China’s latest export – panic

If you have been on holiday this week on a sun-kissed, internet-free tropical island you may not have noticed that the news coming out of China has not been good. Indeed, it has been a wake up call for those observers who have not paid close attention to the various statistics that the Chinese economy offers as a measure of its activity. There may be some lessons in this for the global pig industry.

Shanghai IndexWhat’s all this panic noted in the Blog’s headline? Surely, we just need to keep calm? For those who have been on holiday I summarize: stock markets across the world have dropped like stones in sympathy with the plunging Shanghai stock exchange. TV pundits and commentators in the press then decided, in an untypical moment of analysis, that the Chinese economy was not growing at its officially declared rate of 7% per annum. All of a sudden the news media was full of the “real” statistics that describe an economy – like car sales, the demand for smartphones, factory orders and output, shipping rates, and the prices of raw materials like iron ore, cement and copper. Without any sense of irony reporters are now observed proclaiming that shopping malls in China do not look quite as busy as they used to be. Panic is the new export  from China.

Every crisis (panic) is also an opportunity so, what can the pig industry learn from this?

The data now being quoted as measures of “real” economic activity in China place Chinese GDP growth at 5% or less. Some estimates have Chinese economic growth as low as 3-4% or half the official estimate of 7%. I remind you that these, lower, calculations are made using raw data i.e.they have not been massaged or “rounded” by any official agency in China. A lesson that the global pig industry can learn from this is that the effective demand for imported pork in China in 2015 may not be quite as strong as some thought back at the beginning of the year. This is an indirect effect on the global pig industry of the slowdown in the Chinese economy. Chinese consumers may, literally, tighten their belts in 2015. There is also  a second, more direct, supply effect that comes from the answer to this question – is there another official statistic in China that might not be all that it seems? My suggestion would be that the Chinese hog census numbers, like the official Chinese numbers on economic growth, may not be “robust”.  The cutback in the Chinese breeding herd is widely quoted as being around 16% but where is the independent check on this number? Which raw data can be used to verify this figure – and who has ever conducted a verification? Does anyone know an analyst that has looked at the Chinese hog survey procedures and  done an independent audit?

Why does this matter?

Well, in 2015, a lot of pork exporters in the West are being told that the cutback in the Chinese herd offers a huge market for them in the second half of 2015. But if the Chinese hog census estimate is not accurate then stand by for another panic being exported from China – this time it will be aimed directly at the global pig industry.