You may have seen these rather important tweets earlier.
© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
(Title credit to Anne Stevenson-Yang of J-Capital, who kindly insisted we steal what we would have stolen anyway.)
Brushing aside the obvious points that Xi is ‘Deng II, the Reformer’ and that his third plenum will be a knockout success similar to the big man’s in 1978, let’s pretend there’s a chance it might go wrong. Read more
Wait a minute, Doc. Ah… Are you telling me that you built a time machine… out of a sovereign bond contract?
– Marty McFly (paraphrased)
Step one: realise there are no good answers. Step two: don’t give the worst answer. Step three: be wary of the Deng vs Mao mask choice session in the afternoon. It’s a trick.
The mission for the near-dozen Communists sitting round a table at a Beijing ministry was explicit: criticize their boss, who was present. Party cadres carefully recorded their comments as they spoke, in an echo of sessions held decades ago under Chairman Mao Zedong’s direction.
Ladies and gentleman, we have what looks like a reform framework proposal…
Compare and contrast the following from a note by GoldMoney’s head of research Alasdair Macleod that landed in the collective hands of FT Alphaville on Friday.
Here’s the original version: Read more
Chinese inflows are back.
Wei Yao at SocGen notes on Tuesday that China’s FX reserves added $163bn in the third quarter, the biggest quarterly increase since the second quarter of 2011.
As she notes, however, the source of those inflows is not necessarily down to the usual suspects (our emphasis):
China’s FX reserves added USD 163bn in Q3, the biggest quarterly increase since Q2 2011. The FX positions of all financial institutions (including the central bank) increased by only CNY 2.8bn in the first two months of Q3. Hence, inflows probably accelerated significantly in September. We estimate that the impact of the euro appreciation on the valuation of the reserve stock should be no more than USD 40bn during the month. In addition, the trade surplus narrowed significantly to USD 15.2bn in September from USD 28.5bn in August. Even if we assume a 20% increase in FDI, that still leaves us with nearly USD 100bn of unspecified capital inflows.
SIV/ LGFV/ LGIV/ *shrug*
Whatever you choose to call the vehicles China’s local governments used to fund infrastructure when Beijing restricted financing (we are going with LGFVs here) they are very near the centre of Chinese debt fears. Which means it’d be nice to know how big they really are.
From Stephen Green at Standard Chartered (our emphasis): Read more
No point in getting too excited about China’s big policy bash — November’s third plenary session of the 18th Party Congress — just yet. It may be a once-in-a-10 year event but it’s probably going to be rather coy on detail.
It’s also important to remember this is the party’s meeting not the government’s and it’s not likely everyone sees eye-to-eye on a host of issues. Never easy getting people excited about changes to the teats upon which they suckle… Read more
Chinese authorities are continuing their efforts to finish mopping up the bad debts left from the big bank bailout of 1999-2000, in what some believe is an attempt to address — or, head off — another financial crisis.
What could possibly go wrong?
It looks increasingly likely that China is gearing up for another round of bad-loan cleansing with asset management companies seemingly being prepared for some more NPL absorption and a move towards what might be loosely termed market-based approaches to restructurings.
It looks like this will include securitisation, which Chinese authorities have been dipping their toes back into since a Lehman-burning, according to SocGen’s Wei Yao (with our emphasis): Read more
Last week we ran a guest post from Yukon Huang of the Carnegie Foundation, which argued that China’s high rate of investment to GDP (which exceeds levels ever reached by obvious comparisons such as Japan and South Korea) is a consequence of China’s economic rise, not a problem in itself.
The imbalance, says Huang, merely reflects the urbanisation-industrialisation process — income rises and output grows as newly-urbanised workers earn more, but the proportion of their income spent on consumption falls for a time. Read more
Chinese macro data have been on a good run recently. Today’s release of August industrial production was particularly strong, beating consensus forecasts by a relatively wide margin, although not in a way that bodes especially well for long-term growth sustainability.
Here’s a summary of key data published today, courtesy of BAML: 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
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
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