Chart compiled by the China Real Time Report blog.
By John Richardson
NOBODY should be surprised about what is happening in China’s petrochemicals markets, as the signs have been there for many months that economic rebalancing would have to accelerate.
This could be marvellous news in the long term for domestic consumption growth, but it is grim news right now for China’s lower-value small and medium-sized enterprises (SMEs) – the main drivers of petrochemicals consumption.
As we warned might happen, they are finding access to credit much harder following government efforts to rein-in credit growth, according to several chemicals traders we spoke to yesterday.
And, as the Wall Street Journal’s China Real Time Report blog points out, wage costs are once again on the increase.
“After a pause in 2012, minimum wages have returned to rapid increases,” writes the blog.
“Export hotspots Zhejiang and Guangdong hiked the minimum wage by 12% and 19% respectively in 2013.
“With the central government’s inequality plan promising to lift minimum wages to 40% of the average, further steep increases can be expected in the years ahead.
“A survey of more than 300 factories in the Pearl River Delta by Stephen Green, China economist at Standard Chartered, found that wages for blue collar workers are set to rise 9.2% in 2013, up from a 7.6% increase in 2012.
“The survey also found that additional pressure is coming from stricter enforcement of social insurance contributions – which can add substantially to the wage bill – and higher demands from workers’ representatives.”
The problem is that unless higher wage are met by increased productivity, inflationary pressure will increase, making an increase in interest rates much more likely.
“A rise in interest rates would be a major blow to the market,” a Singapore-based polyolefins trader told the blog last week.
Workers have demographics on their side and so they might well be in no rush to heed calls for better productivity.