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Lot of discussion has been circling regarding weakness in Chinese economy, hard landing of Chinese economy, bubble burst China and so on. I also wrote a few many articles along those lines, however it is also vital to recognize some contrarian views considering longer horizon, taking a break from regular cynicism and criticism.
And Nike's sales report is a good place to start.
- In 2014, China (mainland), Hong Kong and Taiwan accounted for 10% of companies overall sales.
- While this year lot many companies reported contraction of business in China, sales of Nike soared 30% in first quarter of current financial year.
- Is it one time effect - Oh! No! - Future orders rose 27%, fastest pace among all of its markets.
Sure we would like to believe in the magic of Nike.....but that can't be alone....China's isn't dead...like many would have had us believed......economy may not be roaring....but it seems to be humming fine.
There are lot of happenings in China -
- It is facing bigger problem of outflow of money and trying to maintain a peg, which causing heavy pressure on its large FX reserve.
- Chinese corporates have gobbled up more FX and domestic debt than they can actually return.
- Government is pursuing reform and rebalancing that is now leading to China consuming much lesser commodities (steel, copper) than it used to.
However blaming China alone for all of the current crisis would not only be short sighted it would be of very less merit.
- Corporates have actually built up excess capacity, foreseeing China's gluttony for commodities.
- Banks have financed these investments.
- But China can't be blamed alone, demand has slowed down globally.
China in the short term may slow down further, which may lead to further rout in commodities as Chinese producers send their surplus across but it can be said with full certainty that Chinese economy which has grown to be $10 trillion is unlikely to die down.
It is more likely that Chinese slowdown will turn the corner at one point and all will have to regret those who miss the change in tide.
