..…LETTERS OF CREDIT TAKE 5-6 WEEKS TO OBTAIN, UP FROM 5-6 DAYS – THAT’S IF YOU GET THEM AT ALL
By John Richardson
DIESEL consumption is another crucial measure of China’s real economic growth because China is the world’s manufacturing powerhouse. This means lots of demand for diesel to run trucks, trains and back-up electricity generators etc.
We should take note, therefore, that the country’s diesel consumption is set to decline in 2014 for the first time in more than ten years, oil companies in China have told Reuters.
Understanding what this type of data means for China will help chemicals companies move from denial to acceptance.
We are also constantly coming across anecdotal evidence, from chemicals and other manufacturing sectors, which suggests that the slowdown might be even worse than some of the headline numbers indicate.
“The economy is every bit as weak as August data is indicating, in fact probably even weaker,” wrote Simon Hunt, a UK-based metals and China economics consultant, in an investment note based on his recent trip to China.
Sales of many appliances to end-users were weak, especially in the case air-conditioning units, added Hunt. He forecast that the sales volume of air-con units would fall by 12% year-on-year in 2014.
“Sales of other appliances such as washing machines, TVs and refrigerators are also falling,” he said, in the same research note.
And as regular blog readers will know, we have been predicting since late 2013 that credit growth would slow down in China during 2014. We have been proved right.
It is not only the supply of new lending that has fallen, however, but also the demand for loans. Growth in loan demand from both the manufacturing and non-manufacturing sectors has fallen to its slowest pace in two years, according to a People’s Bank of China Q3 survey of 3,100 local banks.
Local banks are now also hoarding cash because the rate of business failures is accelerating, said Hunt in his research note. The banks are obviously worried about their bad debt positions.
“The practice has been that when loans are repaid banks issue new ones. This historic practice is no longer a given,” he wrote.
“In the same vein banks are being selective in extending Letters of Credit (LC). An LC used to take 5-6 days before being issued; it now takes 5-6 weeks – if one is issued,” he added.
It would be nice to think that these problems will quickly go away, but, of course, they won’t. They will get worse before they get better – and we are talking about a five-year transition process, at best.