China. Smells Like 2008, Gloom And Doom Edition.

Dan Harris writes:

I know nobody wants to hear this and I know this is going to cause me to get hate mail from those whose livelihoods are tied in to China's continuing to boom, but I am seeing all sorts of bad news on the horizon with respect to China's economy.

A client meeting yesterday was the last straw. The client I met with is very sophisticated, very large, and, most importantly, very experienced. The client is a very large commodity seller who sells massive amounts to China. This company typically sells its product to Chinese private companies that use letters of credit. Prior to 2008, this client's Chinese customers pretty much always paid. Then in 2008, they started contesting the letters of credit and seeking lower prices than that to which they had agreed. Soon after that, they started rejecting the shipments entirely. My client told me that in the last 3-4 weeks, nearly all of his non SOE (State Owned Entity) Chinese clients have contested the letters of credit and have sought lower prices of around twenty percent. They are confessing to my client that they cannot get loans and without loans they cannot pay so much.

If it were just that, I might chalk it up to problems in one industry, but it is not just that.

Read more: http://www.chinalawblog.com/2011/10/china_smells_like_2008_gloom_and_doom_edition.html

Comments

[Mitchell Langley]

Emerging markets will account for 80 per cent of global growth in the next five years, says Matthew Lasov in the FT Adviser's Investment Adviser. Matthew Lasov is director of global research services at Frontier Strategy Group. As managers seek to meet or exceed ambitious growth targets during the next year, the pace of merger and acquisition activity (M&A) in emerging markets is likely to return to and exceed levels last seen in 2007. Three drivers will push managers to execute quickly acquisition opportunities: (1) the likelihood of a double-dip recession in developed economies, (2) record-high cash reserves, and (3) scarcity of high-quality M&A targets in emerging markets.

Although China is a much more developed market than many of the upcoming emerging markets, the downturn in China's domestic economy provides increased abilities for MNCs to establish footholds and/or expand in local markets.

Read more at: http://www.ftadviser.com/2011/11/07/investments/emerging-markets/emerging-markets-time-is-ripe-for-acquisitions-gg0ScZcKzigiyOvYLlkgdL/article.html

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Frontier Strategy Group