBC. The bank, however, believes condi- tions in China will stabilize this year and reduce the drag on global trade from weaker demand, laying the foundation for a moder- ate recovery in global trade growth. After 15 years of sharp growth, China's trade development is slowing as industrial production increased at a more modest annual rate of 6 percent a year through 2015, against a trend growth of 14 percent a year, classification society ClassNK wrote in a report. Even renown economists are taking diametrically opposed views as to what is going on, with some believing the Chinese economy is simply undergoing an overdue correction, and others concluding it no lon- ger should be considered the world's engine for growth, the classification society said. "Whether either of these scenarios is accu- rate remains to be seen, but in the meantime China's mature economy retains significant growth opportunities for shipping activities, wherever the economists believe it sits in the macro cycle," ClassNK wrote. The consequences, it said, are cascading WHERE DOES CHINA GO FROM HERE? With economic growth slowing, there may be no consensus on China's direction, but there's no doubt about its impact "Getting the stuff is so cheap now, but it is a desperate strategy. I see deflation coming howling down the pipeline."

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