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Affinity Policy Comment 9 september 2024

Shifting Centre Of Gravity

Following a strong Q1, Chinese economic activity lost momentum again during early spring and into the summer. PMI for manufacturing, as well as for the service sector, fell back and the construction sector continued to struggle severely. On the demand side, exports performed well in the beginning of the year but are losing some momentum. Most importantly, though, the housing crisis continues to weigh on the economy, with new home sales staying close to recent lows of around 45 per cent lower than pre-pandemic levels. House prices also keep declining at an annualised rate of close to 10 per cent. With a lot of household wealth tied up in housing, household confidence has remained at a historical low. Consequently, household consumption growth remains weak, with retail sales only growing by 2-3 per cent on an annual basis. Large-scale green investments in solar, wind, batteries, EVs etc. are underpinning growth.

The epicentre of China’s economic crisis is the housing market and, until policymakers manage to stabilise housing, the economy will struggle. More measures were launched in the first half of the year, such as further reducing required down payments for house purchases and the government setting aside money for buying up empty homes, but there are still no signs it is having the desired impact. An accurate analogy would be that if one were to start a fire with logs that are wet, they will need a substantial amount of fuel, and so far, it is evident that China is not using enough of it. There is a chance that China will launch yet another round of measures over the coming months to turn the crisis, which should be able to provide a small lift to growth again. But until there are more clear signs of a change in the willingness to take much stronger measures, China is likely to remain in a ‘muddling through’ scenario with growth just below 5 per cent, primarily driven by state support.

In July, China held its so-called Third Plenum, which is held every five years and outlines reforms for the next five years. At its conclusion, China vowed to increase the leverage of the market, opening it up further, making a fiscal reform that moves more of the burden to the central government, and taking steps to underpin urbanisation, and thus housing demand, by removing the so-called Hukou system, which ties rights to social services to people’s place of household registration.

A strong focus on technology, education and easing childcare costs was also outlined, the latter to increase the birth rate. A retirement reform could also be coming, aimed at easing the decline in the labour force in the coming decades. While the plan contains many positive elements, the ‘proof is in the pudding’ and the results will depend on China’s ability to follow through with implementation.

China remains in a monumental structural transition to reduce reliance on housing as a demand driver and policymakers aim for an economy where growth drivers are instead high-tech investments, upgrade of manufacturing, green investments and private consumption. The transition appears to be set to weigh on growth in the next couple of years with household confidence staying low due to the weak housing market. In the long term, China could come out stronger, but the path is set to be long and bumpy. The long-term growth potential also faces headwinds from a falling working age population, Western tech sanctions and lower foreign investments. More reforms, a low GDP per capita, as well as a strong focus on education, innovation, and tech, should underpin China’s growth potential.

Risks remain in the form of trade tensions between the EU and China, which have carried on over the summer, with the EU implementing higher tariffs on Chinese goods and China being in the process of several anti-dumping investigations of certain EU products, such as pork and brandy. While there is a chance that these tensions will continue in the years to come, it remains to be seen whether they will evolve into a real trade war, especially given how reliant the EU is on Chinese goods. It is a risk, though.

On the other hand, a US-China trade war is a strong possibility if Donald Trump wins the US election in November, although President Biden continues to implement increasingly protectionist policies, something which Kamala Harris may continue should she win.

Geopolitical tensions around Taiwan and the South China Sea are also set to remain for the foreseeable future, meaning that the outlook remains uncertain.


Affinity Research LLP

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  • Carbon

    Carbon

    Using tailored analytics platforms, we offer client-specific advisory and trading services across the global carbon markets. Contributing to hedging strategies, sustainability reporting and financing requirements, our aim is to assist clients in managing their financial exposure to the approaching energy transition.

    Contact: Hugo Wilson
    [email protected]
    +44(0)20 3142 0121

    Dry Cargo

    Dry Cargo

    Our dry bulk chartering teams in Sydney, Melbourne, Perth, Santiago, Lima, Montevideo, Buenos Aires, Singapore and London are cargo-focussed and they fix voyage, COA and time charter business on behalf of their clients with a wide range of ship owners.
    For Atlantic business please contact Hans Bredrup
    For Pacific business please contact Rahul Khanna

    Contact: Hans Bredrup
    [email protected]
    Contact: Rahul Khanna
    [email protected]

    LNG

    LNG

    Our young and dynamic LNG team possess wide-ranging experience of spot and term charters working with all major LNG shipowners and charterers. The LNG team has close interaction with the Newbuilding and Sale & Purchase divisions with an unrivalled track record of contracting LNG newbuildings and in the sale and purchase of LNG assets.
    We maintain up-to-date knowledge and an understanding of new technologies within the LNG sector to ensure that our clients can make the most suitable and cost-effective decisions on shipping solutions.

    Contact: Joni Mackay
    [email protected]
    +44(0)20 3142 0133

    Newbuilding

    Newbuilding

    Our Newbuilding team has concluded over 500 newbuildings of all types, including LNGCs, FSRUs, drillships, crude tankers, product tankers and dry cargo vessels. We have contracted in all major newbuilding centres globally, with particular focus on the Korean Shipyards.

