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.!