So, there was evidence this week that the US authorities might finally be getting to grips with the Chinese reverse merger scandal, whereby a string of Chinese companies exploited lax listing rules to shake down naive American investors.
Executives at RINO International, a steel industry supplier, have been charged by the SEC with inflating revenues 15 fold in their US filings, while some of the proceeds from a reverse merger and $100m cash raising in 2007 were diverted to buy a house in Orange County, two Mercedes Benz cars and also funded shopping trips to the Chanel and Valentino stores in Beverley Hills. Most of the rest of the money was dispatched to China. Read more
We are, of course, talking about iron ore which has slipped into bear market territory overnight (defined here as 20 per cent fall from a recent high).
… is strategists everywhere cutting their GDP forecasts.
Last week Standard Chartered’s China economist Stephen Green and his team slashed their 2013 forecast to 7.7 per cent from 8.3 per cent. Their 2014 forecast was cut to 7.5 per cent from 8.2 per cent.
Today, BAML’s Ting Lu cut to 7.6 for both 2013 and 2014, from 8 per cent and 7.7 per cent, respectively. Read more
That’s a big (click to enlarge) chart from Moody’s on how they define “shadow banking” in China, via a Q&A comment on the growth of the sector. Read more
The good news is China’s April trade figures are super high! The bad news is no-one believes them, which is fair enough because just a few days ago the Chinese foreign exchange authority virtually said that the export numbers are not reliable — it plans to crackdown on companies that appeared to be over-invoicing for exports as a way of skirting capital inflow restrictions.
The promise of a crackdown was taken seriously, but it’s believed to be much too late for the April data. Read more
China’s State Council has announced intentions to carry out some potentially quite big reforms. From Bloomberg:
China signaled it will propose plans this year to allow freer flows of its currency in and out of the nation as part of measures to loosen control over the yuan and interest rates. 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
After Chinese first quarter GDP missed expectations, there was some hope that the relatively strong manufacturing PMIs in March would point to a better second quarter.
Now that we know China’s April PMIs are definitely not supporting that notion, it is worth revisiting, again, the whole question of the country’s recent surging credit growth. The significance of the debt-to-GDP ratio can be argued over, and it’s impossible to say at what level it might become a big problem. But here are a couple of ideas to consider. Read more
By Theo Casey, marketcolor
This might be best considered an addendum to Kate’s Politburo detective work on Friday which highlighted China’s changing attitude to growth (now maybe less important) and financial risk (now probably more important). It’s a piece of the China recovery puzzle we don’t look at enough. Read more
China’s Politburo Standing Committee, the country’s top decision-making group, held a special session yesterday to discuss the economy — apparently the first time they’ve held this sort of economy-focused meeting since 2004, according to Xu Gao at China Everbright Securities (via Bloomberg).
So what came out of it? It’s always hard to tell, but it probably wasn’t good news for anyone hoping for big stimulus measures. Read more
These sorts of charts have been bothering a lot of people lately, including us:
This one, via UBS’ George Magnus, shows China’s debt back near a 2009, stimulus-era ratio. Only, this time, it’s without the stimulus-era boost to the economy. Read more
The China flash HSBC PMIs missed for April, staying barely positive at 50.5 and providing little encouragment for those hoping that the first quarter GDP growth was an anomaly. Here’s the table of main index components:
It turns out that China’s official statisticians might not have adjusted for 2012 being a leap year in the Q1 accounts. Plus, there have been big sampling changes that render the numbers even more subjective than we thought… Read more
Following on from our post on Monday comparing China’s relatively low GDP growth and its relatively high levels of new credit…
Here are some updated charts from Michael Werner of Bernstein Research, which show that the total stock of non-government and non-financial debt to nominal GDP continued to climb to new levels in Q1 (it was 193 per cent at the end of 2012): Read more
The reactions to Chinese macro data tend to go something like this…
Beat: Bulls are okay with this. Bears say it’s unsustainable, usually because of inflationary risks, policy tightening risks, credit risks, or the imbalances. FT AV commenters say the numbers are made up anyway.
Miss: Bears are okay with. Bulls say not to worry as it means more stimulus/loosening will happen. FT AV commenters say the numbers are made up anyway. Read more
Every strategist around, it seems, was expecting an increase in China’s growth rate after the recent credit surge. Of course… it didn’t happen.
Yet much of the reason for those expectations of credit tightening are still there: credit really surged, particularly in March. Read more
The China Banking Regulatory Commission last week issued several strict-sounding new rules applying to the issuance of Wealth Management Products. The investment products have seen massive growth in the past year, with assets tripling to RMB10tn in the past two years, equivalent to 10 per cent of all China’s bank deposits.
