What’s Keeping Risk Managers Up at Night

The latest Bubble Risk Bulletin from the Society of Actuaries is well worth your time.  It focuses on China’s inflation rate and the risk of a hard landing.

As risk managers, actuaries consider China’s inflation a
serious emerging risk. Underscoring this concern, the 2010 Emerging Risks Survey by the Society of Actuaries (SOA) found that 41 percent of respondents predicted a Chinese economic hard landing as the emerging risk that will have the greatest impact over the next few years.

The piece points to three major risks that companies should consider:

1)   If China continues to lose its ability to produce goods at a significant cost advantage to western economies, global companies will scramble to find other producers of cheap goods typically supplied by China;
2)  Cooling of China’s economy and continued slowdown in import growth could put pressure on companies dependent on demand from the world’s most populous country;
3)  As Chinese consumers and businesses continue to feel the squeeze, rioting and social unrest could threaten business both in and outside of China. Actuary Max Rudolph estimates that China must maintain a growth rate of 8 percent or more in order to maintain social stability, and warns that big problems lie ahead if inflation dampens the Chinese economy.

Check it out.  Your P&L may depend on it.    Hat tip, E.M.!

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