China’s economy, the main anchor to all

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It would be foolish to look more to the US economy to predict what will happen like what is happening today in the context of ASEAN. While the US remains the largest economy of the world but it is not even among the top three largest trading partners to ASEAN anymore. Largest is China, followed by Japan and third is the European Union (EU). It’s time to switch to a more appropriate country, the new engine of the world. Our new anchor. The more important economy which I consider an anchor to majority of all ASIAN economies is China. In fact the three top partners continue to invest more in ASEAN and trade numbers are certainly growing a lot.

So, what happened recently to our anchor, China? Well, its stock market dropped 32 percent within one month. It wiped out a total of US$3.9 trillion (RM14.8 trillion) in value. It has since rebounded but the huge ‘correction’ has affected many countries who has hoped that China would bring more good news after Greece defaulted recently. With China’s weakening, its ability to import from many of the ASEAN countries would also fall. As the world’s biggest consumer of global commodities including oil, crude palm oil, iron ore and copper, it has shown that lower demands meant lower global commodity prices. Yes, this has affected Australia tremendously. Just look at its currency and you can see the ‘RM’ image as well. Nope, that’s not sentiment, that’s real numbers. AUD has fallen 9 percent in 2015 versus US$.

I seriously believe China has enough ‘weapons’ to tackle these weaknesses. First question is, did all the companies listed in China suddenly turn in a bad result? All of them? The answer is a simple, no. Did sentiment suddenly turn extremely negative due to many different reasons within and externally? Answer is a definite, Yes. Are all the companies doing exceptionally well before the sudden huge fall within past few weeks? Answer is no, the performance cannot suddenly change overnight. Please understand these few questions calmly and objectively. Of course, if all the quarterly reports from majority of the companies show a huge drop in profits / revenues etc, then yes, we are in for a much deeper roller-coaster ride than currently. Let’s wait.

Oh yeah, as usual during these sudden falls, the worst affected would be the uncle and aunties who did not have early warning. This is another problem that the Chinese authorities would have to also tackle as well or it could also spill into a social problem. Reason is simple, if everyone on the street does not have enough money to spend, it will turn up in the statistics of the country’s economic growth. There has been some predictions of a full blown economic crisis in China but I think if this happens, no country in the world would be safe, not even the largest economy in the world. Let’s hope this does not come true.

written on 10 July 2015

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