*
Pat had seen the bad news coming. The collapse of commodity prices was a harbinger of things to come as China’s economy slowed. An economic model in the throes of change as production exceeded export demand. Where the only alternative outlet was to develop the domestic market, increasing home consumption of both goods and services.
The problem was China’s domestic market had, at least for the moment, not responded to the change, and as no other market was available to pick up the slack, the outlook was negative.
The generally held consensus that billions in the developing world would soon attain middle class purchasing power far off the mark. To start with India was no where near catching up with its neighbour, and those regions of the world that had looked so prosperous exporting oil and commodities to a previously booming China were now in the dumps.
The idea that China’s boom could go on forever, drawing developing nations along in its slipstream, requiring unprecedented quantities of raw materials, had created the lure of huge profits, driving oil, copper, iron ore and cotton prices to all-time highs, leading to a headlong stampede to invest in the production of commodities.
It was the definition of middle class that posed the question. If one listened to the experts, the majority of the Chinese population, according to their definition, had reached middle class status. However, most of those, as well as those in the developing world, that is eighty percent of the world’s population, had incomes below that of the US poverty line.
In all it was a distorted vision since from a global view nearly ninety percent of those living above that strict definition of the poverty line lived in the US and Europe.
Whatever, the supposed Chinese middle class was clearly incapable of absorbing the massive oversupply of raw materials produced thanks to Western investment and debt encouraged by easy money and low interest. The printing of trillions of dollars, euros, yen and pounds had created a massive commodity bubble that overflowed into financial and property markets, creating a fugacious wealth effect.
The revenues of Brazil, Chile, South Africa, Asia, Australia and Russia collapsed as their mountains of unsold iron ore and copper grew and their miners faced the spectre of bankruptcy.
For a few the collapse of commodity prices brought a welcome surprise, amongst them was owners of INI Hong Kong, who looked on with undisguised schadenfreud as City & Colonial, nine months after grabbing control of INI London, found itself on the end of a sharp hook.
Hard hit by the stock market rout in China and its investments in commodities, more precisely its interest in Glencore, whose share value had fallen a backbreaking eighty percent, City & Colonial was forced to restructure its holdings and consolidate its market position after the bank’s commodity trading unit incurred massive losses.
Cornucopia Page 108