China's export hub in recovery, uncertainties remain0 CommentsPrint E-mail Xinhua,
November 8, 2009 Adjust font size: As the world economy shows positive signs of recovery,
Guangdong Province, an export hub in south China, is also stepping out of the shadow of
the global financial crisis, with insiders and experts still warning of uncertainties.

In September, the province's total imports and exports were down 8.3 percent year on year
at 60.6 billion U.S. dollars, but the rate of decline was narrowed below a double digit
for the first time this year, according to the local customs office.

It was also the first time monthly imports and exports topped 60 billion U.S. dollars in
value this year.

"We can say the decline rate now has been narrowing. It is not going down as sharply as
the fourth quarter of last year," said Cai Kang, vice director of the Bureau of Foreign
Trade and Economic Cooperation of Dongguan City, one of the province' manufacturing
centers.

That achievement could be partly attributed to the local government's proactive measures
aiming to stabilize exports while optimizing environment for businesses in face of weak
foreign demand, he said.

However, Xiao Zhenyu, a government official in charge of foreign trade in provincial
capital Guangzhou, only expressed cautious optimism.

"Despite encouraging statistics, we are far from being assured that foreign trade recovery
has gained a solid foundation," he said.

"Although foreign demand has increased for some products, the general situation shows few
signs of increase," he said.

The Chinese central government's judgment of the current global economy is also cautious,
saying that the global recovery would be a slow process, according to the State Council,
the cabinet.

Some local companies have been altering their business strategies, including diversifying
products and shifting exports to the domestic market in order to survive the global
downturn.

The Real Faith Group in Foshan City, a company that used to focus on shoe exports, closed
all but one of its shoe factories, and shifted its primary business to LED (light-emitting
diode) sales.

"We had transformed from a shoe factory to an LED manufacturer in the crisis. We own the
intellectual property of our product. This helped us develop the Japanese market," its
manager Wan Xiaocheng said.

This could be an industrial readjustment some experts are calling for.

Xiang Xiaomei, director of Institute of Industrial Economy of Guangdong Social Sciences,
said it was internal restructuring that helped some foreign trade companies survive and
regain orders.

"Without thorough structural readjustment, the future of foreign trade will still be at
hazard," she said.

Cai Kang said most the foreign trade companies in Dongguan nowadays are the ODM (Original
Design Manufacturer) models instead of the traditional OEM (Original Equipment
Manufacturer) models. Some are even trying to transform into OBM (Original Brand
Manufacturer). He said the government needs to play a role in guiding this shift.

Cai said the government is encouraging industrial readjustment and upgrading, but it is
the companies that will make the decision.

Paddy Textile, an OEM in Zengcheng City under Guangzhou, lost 80 percent orders in a
single month tracking the financial crisis.

"Workers wanted to quit because wages slump," said Zhong Qiyun, the company manager. "But
we didn't lay them off or shut down any of the product lines, because we want to manage
through the crisis."

"This month the number of purchase orders has returned to the level in last June when
crisis was still on the way," he said, adding the company has also shifted its major focus
from overseas markets to domestic ones.

Paddy is lucky one among the 3,000 struggling clothing companies in this small city.
Compared with the bankrupt ones, it has managed through the worst of the crisis.

But asked about industrial transformation, Zhong said that was not on his mind. "Thirty
years ago, Hong Kong faced the same problem. There were thousands of garment manufacturers
there, but how many can become big brands? The chance is too small."
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From the Great Across the Curve.."..In an earlier post I noted that the yield curve had
steepened to near record levels with 2year/10 year at 270 basis points and 2year/30 year
at 360 basis points. Each of the spreads has retraced some ground and each is 4 basis
points to 5 basis points narrower now as I write.

One salesman noted two factors at work which influenced the yield curve. He noted that
there had been some rate locking early in the day which had would have steepened the yield
curve.

Additionally, (and I was away from Across the Curve HQ so I was unaware of this) President
Obama spoke about the economy near midday and some bond market participants thought that
with the unemployment rate surging to double digits that he might drop the dreaded second
stimulus bomb. That fear resulted in expanded worries regarding Treasury supply and
pressured the long end.

But alas that never came to pass and that source of pressure on the long end dissipated
quickly as participants could see no reason to be short the back end of the market at
nearly the widest spreads since the dawn of time.

David Ader of CRT makes some interesting points in his weekly piece and they are somewhat
deflationary points which would augur against being short the long maturities.

He notes the dip in the non manufacturing ISM earlier in the week.

He also notes the surge in Productivity and the sharp decline in unit labor costs reported
this week.

