China Sourcing Gets a Second Wind

It's clear that some invisible hand in the economic kitchen added a dose of MSG to the China tradewinds of late, if we can believe the latest trade numbers to come out of the Asian giant. According to the above-linked Reuter's forecast, China is expected to report double-digit growth in Q4. Economists polled for the story suggested that the median % increase would be "+10.9 pct in Q4 vs +8.9 pct in Q3" and "seventeen analysts participated in the survey said the range was from 10.0 pct to 12.0 pct". But what's more interesting for our purposes in procurement is what is driving this growth: the export market. In this regard, "China's exports were particularly strong in December last year, rising 17.7 percent after 13 months of annual decline." From a China-sourcing perspective, these latest numbers hold many potential implications -- and complications.

Consider the potential response of the all-powerful central government to such growth. Like Western central banks, combating inflation -- and commodity price inflation -- will be on the minds of just about everyone (especially considering the loose economic policy that Beijing used to fuel artificial investment during the 2008 and early-2009 trough). For those looking to continue getting materials inexpensively, the challenge of the monetary policy is compounded by simple demand.

"Strong GDP data might be interpreted as positive news for the commodities market because it would reflect healthy underlying demand for energy and resources," Reuters suggests. Moreover, in many industries, certain sectors of the economy took material amounts of capacity offline during the downturn, and it could take months, if not quarters, for much of this to be brought back online.

So if this new China boom -- and export boom, specifically -- is to be believed, we could very well begin to find ourselves in a 2005-2006 situation again, fighting for attention and capacity from Chinese suppliers (who will find themselves fighting for capacity and attention from raw-material producers and distributors). Moreover, China commodity demand could have a cascading effect on world pricing and production, as the once-again roaring-tiger economy begins to enter growth mode. Obviously, however, we should not leap into action just yet (even if, just as a precaution, you do begin to think through the commodity-pricing and supply-risk-mitigation strategy elements of your global-sourcing strategy). And that's because we all know that China reports what it wants to report. According to our feet on the street in certain industrial markets in China, Q3 and Q4 were not as rosy from the perspective of volume and new orders as the Chinese central authority might be reporting.

Jason Busch

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.