Goldmansachs 2013-06-13 the Consequences of China’s Price Discovery Essay

13838 WordsJul 3, 201356 Pages
Equity Research Fortnightly Thoughts June 13, 2013 Issue 56 The consequences of China’s price discovery From the editor: In this issue we tally the rising cost of growth in China and Asia, which is hurting profits and returns. We also look at who needs China and who China needs. Plus, we interview eminent investor Stan Druckenmiller, Gordon Orr of McKinsey and Professor Victor Nee of Cornell University and have a rich seam of content from our analysts. The fact that costs are rising in Asia isn’t that surprising, but the breadth of it is. This goes beyond labour, land and real estate to environmental, regulatory and capital costs. For China the challenge is perhaps the most acute since this is coupled with fragmented, intensely competitive industries, which implies pressure on returns. In this sense, the sweet spot may have passed for many companies. We try to boil down the multiple consequences of a changing China to two questions - who does China need? And who needs China? The answer to the first is solution providers to the rising costs and constraints (e.g. energy efficiency, food science, shale expertise). Second, for those who need China for either low-cost goods or capital (i.e. debt heavy, consumption-driven economies) or to buy hard commodities, the future may be tougher, while those who rely on China as a source of export growth need to ensure that domestic competition won’t undermine them (e.g. Germany, Sweden). China’s rebalancing impacts the region as well; countries that compete with it and countries that want to emulate it will need to re-adjust. What’s inside China’s price discovery: our lead article on the consequences of China’s cost inflation An interview with... Stan Druckenmiller, Chairman of Duquesne Family Office An interview with... Gordon Orr, Chairman of McKinsey Asia The changing nature of China’s growth: Richard Manley on

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