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Morgan Stanley Chief Economist Stephen Roach believes China is likely headed for an economic slowdown in the next 12 months. Here are key extracts from his latest research note:

....A China slowdown still seems likely over the next 12 months.  You wouldn’t know it from the latest slug of data just released by Chinese statisticians -- especially the May reports of a further acceleration of industrial production (+16.6% y-o-y) and ongoing vigor in fixed asset investment (+26.4%).  But there are plenty of early warning signs of slower growth ahead for China -- hints that are showing up in more reliable non-Chinese statistics.  For example, the Baltic shipping index is down by 50% from its December 2004 peak; moreover, non-oil commodity prices have softened, with the Journal of Commerce composite index of spot industrials down about 7% from its late-March 2005 high.  Perhaps the most telling sign of an emerging China-led slowdown comes from export trends elsewhere in Asia -- important cogs in China’s supply chain.  A weighted average of export growth in Asia ex China shows a deceleration from 18% in early 2004 to about 7% in 1Q05.  More recent trends in Taiwan, Korea, and Japan point to further export deceleration in the spring quarter.  Interestingly enough, this matches up well with a sharp deceleration reported in Chinese import growth -- gains of 13.8% in the first five months of 2005 versus a 36% spurt in 2004.  By using independent data on shipping activity, commodity pricing, and regional trade flows, it is possible to “triangulate

Source: China economic slowdown likely