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
“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.”