China Sneezes and the World Catches a Cold

The powers that be in China, after seeing growth heat up to 11.9 in the first quarter of the year, decided that is cooling down the economy with lending and investment curbs was needed to prevent overheating. These curbs went to work immediately, slowing the growth rate more sharply than expected with a result of reducing demand for U.S. and European factory machinery, industrial components from Asia and iron ore as well as other raw materials from Australia and Africa.
The timing of China’s slowdown comes at a bad time for exporters that have seen sales go slack just about everywhere else. Already a huge trading partner for many of these countries prior to the recessions that hit the U.S., Europe and others, China had taken a role as the only game town due to a stimulus-driven expansion program designed to compensate for slowing sales elsewhere.
Even with slowing growth China overtook Japan as the second-biggest economy in the second quarter. It is a buyer of 28 percent of Taiwan's exports, 25 percent of South Korea's and more than 20 percent of Australia's mining and raw materials production. Japan just reported sharply lower growth for its second quarter as the growth of exports was almost halved from the first quarter
That being said, it is the producers of iron ore for steel production and other construction-related raw materials which are expected to take the hardest hits from China’s self imposed slowdown. The winding down of a construction boom pushed by China's $586 billion stimulus program as well as billions of dollars in of bank lending is already being felt. These producers include Australia, Indonesia, Malaysia, Brazil and parts of Africa.
New construction projects dwindled as Beijing wound down its stimulus and tightened credit in the second quarter to take the air out of inflating bubbles in real estate and stock prices, slashing demand for steel, cement and other construction related materials. Factory output slowed as well and is expected to head lower in the third quarter as well.
Overall, China’s import growth slowed by about one-third in July, sending tremors throughout the world as the most robust buyer of imported goods for many countries took a step back from the table. An example of the bind China’s slowdown is putting countries in is Taiwan, a major source of components for Chinese factories that make televisions and other electronics, which are in turn sent as finished products United States. China’s slower growth, combined with slowing sales in the U.S. at the same time could hit Taiwan’s manufacturing industries particularly hard.
China, at this point, sits in the enviable position of trying to restrain growth while the rest of the world either relies on them for their relatively healthy economies, such as Australia or tries to recover from recession, like the U.S. With China expecting slower growth over the next several quarters, it could be a rough ride for everyone.

Anthony Ricigliano News - Four Industries Where China has Passed the U.S

By Anthony Ricigliano: America was known for the better part of the last century as the single greatest producer of just about everything in the world. It was during the 70’s that we started to cede our dominance in major industries to other areas of the world.

Oil production went to the Middle East, automobile production went to Japan, and the cracks in America’s manufacturing dominance began to grow by the year. Since that time, U.S. manufacturing has eroded but in total, we still lead the world.

China has had one of the fastest growing large economies in the world for the past several years.  China passed Japan in total manufacturing to take the number two spot in the world. Economists are now going about forecasting not if but when China will pass U.S. in total manufacturing output.

The U.S. is now trying to stay competitive in the global arena across a wide spectrum of industries, handicapped in the fight by annual deficits, expanding national debt, and an unemployment rate which stubbornly remains well above 9%. 

Here are four industries that illustrate how far the U.S. has fallen behind in industries that it used to dominate. In each industry China, the world’s second largest manufacturing economy, has taken a huge lead:

* High-tech – China manufactured $381 billion in 2008 versus U.S. production of $231 billion. If current trends remain in place, the U.S. is going to have a tough time catching up as China’s exports of high-tech products grew by 78% between 2005 and 2008 while the U.S. saw a 21% increase over the same period.

* Coal production – Once the world leader in coal production, the U.S. has fallen far behind China. In 2009, the U.S. produced a little over 1 billion short tons of coal, less than one-third of China’s production which totaled 3.3 billion short tons. Trends indicate again that China should remain firmly entrenched as the leader with production growing by 34% since 2005. U.S coal production actually decreased slightly during the same timeframe. 

* Pork production – While the U.S. is still the world leader across a broad range of agricultural commodities, pork production isn’t one of them. Due to heavy demand for the commodity by its own population, China produced 51.5 million metric tons of pork in 2010, more than five times America’s production of 10.2 million metric tons.

* Beer – The U.S. led the world in beer production at the turn of the century but has now ceded the leadership to China. Since that time, China has doubled its production to 423 million hectoliters, while production decreased slightly in the U.S. to 232 million hectoliters.

Competing globally while hindered by financial issues, the U.S. looks like it has its work cut out for it. One area that could play a growing role is innovation at the micro-level which then ramps up from there. Without government assistance, mass innovation looks to be our best hope for remaining competitive in the global arena.  

