The summer holidays are over and nothing has changed!

By Frank-Jürgen Richter

The Nikkei Weekly, September 10, 2012

Can this be a surprise? We left our chaos to fend for itself over August and it did so. It is a coherent system of chaos – with parts dying off and parts evolving- yet, en masse, it looks the same mess as when we went on holidays. Some elections were won before the recess and the winners having promised much to their populace left to eke out their ‘first 100 days’ in villas by the sea-side; more seasoned politicians simply went for long walks in the quiet of the hills – though both no doubt were in touch with all the media via their smartphones and via their permanent staff who always seem to work. Even the movable Ramadan ended recently so Muslims world-wide may again eat and drink at any time of the day.

Meanwhile in those two big nations – America and China – politicians continue to battle day in and day out. In the US there is no cessation to the wild claims of both side in their electoral champagne that thankfully will finish with a winner in November. And in China there is still a surge among the political elite to protect their reach as they haggle for power prior to the formal hand-over in October at the 18th National Congress. In both countries there are signs of vast change. In the former some signs of retrenchment and a lessening of US hegemony, while in China we see more signs of ‘going global’ across a wide sector of commerce and politics. But as China looks to the formality of the political hand-over some commenters wonder if this will occur fully at the Congress due to the weakening of its overall economy – perhaps the old hands will remain in power a little longer as their fingers are on the pulse and may be briefly better able to guide changes.

The US has exhibited low growth figures and high unemployment, Europe collectively is little better, with EU leaders demanding its unruly southern members engage in even heavier austerity measures. But that sentiment studiously ignores the data from the US ‘Sales Managers’ Index’ that have shown growth for the last ten months. Commentators are choosing to be biased towards gloom. Thus with little [assumed] growth in the West, and austerity “the norm,” it is not surprising that the purchasing power of the citizens is falling creating a vicious sticky economic cycle – few purchases, fewer jobs locally, few exports of key components to overseas assemblers resulting in a lowering of production rates in China and thus lower exports from China shipped back to engage in sales in the West.

As a result, notwithstanding that Shanghai may retain its leading status as the globe’s No. 1 container port’ and that the Yangtze ports as a whole show continued growth year-on-year, China Cosco, the leading national shipper, has increased its losses by 50% due to abysmally low container rates and higher fuels costs. In fact there is a global shipping crisis leading to the prospect of many bankruptcies as container trade volume falls.

Firms over-invested four years ago, betting too much on the China syndrome. New ships were ordered of which many must be bought as their contract clauses inhibit default. This has led to a glut of capacity; and today shipping firms face a $200 loss for each routed container. Naturally funding banks are reluctant to support loss-making firms who have to come to the market as distressed firms, selling off their assets cheaply… only to be bought by Greek shippers, possibly with the backing of Chinese finance as the latter look to move into the EU finance sector. There is some irony here as Greece owes billions in national debt and also via its banks to outsiders. Meanwhile the shippers, who sold off capacity in the boom years, are now buying back capacity at depressed prices. Very canny! Of course these shippers are only handling a few billion dollars – but their government reckons that 4,000 Greek people owe about $15 billion to the State. Some of whom are probably these same shippers.

With respect to the global banking crises I have mentioned elsewhere that we must retain our finance staff as there are otherwise not enough people with in-depth knowledge of the system to run it well. The same is true in Greece – we need to invoke a stronger feeling of love… Not the simple, sloppy B-movie stuff about individualistic love, but the serious ‘agape’. This is the Greek translation for love that is ‘… unselfish, for the group’. Thus their overseas account holders ought to come forward with their millions or billions to wipe out national, even European debt. Then we would see growth again.

However, I think this will not occur as the politicians are adept orators and will incite us to behave as we must – or to behave as they wish we ought to behave … prudently managing our cash flows and not getting into uncontrolled debt. I note that the book by Frank Luntz, a US political commentator, is appropriately titled – “It’s not what you say – it’s what they hear”. We hear the chaos continues, we do not hear that the economies of the US, Germany and Ireland are growing; as are many nations in Africa and Asia and that it really may be possible to get out of this long-running mess. Let’s be more buoyant, hopeful and proactive.

Frank-Jurgen Richter is founder and chairman of Horasis, a global business community