In “Global Trade To Remain Subdued Until At Least 2020 [6],” we highlighted the following excerpt from a Goldman piece on depressed dry bulk shipping rates:
The transition from investment to consumption in the Chinese economy, together with a shift towards cleaner energy sources, has caused a sharp deceleration in dry bulk trade. After expanding at an average annual rate of 7% over the period 2005-14, seaborne demand in iron ore, thermal and metallurgical coal is set to increase by only 2% in 2015 to 2.5 billion tonnes as these trends persist. In the steel sector, domestic consumption growth ground to a halt in 2014 and the prospect of peak iron ore demand is nigh. In the power sector, demand for coal-fired generation is suffering from a combination of weaker economic growth, rising energy efficiency and a diversification in the fuel mix towards renewable energy, natural gas and nuclear. There are no other markets large and/or dynamic enough to offset a slowdown in China in the foreseeable future, and we forecast trade volumes to stabilize in the period to 2018.
This speaks to the fact that Chinese demand is effectively the engine that drives global growth and, as we’ve said on too many occasions to count, the country’s difficult transition from an investment-led economy to a model driven by consumption and services, combined with a war on pollution and an impossible attempt to curtail shadow banking while preserving robust credit creation, will ultimately conspire to make China unreliable as the centerpiece of the global recovery thesis. UBS has more on the above:
In the decade to 2014, China quadrupled the number of countries to which it was the biggest export market, as the US almost halved the number of countries for which it held the same title. Over the same period, all countries under our coverage saw China's share of their exports hold broadly steady or rise up to four-fold. The jump in their direct "true" reliance on China (excluding reprocessing trade) was even more dramatic, with South Africa's and Switzerland's up by more than 8 times, and Australia's by almost 5 times.
Two factors have made global exporters more directly reliant on Chinese domestic demand and thus more vulnerable to the ongoing property-led downturn in recent years: 1) rapid growth of China’s domestic market; and 2) processing trade's declining share of Chinese trade due to China's expanding productive capacity.
In this year’s version of our annual China export exposure chart book (available upon request), we show how China's slowing economy is affecting commodity, reprocessing, and developed country exporters alike.
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UBS concludes: "However, with China's property construction deceleration set to deepen this year in a multi-year slowdown, we may see a longer-term decline in China's appetite for foreign industrial imports."
In other words, when China lands hard, so do the rest of us.



