By John Richardson
WE are going to feel every political, social and economic bump in the road from now on because the suspension on the proverbial automobile has gone.
No longer can Asian economies compensate for their domestic problems in the way they did during the 1997 Asian Financial Crisis, which was largely through raising exports to the West.
One reason is that demographics guarantee weaker, rather than stronger, export markets in Europe and the US.
And even if we are wrong about the West, China is clearly becoming more aggressive in export markets as it seeks to preserve jobs in the face of slowing domestic economic growth.
China, thanks to a weaker Yuan and superior economies of scale and supply-chain efficiencies, will seize a bigger share of exports to the West at the expense of its Asian competitors.
The consensus has now firmly shifted on China to the point where we were at in October 2011.
Hence, the worsening political crisis in Thailand will have a far-bigger impact on its petrochemicals companies than many commentators have predicted because the economy’s “export safety valve” is no longer functioning properly. The companies will face a substantial slowdown in demand at home and in export sales – both in the form of direct petrochemical shipments and in petrochemicals that go into finished goods that are also, ultimately, shipped out of Thailand (see above for Thailand’s exposure to purified terephthalic acid exports).
The weekend has brought very disturbing news on the military coup, including:
- Clashes between hundreds of anti-coup demonstrators and armed troops, who dragged a number of the protesters away. There were also demonstrations in the northern city of Chiang Mai. Analysts said that because of the speed and severity of the military takeover, it could take several weeks for the Red Shirts to regroup and organise far-bigger protests.
- The military was continuing to uncover arms caches allegedly prepared by Red Shirt members or sympathisers, said an army spokesman.
- The army has scrapped the Senate, the upper house of Thailand’s parliament, and it has assumed all law-making responsibilities.
- Thirty five activists, academics and journalists have been asked to report to the military, taking the number of people the army wishes to detain to more than 180. Among those already being held are former prime minister Yingluck Shinawatra and members of her family.
- A special unit is said to have been set up monitor social media with reports that some BBC and CNN web pages have been blocked.
Very few people saw the severity of the crisis in Thailand coming. For example, only a week ago several of the sources we spoke to in Bangkok placed the likelihood of a military coup at only 10-15%. These types of events are incredibly hard to predict.
Not so the shift in western Demographics as, of course, the ageing of its populations, and what it means for consumption levels, has been clear for years.
So have the faults inherent in China’s growth model that had to be addressed sooner or later. But too many people have remained in denial, even after China’s new leaders came to power and made it crystal clear that major reforms had begun.
We worry that chemicals companies have lost vital years in planning for the problems that they now confront, which, as we said, will be exacerbated by events such as those taking place in Thailand right now.