We publish Giuseppe Rodio’s article on the Chinese energy crisis
“Joseph forgets Evergrande, my supplier’s company is working 2 days a week ”. This is the message from a dear friend of base ad Hong Kong which literally prevented me from sleeping tonight.
The company he refers to is an SME with about a thousand employees operating in the manufacturing sector between Taiwan, Hong Kong and Mainland China. The fact: in the province of Guangdong (number one for industrial production in China, and therefore in the planet), the government has ordered SMEs considered to be energy-intensive to close 3 days a week due to power shortage.
Disturbing… whereupon I checked my Bloomberg app and read in the latest articles: “China Power Crunch Is Next Economic Shock After Evergrande”. Definitely a topic to be explored, well: at least 9 Chinese provinces hit by power cuts, with companies forced to close for 3 days a week.
Among these the provinces of Jiangsu, Zhejiang and the above mentioned Guangdong, the powerful industrial zones that alone are worth nearly a third of the entire Chinese economy.
Considering the fact that we are a September and in winter in Beijing it is really very cold, it seems to be the tip of the iceberg …
There has been a lot of discussion in the last few weeks ofrising gas and electricity prices in Europe and the United States, the phantom “temporary bottlenecks” cited several times by Powell and due to the strong production thrust connected to the reopening, which is occurring at the same time as the delicate process of energy transition towards renewable sources.
However, this dynamic has so far been underestimated in China, where in reality the increase in prices of gas, coal, etc., together with the severe policies of the central government aimed at reducing emissions, seem to be already having the most profound effects and allow us to foresee the start of a storm.
An old Wall Street saying goes “if America sneezes, Europe gets a cold”. What will happen to the world if China gets pneumonia?
To which the question that kept me awake and forced me to write this short note: how temporary can a supply shock inflativo which seems to derive from premises of a decidedly structural nature? But above all, what will happen to prices, sales revenues and company margins if the first manufacturing on the planet operates 2 days a week between now and March.
To which a personal reflection on the recent trend of stock market and its possible future developments.
a bull market sustained as the one we have had since March 2020 does not go through periods of significant corrections if there are no structural changes in: growth in corporate profits, inflation (and therefore an increase in the same, which is incorporated into the interest rates) or monetary / fiscal policies (see tapering, increase in reference rates, increase in taxes and so on).
If one of these three engines stops, history teaches that the plane usually stall. What happens if all three stop at the same time?
Winter is coming my friends…e c’è carenza di gas