That great sucking sound...

Remember that great sucking sound heard across Asia over the last few years? Of manufacturing jobs flying into China from Asia, and indeed the rest of the world? Well, Dong Tao of Credit Suisse in a short note this morning (will expand on it more later, I expect) is calling "The beginning of the end of an era – troubled export sector" - his key points are that the new labour law will further hurt competitiveness, adding to the existing pressures on exporters such as surging wage costs, currency appreciation, high material/energy prices, and reduced tax rebates. The hit is more likely to be felt in the Pearl River Delta (~ around HK) than in the Yangtze River Delta (~ around Shanghai,) and among Japanese and Korean companies with manufacturing there than by H-shares. Conclusion?

"The rising wage rates and improved labour right is bad for capitalists and export sector, but positive to workers and domestic consumption. We see the economy leaning towards domestic sector over the next decade, perhaps with slightly slower growth but better quality of growth."

So, find China domestic consumption plays for your long term long positions... A bit obvious, actually!

(... but I may try and come up with a short list of possible plays in the coming days/weeks.)




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I think I've sorted how to include links from CS. Here's Dong's April 2nd note on inflationary risks in China - particularly worrying rise input costs, and clearly colouring his view on export competitiveness, above.