Have a China rebalancing update in the face of a property downturn, the corruption crackdown and a reversion to type by Chinese leaders as they seek to prop up the economy.
To restate the obvious, China needs to rebalance its economy towards consumption over the next while if it’s to shift the economy away from a reliance on debt-driven investment and all of the “this is nuts” type excess that it can bring about.
And as UBS’s Wang Tao says: Read more
Economic commentators have often expressed concerns that economic growth in China is unbalanced, with an unsustainable reliance on investment-driven growth. Here, we make comparisons with two other Asian economies, and look at the evidence for a counter-argument that the imbalance merely reflects a shift from an agricultural, rural economy to a more productive and urban economy. Read more
By Yukon Huang
That China’s growth is unbalanced is a fact. Consumption as a share of GDP has declined steadily over the past decade to 35 percent — the lowest of any major economy — while its investment share rose to above 45 percent, correspondingly the highest (Figure 1). But are these imbalances a vulnerability — as most observers believe — or a consequence of China’s economic rise and therefore not inherently problematic? Read more
We’ve been pondering for a while here how China might avert or delay a full-blown financial crisis (or worse). Or, if you want to put it in a different light, how China might make its growth sustainable.
Either way, cleaning up bad debts from a bygone crisis might be a place to start. Chen Long at the INET China Economics Blog has noticed something interesting happening with China’s big Asset Management Companies — the four “bad banks” that were created in 1999 to buy Rmb1.4tn of distressed assets at book value from the four big state banks — equivalent to about 20 per cent of their combined loan books, or 18 per cent of China’s GDP in 1998, according to this BIS paper. Read more
A couple of weeks ago we asked some questions about what a further slowdown in Chinese growth might mean, and at what point it becomes a ‘crisis’. There’s a little bit of semantics and a vast amount of moving parts in answering this, but the point is that although the underlying picture of China’s economy looks extremely vulnerable, there are many ways in which a crisis might not erupt in quite the way — or at quite the speed — that some commentators seem to be expecting.
With that extremely broad-brush intro to a very complicated and murky subject done, we’ll point out a couple of people who, unlike us, are actual China experts and have provided some interesting perspective in the past few days. Read more
In last week’s post about when does a growth deceleration become a crisis, we looked at the likely inevitability of change in China’s economic systems and growth rates.
While timing is difficult to predict, it does seem very hard to argue that the economic model can continue along with the social, political and legal status quo, all while maintaining recent high rates of growth. Read more
Stephen Roach recently wrote for Yale Global Online arguing that yes, rebalancing is happening, but the new leadership have it under control because they are enacting the necessary reforms to facilitate this transition.
A quick look at the composition of second quarter growth statistics suggests that is not happening — at least not now. Read more
It’s clear to everyone that something big is happening in China.
Double-digit growth is long forgotten and even high single-digit growth is above the consensus (for whatever that’s worth). The implications of this alone are quite massive and you could throw around any number of predictions about what it might mean for commodities, global imbalances, and more. Nomura sees a 30 per cent chance of growth falling below 7 per cent later this year, and Barclays are talking about the odds of growth slowing to as little as 3 per cent growth. Even entertaining the possibility of an outright economic contraction would not get you accused of being a crazed permabear these days. Read more
Chinese premier Li Keqiang on Monday:
China needs growth of about 7 percent to double per capita gross domestic product by 2020 from the level in 2010, Li said yesterday in Berlin after meeting with Chancellor Angela Merkel during his first trip abroad as premier.
Although China has a formal target of 7.5 per cent growth for this year, and that was still kind-of-maybe assumed to be the ongoing target figure for the next few years, no-one was hugely surprised at the declaration of a 7 per cent target.
Anyway, the IMF’s forecasting types have decided it might be time to stop clinging to hopes of 8 per cent Chinese growth this year (and 8.2 per cent next year). They cut forecasts for both 2013 and 2014 to 7.75 per cent. Read more
We’ve all heard, many times, the story that China’s capital stock is nowhere near that of more advanced economies, therefore it will inevitably increase. And we can count on continued efforts to build roads, buildings, airports, and other infrastructure — just look at how the less-developed eastern provinces have been pouring money into new projects, the argument has gone, more recently. Or went.
We really hope it’s not necessary, here, to go into the weaknesses of that argument. Here are a few places to start, but it’s partly a causal problem — does growth cause increased capital stock or vice versa? What kind of growth are we talking about, anyway? Read more
The latest piece of Chinese data to hit those post-Q1 GDP nerves is today’s HSBC/Markit services PMI.
It gave a April reading of 51.1, down sharply from 54.3 in March, and was the lowest since August 2011: Read more
The first one probably needs no introduction:
After eight years and much delay, China’s State Council has released its long-awaited plan for addressing income inequality. It seems everyone agrees it hits all the right notes, without persuasively committing to many concrete changes. Read more
You may be feeling China overload after the latest round of GDP and other economic data out on Friday. We are. But it’s usually right about that moment of fatigue that a subject begins to become really interesting again.
