They believe that the installation of a cohesive Chinese leadership committed to putting the
economy on a more sustainable footing would create opportunities for consumer goods producers while also signaling an end to the global commodity boom. They feel that the alternative is not more of the same but a further slowdown in China’s growth that would hit the emerging world much harder.
With the week long CPC starting tomorrow, it has been noted that despite the furor, little has changed. However, the team feel that China’s leadership transition could end up having a far bigger impact on the emerging world as China is now the major export destination for many emerging economies. However at the root of this demand surge have been two trends, neither of which looks likely to continue.
Firstly, was China’s integration into global production chains which boosted its imports of components and the capital goods needed to assemble them. Weaker global demand and the sheer scale of China’s existing market share means this era is drawing to an end.
Second is the role of investment in China’s growth, which has pulled in commodities and pushed up their prices. The strains in this model are becoming increasingly clear. Overcapacity is a major concern in manufacturing; China faces a property glut if real estate investment does not slow down.
The new leadership in China will determine whether China successfully steers a path away from investment and exports towards consumption led growth. The team notes that it won't be know for a while how effective the new leadership will be in engineering this transition but regardless of its success, its efforts will undoubtedly have a strong effect on the emerging markets in trades with.