If China Sneezes, Will Wichita Catch a Cold?

China is very much in the news and that news is worrisome for Wichita's economy.

The conventional wisdom among world economy watchers has been that while the U.S., the Eurozone, and Japan contract, the BRIC countries, Brazil, Russia, India, and China, will make significant contributions to global economic growth. The conventional wisdom took a blow this week. There were shocking reports that the Chinese economy is faltering.

Andrew Batson and Gordon Fairclough report, "Steep and sudden declines in China's imports and exports show the country's economic slowdown is entering a new and more serious phase -- exacerbating the global slump while challenging a generation of Chinese companies and workers used to steady double-digit gains in sales and salaries." David Winning provides more evidence: "China's monthly crude oil imports in November hit their lowest level this year, providing more evidence that a weakening domestic economy is translating into sharply reduced oil demand." Furthermore, he tells us, "Preliminary customs data Wednesday showed China imported 13.36 million metric tons of crude in November, equivalent to 3.26 million barrels a day. That's down 17.3% from October, despite a fall in crude oil prices over the month." Winning quotes "Paul Ting, an oil analyst who tracks oil trends in China, [who] said in a recent report that demand in China is now declining more swiftly than in the U.S., where oil use is falling at a pace not seen since the 1980s."




External demand has been driving the aircraft industry's prosperity. New orders made 2007 a boom year. Now things look quite different. Lex in The Financial Times reports:

"While all eyes were on Washington, Beijing was patching up gas-guzzlers of its own. On Wednesday night, China Eastern and China Southern, two of the big three state-owned airlines, announced equity injections from their parents. Both surged when they resumed trading yesterday after a fortnight's suspension. Air China was up too, in their slipstream.

"Fate has been dealing from the bottom of the deck for a while. This year alone, natural disasters and forced groundings during the Olympics have been compounded by a depreciating renminbi and huge wrong-way bets on fuel prices. China Eastern, the weakest of the three, admitted last month that fair-value losses from hedging surged six-fold in October, to almost $300m.

But while the help is welcome, it will not offset the airlines' main problem: flagging passenger and cargo revenues. Aggregate losses could top $800m this year. Admitting overcapacity for the first time, Beijing has banned new entrants to the industry until 2012 and is urging existing carriers to cancel orders. About 180 new planes are on order for 2009. This will expand the total fleet by one-seventh. At least 40 per cent of deposits on those orders have been paid, and penalties are probably too high for them to default on the remainder. Delaying delivery and letting aircraft moulder in manufacturers' hangars may not delight Boeing or Airbus but seems the smartest way to address falling loads and slashed fares.

"Textbooks say consolidation is the answer. But synergies from combining carriers across vast geographical areas with big cultural differences have never added up - Southern and Eastern, after all, are still integrating airlines they merged with six years ago. And Beijing, like Detroit, is still wedded to a vision of three big national champions bestriding the mainland - even if they are sustained by the drip-drip of state aid." -copyright, The Financial Times Limited 2008