Summary of Article
Last month, China’s government lowered its official GDP growth target to 7.5 per cent from its previous long-standing target of 8 per cent – which would represent the slowest annual growth in the Chinese economy since 1990. The statistics showed that the significant role China‘s suddenly uncertain economy is playing in the fate of financial markets in the coming months. Some key factors in a Chinese slowdown and these might matter most for the markets. The biggest risk facing China’s economy is a housing market meltdown. Market analysis expects total price declines in the 20-30 percent zone. The exports in European market which accounting for about 20 percent of all Chinese exports decreased sharply. Shipments are down 1.1 percent year-over-year.
Part 2
Analysis of Concept
This article reflects the concept of international pricing issues. Companies with production or assembly facilities in other countries find it easier to respond to fluctuations in exchange rate and cost of inputs. This is because they are able to supply from a variety of sources rather than simply one source and can source from the plant in whichever country offers the greatest competitive advantage at a particular time. China has the advantage of lower labour cost for a long time so foreign companies tend to locate their manufacture factories in China. Thus, the economy change within China will affect the supply chain network in the international business. New site selection will be launch by foreign investment companies.
Part 3
Opinion / Vision (Future projection) on effects
For most major commodities, China leads the source for demand growth. Any hiccups in China’s growth pace would a big deal to commodity markets and also to Canada’s stock market. In the supply chain network, many companies will consider move their manufacture factories and assembly facilities to a new market such as Vietnam, Mexico and India. The continuous increasing of oil price will lead to much more expensive of the transportation cost. The saving of labour cost cannot exceed the saving of transportation in some cases. In addition, the inflation rate in China and increase of RMB exchange rate to US dollars also has impact on the investment cost in China.
Thus, international sourcing will become more severe in the future and many investors will carefully considering their plants’ location. Like Stephen Maurer, a managing director at AlixPartners said “We are not going to bounce back to peak levels of consumption anytime soon, and most manufacturers can’t wait five years. It’s time to make those structural changes.”