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China to suck in more European exports

FRANKFURT: Seabury, the global advisory group that includes a cargo and logistics practice, is forecasting a 4.8 percent growth in air cargo traffic from Europe to China in 2014.

The historic northbound bias from China to Europe, expected to increase three percent this year, is now being overshadowed by a strong demand by China's middle class for high-value consumer products.

This is obviously good news for European manufacturers, which is why Lufthansa Cargo thinks the volume of German exports will be enough to provide a modest boost to its load factors – and bottom line – this year.

On February 07 the country's statistical office announced that German exports fell 0.2 percent over 2012 to 1.09 trillion while imports dropped 1.2 percent to 895 billion. The resulting 198.9 billion trade surplus was the highest ever recorded, up from last year's 189.8 billion.

Lufthansa A380 FRAThe Seabury forecast data, which suggests an overall 2.9 percent increase in air cargo traffic from Europe to the rest of the world, is echoed by IATA economists who say Eurozone manufacturing in December 2013 rose for the seventh successive month - "largely reflecting momentum in the German economy, where the sector is expanding at a three-year high growth rate."

However this relatively warm trade prospect – after several years of decline – may not last for long.

According to former Fitch analyst Charlene Chu, now working for the London-based research firm Autonomous, China's credit-fueled economic boom is a bubble that could burst at any time – creating fall-out that she says will dwarf the Global Recession that began in 2008.

Media reports suggest Ms. Chu has been warning since 2009 that China's credit expansion, now valued at close to US$15 trillion, is supporting an unprecedented property and infrastructure boom. As a result, she says a financial collapse remains a certainty following government tolerance of a growing "shadow" banking industry now responsible for as many loans in terms of volume as the country's entire mainstream financial system.

Tony Tyler, IATA's CEO and a former senior manager of Hong Kong-based Cathay Pacific, may be understating his view therefore when he says: "We can still expect that 2014 will be a challenging year. World trade continues to expand more rapidly than demand for air cargo. Trade itself is suffering from increasing protectionist measures by governments."

Chu claims many of China's policymakers realize what is happening but with the country and its politicians committed to a seven percent annual rate of growth, apparently there are few attractive options. However when the credit bubble bursts – as Chu thinks it surely will – it won't be just the Chinese economy that implodes.

So whether they arrive by train from Poland, 'plane from Frankfurt or ship from Hamburg, who will be buying those shiny European exports that are helping the Eurozone stagger back from an equally self-made abyss?

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