Eq: EMs
As the US’ ties with China have continued to devolve and labour costs have soared there, American companies have been fleeing manufacturing in China in favour of Mexico. Prices, quality, and speed are the major motivating factor for companies looking to move their manufacturing out of China. Over the last three years, Mexico has seen its trade with the US grow by 30%, a pace not seen since the introduction of NAFTA in the 1990s. Overall, Mexico’s share of the US import market reached 14% in 2013, while China’s declined. Interestingly, American companies shifting business to Mexico also comparatively boosts the US’ domestic economy. Long-term analysis has shown that neighbouring countries tend to share production to a much higher degree than distant countries. For instance, 40% of the all the goods imported from Mexico had American manufactured parts in them, compared to just 4% from China. However, despite all the optimism, many US businesses are having trouble locating appropriate facilities as they have found the Mexican market fragmented and highly divergent in quality and infrastructure.
FINSUM: This seems like a win-win situation for the US and Mexico as it helps both economies. Further, the closer-to-home production helps lower carbon emissions domestically and globally.
In this article, Gavyn Davies of the Financial Times examines the prospects of a Chinese property crash and its impact on the global economy. Davies uses larges amounts of data on China’s property sector, which currently accounts for 16% of the country’s GDP and compares it to the size and scale of the US’ property-induced crash of 2008. Ultimately, the piece argues that a decline in China’s property sector would not lead to the same level of widespread downturn as happened in the US, but that the effect would be large, up to 4% of GDP spread over three years.
FINSUM: This is a solid and informative piece, but it misses the mark in considering the vast knock-on effects of a crash in the property market. The slowdown in building caused would shutter many highly indebted construction companies, and the GDP contraction it would stimulate would then likely lessen the massively indebted Chinese corporate sector’s ability to repay their debts, in turn bringing down the shadow banking market.