Friday, January 29, 2010

Japanese Adapting To Chinese Religion

The economists at BNP Paribas run an interesting story about the Japanese machinery orders in the weekly "Market Movers".

Click on charts to enlarge, courtesy of BNP Paribas.

The message is straight forward:

China leads recovery in overseas demand

A closer look at the country breakdown of machine tool orders confirms that the drivers of overseas demand are the emerging economies of Asia. In fact, orders from Asia ex-Japan have been so brisk that December’s level was in line with the previous peak. Naturally, the most conspicuous strength is shown by China (whose economy in Q4 2009 surged 10.7% q/q, returning to double-digit growth for the first time in six quarters). Chinese orders began reviving at the start of 2009, with the tempo accelerating sharply from the autumn. By December, the level was well above its past peak. Orders from South Korea and Taiwan are also solid, though the magnitude is less than China’s. As is widely known, domestic demand in China and the other Asian EMKs is expanding briskly thanks to (1) very aggressive domestic stimulus programmes, coupled with the lack of balance sheet problems, and (2) very accommodative monetary conditions from the influx of capital via escalating dollar carry trades.

US and European demand remain weak

Meanwhile, orders from the US and Europe are as lacklustre as Japan’s. Orders for the EU are especially weak, with the recovery (if it can be called that) so anaemic that the level in December is still just 20% of its former peak. Orders coming from the US stood in December at 28% of their former peak, and the pace of recovery there also remains slow.

However, the headline growth is not equal to returns on invested capital.

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