As market researchers, a large part of our work involves scoping the economic conditions of nations for our clients. This is often done to investigate the market entry opportunities that might exist in a country, and whether those conditions (and others) favour further business development or are likely to repel against it.
Itâs with that backdrop that headlines such as "China’s Inflation Hits 11-Year High of 7.1%" appear alarming. Who, you might ask, would wish to start-up or expand into a country so obviously struggling with such macro-economic pressures? From the investorâs point of view, knee jerk connotations of increased costs and lower margins abound â How do we cope with the wage spirals and price expectations caused by inflation? Manufacturers may think âThisâll make our exports seem expensiveâ?, and so on.
Often, however, itâs worth looking at things in a little more detail, and viewing the situation in a fuller context: In the case of Chinese inflation levels, these have been exaggerated greatly by the unprecedented recent cold snap thatâs enveloped the country â with food supplies dwindling as a result.
Moreover, Swine disease has also decimated porcine livestock for the past two years. For a country that eats as much pork as China, a 58.8% year-on-year increase in prices for this kind of meat inevitably has a knock-on effect.
Thatâs before considering the fact that food products make up about a third of Chinaâs âbasket of goodsâ? (used in consumer price index calculations). This, added to short term supply issues, like the above, only further distorts the headline figures. In fact, non-food inflation rose by a whole 0.1% in January, to a not-so-whopping 1.5%.
Leaving aside these macro-economic considerations â while figures like GDP and inflation are generally good indicators of where a country is heading, they usually cloud a whole raft of opportunities that nonetheless exist. Tapping into these sorts of âhiddenâ? insights, therefore, can be of immense value. And itâs what weâre pretty good at doing.
Even if the Chinese inflation situation were a crisis (which it probably isnât), JFK couldnât have put it any better:
The Chinese use two brush strokes to write the word "crisis". One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity.
p.s. We wouldn’t be telling the whole story if we didn’t also point out that, morphologically speaking, the above quote isn’t entirely true – That doesn’t stop the sentiment being well-placed, though…
