Wednesday, January 15, 2014

Things to watch in 2014 - the Chinese economy

It's been a quiet time in the bloggosphere. That's normal for this time of the year, although the slowdown this year has been more pronounced. Now things are slowly picking up.

Chinese economic growth will be one of the key things to watch this year. Michael Pettis has been arguing for some considerable time now that the imbalances in the Chinese economy mean that growth must slow, perhaps to 3 to 4 percent. His views were featured on the ABC yesterday. Stephen Grenville (A mug's game: Forecasting China’s economic future) takes a different view.

I have been following Michael Pettis for some years now, and know his views quite well. Stephen is right that Michael has been projecting a slowdown for some time, including having a bet with the Economist on the matter, a slowdown that has yet to occur at the scale projected. However, that doesn't mean that Michael is wrong in the longer term. Accepting my lack of detailed knowledge on China, Pettis' arguments strike me as reasonably persuasive.

Australian reporting focuses on the potential impact on the resources sector. However, the issues involved and potential impact on Australia extend well beyond this. One to watch.

In parallel news, some are now predicting that the New Zealand dollar will reach parity with the Australian dollar this year, driven in part by demand for milk products again linked to Chinese demand. Milk has become New Zealand's equivalent to iron ore, the rebuilding of Christchurch the equivalent of Australia's mining investment boom.

While I haven't commented on it, I have been watching the heated takeover battle for Warrnambool Cheese and Butter with fascination. It's part of the same pattern.

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