When China’s economy hiccups, world economies get the jitters

When China’s economy hiccups, world economies get the jitters

The Chinese economic dragon, on a rampage that seemed never-ending as its low wage manufacturing attracted billions of dollars from the U.S. and other countries, is now undergoing something of a reality check.

Nothing lasts forever — something farmers know all too well as they continually deal with market ups and downs — and China’s boom took a nosedive recently, wiping out billions in equity on the Chinese stock exchange. Chaos theory come to life, it caused jitters that rippled through the world’s major markets.

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“The Chinese exchange is the largest equity exchange in the world,” veteran cotton analyst O.A. Cleveland, Jr., said at the joint annual meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau Federation Cotton Policy Committee. “What happens in China moves through all the world’s major economies. And a setback in that economy makes the situation in Greece look small potatoes.

“It compounds, confuses, and exacerbates the complexities of trading around the world. We are a global economy, and anytime you mess with a major global player, it affects your pocket.”

The China/Greece economic woes tend to push up the value of the U.S. dollar, he says, as capital seeks stability in a strong currency. “But, a stronger dollar also makes it more expensive for cotton’s foreign customers to buy U.S. fiber, either raw cotton or cotton yarn for spinning. As the value of dollar goes up, cotton exports go down, soybean exports go down. If foreign customers can’t pay, we can’t export, carryover goes up, price goes down.”

For the past five years, China’s textile industry has been undergoing a transformation, Cleveland notes. “They used to spin all their own yarn; now, because of tariffs and fees on imported raw cotton, they’re importing more and more cotton yarn because that has no tariff. Two new mills have been built in the U.S. by Chinese money. They spin fine count yarns, ship it back to China to make apparel, then ship the finished apparel back here.”

Vietnam has become the No. 1 customer of U.S. cotton, he says, “and that textile industry has been built solely with Chinese money. The Vietnam mills spin cotton into yarn and send it back to China.”

 

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