China: Spreading the Industrial Restructuring Pain - ING
Tim Condon, Chief Economist at ING, suggests that as the risk-on
prevails and following their re-pricing in 2015 for a China hard
landing, the repricing of financial assets in 2016 for something softer
can proceed.
Key Quotes
“After a meeting
in Brussels on the global steel crisis organized by the OECD ended
without any formal agreement, Xinhua characterized as “lame and lazy”
efforts to blame Chinese producers for the global steel crisis.
According to The Wall Street Journal that’s precisely what the United
Steelworkers union in the US is doing. Citing damage from imports from
China, the union intends to push for “broad, steep tariffs” on aluminium
imports using a rarely-used section of the 1974 Trade Act that applies
when an entire domestic industry has been “seriously injured” by
imports. On the Chinese side, Fitch tells us that debt restructuring
rather than state-supported full-debt repayment is becoming the norm for
SOEs operating in non-strategic sectors, including steel and coal
mining.
Our baseline is that the costs of China’s industrial
restructuring will be shared broadly among Chinese workers in the
affected companies, owners and creditors of the same and by competing
producers. We consider the turnaround in China’s housing sector the best
hope for ending the recession in global manufacturing, though it’s
premature to expect relief in 2016; housing starts last year were 25%
below their 2011 peak.
Risk-on prevails, which we think means
that, following their re-pricing in 2015 for a China hard landing, the
re-pricing of financial assets in 2016 for something softer can proceed.
The current risk-on favours financial assets that suffered
disproportionately in 2015 and disfavours assets exposed to the
recession in global manufacturing.”
