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
By Paul J. Davies, the FT’s Asia financial correspondent.
After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. Read more
Today was just an ordinary day:
As FastFT noted, Shanghai-listed shares jumped 6 per cent in six minutes in morning trade, despite opening the day lower. The exchange’s official Sina Weibo microblog posted shortly afterwards that operations were running normally. 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 little over half of China’s population is urbanised, and the country’s leaders plan to urbanise vast numbers of people over the next decade – although both the time frame and the number of people in the plan vary, depending where you look — both 260m and 400m have been widely reported.
More clarity is expected at the Third Plenum of the 18th Central Committee of the Communist Party of China, probably in October. But could the country already have an excess of cities? Read more
We’ve seen explanations of how the famous Chinese copper (and other commodity collateral) LC financing trade works in the past.
But here’s a particularly good one from Goldman Sachs’ big report on China’s credit environment, which was out last week. The diagram also explains how SAFE’s new regulations are likely to restrict the trade from now on: Read more
A very intriguing little exclusive from Reuters on Friday:
(Reuters) – China is developing a new trading platform to enable banks to sell off loans to a wider range of investors, in a move that could pave the way for a government bailout of lenders or distressed asset sales to private investors. Read more
The China July trade data came in surprisingly strong, and even the detail holds up fairly well — apart from a few notable quibbles.
Whether you interpret it as a sign that the growth rate has bottomed out, or just that external demand has stabilised, probably depends on how you already view Chinese growth.
On to the good, the bad and the confusing in the trade data. Here’s how we summarised the headlines in the 6am Cut: Read more
The bull/bear arguments about China are evolving — or so we’d like to think — into a more nuanced debate about how the country’s leaders are going to respond to the pressing need for change (which they themselves have acknowledged), and how these responses might play out.
One of the key questions is how the large amounts of risky debt in China will be addressed. Read more
End the ‘one-child policy’, get some 9.5m extra people. Nice policy if you want to give your population a bit more control and if you have one eye on a declining working age population.
According to a few news organisations in China late last week, citing those close to the National Population and Family Planning Commission, the government may relax its one-child policy in the very near future. Families where at least one parent was a single-child might be able to start upping their families headcounts in late 2013/ early 2014 with a full revision in 2015 (a date that has been mentioned before).
Nomura’s Zhiwie Zhang gave the reports quite a bit of weight (our emphasis): Read more
The official China manufacturing PMIs for July are not helping any bearish narratives. Unless you are of the opinion that the official stats are often manipulated from one month to the next.
HSBC/Markit’s number, meanwhile, stayed firmly at 47.7, in contrast to the official PMI rising to 50.3 from 50.1 in June. Yep, we’re here, again, attempting to understand the mysteries of the China PMIs. 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
The China flash manufacturing PMI for July is 47.7, the lowest number in 11 months and a decent step down from June’s final figure of 48.2. It also was well short of consensus expectations that July would maintain the 48.2 level.
The employment sub-index was fell to 47.3 from 47.6 in June, its lowest since March 2009, and there’s very little to be upbeat about the breakdown — apart from diminishing inventories:
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
China is leaking. It’s probably America’s fault. China is, after all, the the most exposed to the quantity effect of liquidity withdrawal due to QE tapering and may have the most difficulty dealing with it.
From Nomura on Monday, for example:
Foreign exchange purchases by financial institutions dropped by RMB41bn, despite the high trade surplus of USD27bn and strong FDI inflows of USD14bn.
Deutsche Banks’ China economics analysts are pondering why their forecast for 8.5 per cent growth next year is well above consensus (and even well above the IMF’s 7.7 per cent and the World Bank’s 8 per cent).
They have come up with a list of reasons why everyone else might be overlooking some positive possibilities for future economic growth. We’re not sure if we agree, but bear with us (haha) anyway. Read more
You probably heard on Friday that China took some steps towards liberalising lending rates. Although this was reported so widely that it sounded like a very big deal, most reports also pointed out that’s really because of what it might signify about the new leadership’s intentions. In themselves, the changes announced on Friday are expected to have very limited effects. Or… will they? 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
Kate’s already noted some of the oddities in China’s latest GDP data.
But it’s worth re-emphasising the ongoing contribution of investment to the figures. Read more
A few thoughts on China’s second-quarter GDP, which came in at 7.5 per cent, in line with expectations:
- The seasonally-adjusted rate is 1.7 per cent. If annualised — ie the way that most countries present their quarterly GDP data — is it just under 7 per cent. Read more
Well, not a problem apart from all that confusion that arises when a senior Chinese official apparently contradicts official GDP targets and expectations…
Chinese Finance Minister Lou Jiwei said a 6.5 percent economic-growth rate wouldn’t be a “big problem,” signaling the government may tolerate a slower pace of expansion than officials have previously indicated.
That’s from Bloomberg, and Lou made the comments at a press conference in Washington, so he knew it would be picked up by the western media. Xinhua also has a report that paraphrases Lou as saying he expects 7 per cent growth this year. (The official target, remember, is 7.5 per cent). Read more
The short answer: the June trade numbers missed expectations by a long way, and the details did nothing to provide reassurance. Here’s a long-ish term view, courtesy of SocGen:
Coming so soon before the Q2 GDP data, which is due next Monday, the data have raised the possibility — noted by the FT’s Simon Rabinovitch — that China might actually miss its growth targets for the first time in 15 years. Read more
Both countries were seen as great early hopes for replicating the success of shale gas in the US: Poland for its geology and enthusiastic government; China for its apparently vast reserves and for, well being China and getting things done. Both countries, clearly, are motivated to improve their domestic supply and hence their energy independence.
Yet both are taking longer than expected to reach material amounts of shale gas production. The FT’s Leslie Hook last week reported that few believe China will meet its 2015 production target of 6.5bn cubic metres – a modest amount, equivalent to 2 per cent of the country’s total gas production. Read more
That’s from Bloomberg Briefs’ Michael McDonough (and yes, he does allow his Twitpic charts to be republished, provided attribution is correct). Read more
Now that the possibility of a sharp slowdown in Chinese growth, or even an outright contraction, is getting some serious airplay, we can expect a ramp up in forecasts about what this will mean.
Here’s one from Barclays commodities analysts, Sudakshina Unnikrishnan and Jian Chang. They note that their China economics colleagues, having gifted us with the awkward ‘Likonomics‘ neologism, are also canvassing the possibility of a big drop in the country’s GDP growth rates. Read more
Kevin Rudd 2.0 has been quick to highlight the dangers posed by slowing Chinese growth since he was returned as Australia’s prime minister.
For example: Read more
Thanks to Monument Securities’ Marc Ostwald for directing our attention to an interesting report from MNI on Tuesday regarding changing attitudes to the renminbi:
The PBOC made a “big mistake” in letting the yuan rise so quickly earlier this year because it has only swelled the level of foreign exchange onshore, creating potential problems when depreciation expectations rise and capital starts flowing out of the country, regulators contend. Read more
A couple of points from Deutsche Bank’s GEM Equity strategy team on Friday to file under the “it’s China, not the Fed, that’s driving everything at the moment” meme:
…‘we believe that the improvement in the Chinese economic and corporate data, which has become evident since the end of August, is not sustainable’ and that ‘the Chinese growth story is starting to unravel’. As regular readers will know, our negative structural view derives from an examination of the relationship between the corporate sector and the state, especially at a local level, which we have documented in two longer research reports (China’s corporate sector; a messy transition’, 15 May 2012, and ‘China; no quick fix for the Beijing model’, 30 August 2012). Read more