Apart from upsetting share prices of mainland Chinese banks, what are the new rules actually going to achieve — if anything? Read more
The China flash manufacturing PMIs have beaten expectations this month, coming in at 51.7 compared to 50.4 in February, and above the forecast consensus of 50.8. Here’s the table of component directions:
It was supposed to be one of the best trades of 2013 – buy mining stocks to get leveraged upside to the global economic turnaround. But as we approach the end of the first quarter, only one half of that equation is working. The world economy is recovering strongly but the big miners are being well and truly left behind – Australian Financial Review.
Yep, the miners as a ‘leveraged play on global growth” is not going exactly to plan: Read more
Hardly anyone, it seems, believes that China’s shale gas efforts are going to hit paydirt any time soon.
Reuters wrote yesterday that the shale gas revolution risks ‘running further off track’ — and this is before it has even begun to produce any significant volumes. Read more
A big stack of official Chinese economic data was released over the weekend and it paints a somewhat mixed picture of the country in 2013.
The short version is that some growth indicators were significantly weaker than expected, but others beat consensus forecasts — and consumer inflation appears to be on the rise again, even when the new year effect is discounted. This comes after strong export growth and weak import data surprised everyone late last week. Read more
China’s National People’s Congress annual plenary began today, with soon-to-be-former premier Wen Jiabao outlining the official economic targets for 2013. We’ve written a few posts lately about how China’s growth has become increasingly driven linked to credit and, particularly, fast-growing shadow finance. More recently, there are signs the authorities are feeling less comfortable with letting shadow finance run riot — but at the same time, its role in fuelling growth makes a big or sudden curtailment look unlikely.
The targets announced today added to signs of discomfort with unchecked credit growth, according to various China watchers. Read more
The 12th National People’s Congress convenes tomorrow in Beijing and, by the time it ends, Xi Jinping will be named head of state and Li Keqiang will be appointed premier.
There’s naturally much speculation around the signals for policy direction that might emerge. Although the events are more akin to formalities than actual decision-making fora, they are being watched closely for clues about the new leadership’s appetite for reforms — which may be revealed through bureaucratic reshuffles, as the FT’s Jamil Anderlini explains. Read more
First, a reminder of the degree to which China’s growth has been increasingly fuelled by credit over the past few years:
The chart above doesn’t quite show it, but non-bank credit growth outpaced bank loans last year. The rise of China’s shadow banking scene has happened very rapidly — much of the growth only happened since 2009. Read more
The flash HSBC/Markit China PMI number for February: 50.4. That’s a four-month low and quite a drop from 52.3 of January. Yet, as HSBC’s Hongbin Qu reminds us, it’s also the fourth consecutive month of expansion above 50 — the level which demarcates between above-trend and sub-trend growth.
So, what to make of it? Well firstly, Chinese New Year happened in February and, yes, you probably need to treat January and February data with caution because this holiday a) can fall in either month, and b) is huge. Read more
Last year’s worries about the Chinese economy suffering a ‘hard landing’ eventually proved to be misplaced. Or should that be, worries that the government wouldn’t be able to engineer a soft landing, proved to be misplaced. Yet, while the economy seems to be on a more stable footing these days, there may be too much optimism that this will continue.
The consensus is for growth of a touch more than 8 per cent this year, roughly in line with what Beijing itself is forecasting. Yet Zhiwei Zhang and Wendy Chen, economists at Nomura, argue this is too bullish, and offer five reasons why they think 7.7 per cent is more realistic, with growth slowing to 7.3 per cent in the second half of 2013. Read more
We’ve read two very interesting and distinct pieces of analysis today that raise quite dramatic questions about China’s GDP data. Yes, we know you probably weren’t too credulous to begin with, but the details of both are interesting. Read more
China’s energy consumption is legendary (okay, its everything consumption is legendary). More coal, oil, hydro, solar, and wind power than… than just about anyone. The coal numbers in particular are mind-boggling. By 2011 China was consuming almost as much coal (3.8bn tonnes) as the rest of the world combined (4.3bn tonnes).
The figures on oil consumption are almost as striking. They consume about 10m barrels a day; more than 10 per cent of world production. Read more
We’ve recently heard an interesting suggestion that China’s ageing population — generally a bad thing for growth — might also have the positive side-effect of inducing a transition away from the country’s unusually high ratio of investment to consumption. But will it? Read more
The first one probably needs no introduction: