Clouds Over China (?)

What goes up must come down. There is a saying in German,”The trees are not growing into the
skies.” It means there is a limit for everything.

This old expression has some truth in it. In the past few decades, the Chinese economy has
soared to unbelievable heights. In spite of all the financial trouble in the years 2008 to 2010,
there was no sign of any problem for the Chinese economy. Growth rates of more than 8 percent per
annum were just business as usual. Western countries have even accused China because it has a
strong currency — the renminbi, or yuan. The strong renminbi has allowed Chinese companies to go on
a shopping tour in the West and to buy strong brands — particularly in the textile industry.

However, in early June 2012, some negative news for the Mainland appeared in some important
financial newspapers and TV networks. The second quarter2012 gross domestic product dropped for the
sixth time in a row and broke the critical barrier of 8 percent, going down to 7.6 percent.The last
time this happened was more than three years ago.Now, other countries would be more than happy to
reach such growth rates, but for China, this is bad news. After years of unlimited growth, the
Chinese economy is having problems like any other developed country -—such as soaring credit
growth, strong inflation rates and an exploding real estate market. Domestic demand has dropped as
well,not only export demand. As one of the actions to stimulate the markets, the Central Bank of
China reduced the prime rate by 25 points. However, many exhibitors at ITMA Asia +CITME 2012, held
recently in Shanghai, declared that this measurement did not show any effect in stimulating
postponed and new contracts.

Nevertheless, China is still the biggest market for textile machinery, and the need for
first-class production machinery will come back. Another action could be that the state-owned
companies will be privatized and start to work like any other independent company, leading to the
establishment of a true macroeconomy. These are interesting times in China, but the clouds will
disappear soon.

July/August/September 2012