The unemployment rate has surged to 26 year highs and the workweek has dropped. At the
same time the duration of unemployment is extending.

All of the above is bond friendly stuff and should make one think twice about holding a
large outright short or a large position long the yield curve.

Another salesman and friend of the blog pointed out that in the last several cycles of
Treasury supply the back up for the supply comes on the Thursday and Friday in advance of
the auctions and when the auction cycle commences the following week each auction goes
quite well with minimal market disruption.

I would place myself in that camp and think that most of this back up in rates and
widening of spreads is motivated by the heavy supply calendar by my new friends at the
Treasury Department. (After meeting them I feel I can not refer to them as Timothy
Geithner and his minions.) however I refer to them they are issuing record buckets of paer
and it is causing a little fiancial agita.

The yield on the 2 year note has declined 2 basis points to 0.85 percent. The yield on the
3 year note has slipped 3 basis points to 1.36 percent. The yield on the 5 year note edged
lower by 3 basis points to 2.31 percent. The yield on the 7 year note declined 3 basis
points to 3.02 percent. The yield on the 10 year bond edged lower by a solitary basis
point to 3.51 percent. The yield on the Long Bond bucked the trend and increased a basis
point to 4.41 percent.

The 10 year 30 year spread widened 2 basis points to 90 basis points.

The 2 year/10 year spread widened a basis point to 266 basis points.

The 2year/5 year /30 year spread is at a recent wide of 64 basis points. It began the
session at 60 basis points.

TIPS spreads do not believe the disinflation story and I would fail to inform my readers
of that. Ten year TIPS are currently at a breakeven spread of 217 basis points.Just prior
to the FOMC statement the breakeven was 209.

Thirty year TIPS are in the same arena with the breakeven spread at 239 basis points. Just
prior to the FOMC proclamation that spread was 229 basis points.

I believe that in each instance we are at the widest levels of the year. The FOMC has
mentioned in its minutes that it does observe indicators of inflation expectations. This
is one of those indicators. However, the FOMC has also disparaged the signals emanating
from the TIPS market as the market is somewhat illiquid.

Illiquidity might matter for the short run but with the long term trend moving wider the
FOMC might at some point be force to pay the TIPS indicator some heed.

Market is overbought at this point and I would expect a pull back Mon/Tues....not sure who
was buying at that one fibo level, but it was too clean so it had to be program trading
holding up the market going into G-20 it appears. Bond Auctions will be the story, imho,
even though Feds won't raise for awhile...we could see the T's doing it for them.

Val...lol...Very true..I get so caught up watching the Asia then Europe market that I just
really don't want to sleep...yet, I seem to always crash about 2-3am (the time you are
getting up, lol) and then wake up four or five hours later going OMG I am missing
EVERYTHING...the only good part of it all is that first hour is so crazy anyway that it is
easier market seeing how it shook out.....I just have to get in the habit of recording the
asia/europe...go to bed early and wake up about 3:00 and watch it into the open...that
could work?? Maybe when I get a bit better at all of this.

SUSUANNE:
THANK YOU!
Keep up the good work!
When I wake up in the middle of the night - as I always do at like 2 a.m. - I check out
your forum. Maybe this is why you oversleep so much - up too late catching the overseas
action!

Val, Still in Training...have a 1/2 run set...my time needs to get better....For the
boxes...simple...just copy whatever you want to post, if it from a newsource you should
have it' name in it...like bloomberg, etc...many of my post are the actual Govt reports
released.....then go to this box and hit paste....BUT once you do that you can not edit
it...you just have to submit it...hope this helps? BTW I do that cuz for me it's a way to
find all the reports I need to look at in one big file...and it takes ZERO ROOM or printer
ink to do so and saves paper.

Susanne,
When you get a chance, can you please tell me how to copy stories into these little boxes
like you do? I have no idea how to do this. It's a good practice for me to edit my own
prose into the boxes but frustrating when I want to run a longer story. How did your
marathon attempt go? Kudos to you for getting in shape for it. I am getting ready to play
"senior" ice hockey. As long as I'm padded I should be fine, lol. Thanks for your help.

Silly day, will digest data this weekend....grade is C cuz I overslept and hung out at you
tube...for positions AUY 2.38%, DRR .06%, FXP -.12 and SMN -.48....Have a GREAT WEEKEND!!!

I wonder if it is the PPT team being the buyers at the 610MA fibo level today? It is
really strange...

Next week the US GOVT isn't going to be buying in the bond auctions...and we are setting
up a lot of paper to be sold.....OMG, I have no idea who would be a buyer of this market
at this moment...totally escapes me.

Last edited on: 11-06-2009 03:47 pm