The head of China’s statistics bureau declared on Friday that the workforce shrank in 2012; most forecasts hadn’t expected this to happen until 2015. So it’s probably a good moment to debunk any suggestion that the first quarter of year-on-year GDP growth means the Chinese economy is sailing into a calm new era where growth stabilises at about 8 per cent — not quite the 10 per cent of many recent years, but the new normal that reflects a more balanced economy. Read more
A great new year piece from Standard Chartered’s China economist Stephen Green. The country’s economy, he writes, is “running along at a reasonable pace” as 2013 begins. But potential growth is already sliding, he says, and clouds are gathering…
We all know that China’s current growth model is not sustainable. It is not going to collapse tomorrow, but there are clearly problems with it – and we believe those problems have gotten worse in the past couple of years.
The imbalances are not just rich/poor, rural/urban, and east/west, writes Green. There are four key dynamic imbalances affecting the country: Read more
China’s markets are zooming upwards, and quite honestly who knows why? It could be something to do with the big politburo meeting yesterday, at which various pronouncements about the economic outlook were made. We’re not sure the remarks should be interpreted as meaning that continued large scale, infrastructure-focused stimulus is a certainty. Read more
As in, does it exist?
Wang Tao at UBS takes aim at the “Rmb1tn stimulus“; she thinks it is not really real: Read more
Another month, another round of mostly disappointing China data. Not that everyone is overwhelmed by the gloom, as some are pointing to positive indicators in property as well as increased infrastructure investment, but more on that later.
August trade data released earlier today revealed that exports were up 2.7 per cent year-on-year. This is better than July’s dire 1.0 per cent year-on-year increase but still well short of the usual China trend, as the FT explains here. Read more
A trillion renminbi! That’s almost like a real 2008-style stimulus (which was Rmb4tn). And beleagured Chinese stocks reacted accordingly:
News that the Chinese city of Changsha, in the central Hunan province, plans to spend Rmb829m, or 150 per cent of its GDP, made waves last month. It’s a fairly small city and one that was reportedly booming just weeks earlier.
We recently made the point that slowing growth was leading the central government to back away from its tentative plans to rebalance the economy, and instead doubling down on imbalances with its push to keep GDP growing through investment, particularly in infrastructure. Read more
Meanwhile, in the domestic banking scene… [See part 1 on capital outflows here.]
China’s financial system stability is increasingly intertwined with its shadow banking system — which is big, according to various tallies. Bank of America Merrill Lynch says it accounts for a quarter of all bank loans, with the biggest segments being wealth management products or WMPs (8 per cent) and trust companies (8.9 per cent). Fitch Ratings says that WMPs now account for about 16 per cent of all commercial bank deposits; KPMG says trust companies will overtake insurance to become the second-biggest component of the financial sector. Read more
Izzy wrote in May how China’s Rmb exodus is a huge (and still little-explored) story for the world economy, and it’s one that won’t be going away as China recorded a net capital account deficit in Q2. We’re wondering now how this might collide with risks to domestic liquidity — specifically, whether a combination of Rmb exodus and local banking problems might affect the People’s Bank of China’s ability to maintain financial stability?
A very brief recap on the Chinese foreign reserves-domestic liquidity nexus: Read more
Here’s a quick round-up of the data out of China on Friday:
- Q2 GDP growth was in line forecasts: Reuters‘ poll had 7.6 per cent while Bloomberg‘s had 7.7 per cent. Read more
There are two ways that China’s economic future is viewed today.
First, there’s the China which is going to move coherently towards a more consumption-heavy economic mix — the oft-mentioned “rebalancing” that is needed to address its unusually capital-intensive economy. An oped by GK Dragonomics’ Andrew Batson says this means the China naysayers, focusing on the woes of Sany or growing coal stockpiles, are misguided: Read more
China’s trade data for April came in well short of expectations on Thursday, and was followed by a raft of more disappointing data on Friday.
Here are a few highlights, courtesy of BAML’s China economists Ting Lu, Xiaojia Zhi and Larry Hu: Read more
Does China’s decision to expand the allowed trading range for the yuan signal something significant for the country’s economy? Like, everything is roses?
We’re just asking because a Reuters analysis piece argues that this is the case: Read more
What IS a hard landing in China?
Well, BAML’s latest survey of fund managers defines it as less than 7 per cent growth. And incidentally, only 8 per cent of those surveyed believe it will happen, half the percentage of the November survey. Read more
Answer according to your view on the very important question of China’s economy rebalancing towards a higher consumption-to-GDP ratio.
The debate isn’t really about whether China needs to or will inevitably rebalance, but whether it already has begun to do so. A note from Barclays Capital by Yiping Huang made the case that household consumption as a proportion of GDP is already beginning to rise. Read more
The Barclays Capital note we discussed earlier this week, postulating that China had already begun to see a critical increase in its household consumption-to-GDP ratio, has generated a few questions over email.
So, we’re going to go into it in a little more detail. But stay tuned — this is interesting. Really. Read more