Anthony Ricigliano - News and Advice by Anthony Ricigliano

Another Sputnik Moment by Anthony Ricigliano

Anthony Ricigliano - News and Articles by Anthony Ricigliano: We probably didn’t see it coming but the decline of education in the U.S has been crystallized by a book titled “Battle Hymn of the Tiger Mother” written by Amy Chua. The book and its author have come under intense criticism for a tough love on steroids stance on parenting. The book’s premise is that American’s coddle their children at the risk of settling for something which is far less than their full potential.

Combined with the December release of the latest test results from the Program for International Student Assessment (PISA), “Battle Hymn of the Tiger Mother” has put an unflattering spotlight on primary and secondary education in the U.S. as well as American parenting styles.

The results from the PISA test showed that American had slipped badly versus those in other countries, finishing in 17th place overall. Students from the U.S. ranked 17th in reading, 23rd in science and 31st in math, getting squashed by students from Shanghai who won each category by a comfortable margin.
President Obama called the dismal scores a “Sputnik moment” as the realization sunk in that the U.S. had fallen behind badly in a race that it comfortably ruled for years.

The stunning results from the Shanghai students have at their foundation a few simple facts; “Chinese students work harder, with more focus, for longer hours than American students do”. According to Time Magazine, “Chinese students already have a longer school year than American pupils — and U.S. kids spend more time sitting in front of the TV than in the classroom.” The education race is reminiscent of the rivalry between the U.S and Russia which spanned from sports to space as well as the later rivalry with Japan which was focused largely on the financial arena.
The U.S is still the biggest economy in the world but China is coming fast, having taken the second spot from Japan in 2009. With the U.S. mired in an anemic recovery from its real estate induced recession, China’s economy is on a tear. Not only is their economy growing exponentially, they’re the biggest of America’s creditors with the Treasury Department estimating that our total debt to China is approximately $843 billion. That is over $10,000 in debt for the average American family and just a fraction of our total debt of $14 trillion.

Despite the outcry from American parents, there are elements of Amy Chua’s tough love regimen that are supported by studies in psychology and cognitive science. Her criticism that American parents over-protect their children from distress is backed by a book fittingly called “A Nation of Wimps”, authored by Hara Estroff Marano. Marano states "Research demonstrates that children who are protected from grappling with difficult tasks don't develop what psychologists call 'mastery experiences. Kids who have this well-earned sense of mastery are more optimistic and decisive; they've learned that they're capable of overcoming adversity and achieving goals. Children who have never had to test their abilities grow into "emotionally brittle" young adults who are more vulnerable to anxiety and depression.”

Judging by the ubiquitous advertisements for depression meds, it looks like the “Tiger Mom” is on to something. 

Author Anthony Ricigliano

Anthony Ricigliano - China Sneezes and the World Catches a Cold

Anthony Ricigliano News - The powers that be in China, after seeing growth heat up to 11.9 in the first quarter of the year, decided that is cooling down the economy with lending and investment curbs was needed to prevent overheating. These curbs went to work immediately, slowing the growth rate more sharply than expected with a result of reducing demand for U.S. and European factory machinery, industrial components from Asia and iron ore as well as other raw materials from Australia and Africa.

The timing of China’s slowdown comes at a bad time for exporters that have seen sales go slack just about everywhere else. Already a huge trading partner for many of these countries prior to the recessions that hit the U.S., Europe and others, China had taken a role as the only game town due to a stimulus-driven expansion program designed to compensate for slowing sales elsewhere.
Even with slowing growth China overtook Japan as the second-biggest economy in the second quarter. It is a buyer of 28 percent of Taiwan's exports, 25 percent of South Korea's and more than 20 percent of Australia's mining and raw materials production. Japan just reported sharply lower growth for its second quarter as the growth of exports was almost halved from the first quarter
That being said, it is the producers of iron ore for steel production and other construction-related raw materials which are expected to take the hardest hits from China’s self imposed slowdown. The winding down of a construction boom pushed by China's $586 billion stimulus program as well as billions of dollars in of bank lending is already being felt. These producers include Australia, Indonesia, Malaysia, Brazil and parts of Africa.

New construction projects dwindled as Beijing wound down its stimulus and tightened credit in the second quarter to take the air out of inflating bubbles in real estate and stock prices, slashing demand for steel, cement and other construction related materials. Factory output slowed as well and is expected to head lower in the third quarter as well.

Overall, China’s import growth slowed by about one-third in July, sending tremors throughout the world as the most robust buyer of imported goods for many countries took a step back from the table. An example of the bind China’s slowdown is putting countries in is Taiwan, a major source of components for Chinese factories that make televisions and other electronics, which are in turn sent as finished products United States. China’s slower growth, combined with slowing sales in the U.S. at the same time could hit Taiwan’s manufacturing industries particularly hard.

China, at this point, sits in the enviable position of trying to restrain growth while the rest of the world either relies on them for their relatively healthy economies, such as Australia or tries to recover from recession, like the U.S. With China expecting slower growth over the next several quarters, it could be a rough ride for everyone. 

Author Anthony Ricigliano