    Contact: Nick Wood
    [email protected]
    +44(0)20 3142 0111

    Offshore

    Offshore

    Affinity Offshore is based out of our Oslo and Houston offices. The Team focuses on world-wide sale & purchase of offshore support vessels, as well as chartering – particularly in the Americas and Mediterranean/MENA regions.

    Contact: Tor-Øyvind Bjørkli
    [email protected]

    Research

    Research

    Our research department combines real time market information with econometric modelling and the latest technology. 

    Contact: Sevita Kondyliou
    [email protected]
    +44(0)20 3142 0182

    S & P

    S & P

    Our Sale & Purchase team has extensive experience of working with private clients, national shipping companies, major corporates, oil companies, grain houses and institutional investors. We provide a cradle to grave services across all shipping sectors. We operate from London, Singapore and Seoul to give 24-hour coverage of the markets, working for both newbuilding and second-hand buyers.

    Contact: Tom Morrison
    [email protected]
    +44(0) 20 3142 0128

    Tankers

    Tankers

    Our established tanker chartering teams serve the industry from London, Houston and Santiago delivering a highly proficient spot chartering service with a prime position in the fuel oil market. The team has close relationships with oil majors, national oil companies, oil traders and major ship owners and operators. 
    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

    Contact: Tim Gurdon
    [email protected]
    +44(0)20 3142 0142

    Valuations

    Valuations

    We provide transparent, objective ship valuation service to major owners, banks and other financial institutions at short notice and a daily basis. We provide a retainer service for regular fleet valuations.

    Affinity Valuations Limited Terms of Business

    Contact: Stuart Morrison
    [email protected]
    +44 (0)20 3142 0144

    Carbon

    Using tailored analytics platforms, we offer client-specific advisory and trading services across the global carbon markets. Contributing to hedging strategies, sustainability reporting and financing requirements, our aim is to assist clients in managing their financial exposure to the approaching energy transition.

    Contact: Hugo Wilson
    [email protected]
    +44(0)20 3142 0121

    Dry Cargo

    Our dry bulk chartering teams in Sydney, Melbourne, Perth, Santiago, Lima, Montevideo, Buenos Aires, Singapore and London are cargo-focussed and they fix voyage, COA and time charter business on behalf of their clients with a wide range of ship owners.
    For Atlantic business please contact Hans Bredrup
    For Pacific business please contact Rahul Khanna

    Contact: Hans Bredrup
    [email protected]
    +56 99 887 3036
    Contact: Rahul Khanna
    [email protected]

    LNG

    Our young and dynamic LNG team possess wide-ranging experience of spot and term charters working with all major LNG shipowners and charterers. The LNG team has close interaction with the Newbuilding and Sale & Purchase divisions with an unrivalled track record of contracting LNG newbuildings and in the sale and purchase of LNG assets.
    We maintain up-to-date knowledge and an understanding of new technologies within the LNG sector to ensure that our clients can make the most suitable and cost-effective decisions on shipping solutions.

    Contact: Joni Mackay
    [email protected]
    +44(0)20 3142 0133

    Newbuilding

    Our Newbuilding team has concluded over 500 newbuildings of all types, including LNGCs, FSRUs, drillships, crude tankers, product tankers and dry cargo vessels. We have contracted in all major newbuilding centres globally, with particular focus on the Korean Shipyards.

    Contact: Nick Wood
    [email protected]
    +44(0)20 3142 0111

    Offshore

    Affinity Offshore is based out of our Oslo and Houston offices. The Team focuses on world-wide sale & purchase of offshore support vessels, as well as chartering – particularly in the Americas and Mediterranean/MENA regions.

    Contact: Tor-Øyvind Bjørkli
    [email protected]

    Research

    Our research department combines real time market information with econometric modelling and the latest technology. 

    Contact: Sevita Kondyliou
    [email protected]
    +44(0)20 3142 0182

    S & P

    Our Sale & Purchase team has extensive experience of working with private clients, national shipping companies, major corporates, oil companies, grain houses and institutional investors. We provide a cradle to grave services across all shipping sectors. We operate from London, Singapore and Seoul to give 24-hour coverage of the markets, working for both newbuilding and second-hand buyers.

    Contact: Tom Morrison
    [email protected]
    +44(0) 20 3142 0128

    Tankers

    Our established tanker chartering teams serve the industry from London, Houston and Santiago delivering a highly proficient spot chartering service with a prime position in the fuel oil market. The team has close relationships with oil majors, national oil companies, oil traders and major ship owners and operators. 
    Our ethos for operations and post-fixture is simple: these roles are as important to us as the chartering/commercial function, and we continue to apply those same principles of professional ship broking throughout the life of each fixture.

    Contact: Tim Gurdon
    [email protected]
    +44(0)20 3142 0142

    Valuations

    We provide transparent, objective ship valuation service to major owners, banks and other financial institutions at short notice and a daily basis. We provide a retainer service for regular fleet valuations.

    Affinity Valuations Limited Terms of Business

    Contact: Stuart Morrison
    [email protected]
    +44 (0)20 3142 0144

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