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The Rupp Report

The Rupp Report: ITMA Asia + CITME Yes, But What About China's Economy?

Jürg Rupp, Executive Editor

At the moment, the fourth edition of ITMA Asia + CITME is taking place June 16-20, 2014, at the Shanghai New International Expo Centre. This event, with the participation of more than 1,550 exhibitors from 28 countries and regions, will be the biggest ITMA Asia + CITME show since it debuted in 2008. The 2014 exhibition is expected to be some 15 percent larger than the last edition in 2012.
 
Impact On The Future
Without any doubt, the outcome of the event will have an impact on the future of the global textile machinery industry, particularly for the big labels in Europe, the homeland of the European Committee of Textile Machinery Manufacturers (CEMATEX) countries. In spite of all the troubles and rumors, ITMA Asia + CITME is the major event among all textile machinery shows in Asia.
 
For a very long time, China has been synonymous with a constantly growing economy, particularly in the textile and apparel industry. The Rupp Report “Clouds Over China,” April 22, 2014, mentioned that “the decline of China’s gross domestic product (GDP) from 7.7 percent in fourth quarter 2013 ‘down’ to 7.4 percent actually is only a little below the targeted 7.5 percent. Due to the satisfactory employment situation, it is reported that the government doesn’t want to implement new short-term economic stimulus packages. On the other hand, weak capital investment growth and a sharp 25-percent decline in construction activities in the real estate sector in first quarter 2014 speak against a quick recovery. Up to now, China’s construction sector has been a reliable indicator of the country’s economic development and situation.” These facts could give the impression that China’s economy is rising up again. Or is this only an illusion? However, some questions about China’s economy in the near future remain. Here are some facts:
 
Exports Better Than Expected …
China’s recently released foreign trade data for the month of May shows some relief and a return to solid and sustainable growth on the export side; but declining imports indicate a latent economic downturn. In May, Chinese exports climbed slightly stronger than expected by 7 percent compared to the same month last year, and seem to confirm signs of an invigorating global demand. The consumer price index rose in May by 2.5 percent — the strongest rise in four months, China’s National Bureau of Statistics (NBS) commented in the publication of these results. In April, the inflation rate stood at 1.8 percent. Market experts anticipated an inflation rate increase of some 2.4 percent in May; industrial producer prices fell by 1.4 percent. This year, the government targets an inflation rate of some 3.5 percent. If the inflation rate is not more than 2.5 percent, this will give the government some room to support the economy and to prevent a sharp slowdown in growth.
 
China’s economy improved mildly in May as retail sales and industrial production edged up, although investment slowed slightly, the NBS informed. Retail sales rose 12.5 percent compared to the same month a year earlier to 2.12 trillion yuan, or US$341 billion. The pace accelerated from the 11.9-percent gain in April. Industrial production increased 8.8 percent, slightly faster than April’s 8.7 percent.
 
This could help the export world champion in the recent year to stabilize the economy in the year 2014. However, the Chinese import data provide a negative surprise in May: While experts and analysts had expected an increase of some 6 percent, imports fell by 1.6 percent compared to the same month last year.
 
Among the local augurs, the remarkable evolution of the imports is regarded as a sign of a latent weakness of domestic demand and a result of the ongoing economic slowdown. A currently sluggish growth in industrial production as well as the resulting rapid cooling down of real estate prices is reflected in the import flows.
 
… But A Cooling Down Of Construction Activities
This situation seems to be especially evident in the raw material sector, where restraint in the steel and building sectors has led to reduced imports of iron, coal and copper. This goes along with the fact that the May statistics show a strong limited growth in imports of raw material supplying countries such as Australia and Brazil. Some days ago, for the second time in two months, the People’s Bank of China said it will further cut the reserve requirement ratio for targeted banks, to support small companies and agriculture.
 
However, market experts expect a normalization of Chinese imports in the second half of the year. Experts predict that it then should also come back to a reduction of external surpluses of the foreign trade of China. In May, the corresponding balance reached US$35.9 billion, the highest value this year and almost twice as high as in April.
 
Lower Trade Deficit Of The United States
Looking at the other side of the Atlantic Ocean, China’s trade deficit with the U.S. currently amounts to some US$29 billion. Thanks to record exports of U.S. companies, the trade deficit in November 2013 dropped. The difference between exports and imports — or, the trade gap — fell 5.4 percent to US$40.6 billion, the U.S. Department of Commerce announced some days ago. Exports increased by 1.8 percent to nearly US$193 billion, while imports rose by 0.4 percent to US$233 billion.
 
Let’s Hope For The Best
Li Maoyu, an analyst at Changjiang Securities Co., recently stated: “China’s economy is stabilizing. After the pro-growth policies have deepened further, there will be more signs of recovery.” Let’s hope for the best. As ever, the textile industry is in the middle of all economical activities. The outcome of ITMA Asia + CITME will definitively show the path in the near future of the global economy in general, and the textile machinery business in particular. There is more to come about this issue in the following weeks and months.
 
June 17, 2014

 




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