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
… 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
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
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
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
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
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
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
Amid all the entrails of China’s November data is a particularly interesting spike… Read more
A new IMF working paper lays out what many China sceptics have been saying for years: the country has too much investment, and households are bearing the costs. Yes, you might have heard this many times on FT AV, from the likes of Michael Pettis and more recently, from George Magnus, but now it’s appearing in venues such as the IMF (even if the paper warns this ‘should not be reported as representing the views of the IMF’). Read more
For quite a while now we’ve been wondering whether a quite bullish forecast by Nomura’s Zhiwei Zhang and Wendy Chen will prove correct. They believe that China’s Q4 GDP growth will be 8.4 per cent — a big jump from 7.4 per cent last quarter. Not surprisingly, today’s flash PMI has made Zhang more confident in his forecast.
We were rather sceptical when first considering it in October, because a lot of Zhang’s argument related to the local government plans that were being announced in great number in the third quarter of this year. Read more
We pointed out just before China’s third quarter GDP figures were released that there is much strangeness around its quarterly growth data generally*. While most countries release an annualised, seasonally-adjusted quarter-on-quarter figure, China publishes a year-on-year figure and, only since 2011, a seasonally-adjusted but unannualised quarter-on-quarter figure.
This causes three problems:
- the headline number is not directly comparable with most other countries’ quarterly GDP figures.
- when a comparable number is generated (ie, when QoQ is annualised), the Q1 & Q2 2012 are FAR below the headline YoY numbers… the most striking example being 6.6% for the first quarter of 2012.
The New York Times story on assets held by relatives of China’s prime minister Wen Jiabao led to some interesting ponderings on Chinese kleptocracy by the New Yorker’s Evan Osnos.
Osnos highlights a book by Andrew Wedeman published this year, Double Paradox, which attempts to understand how China has grown rapidly despite its widespread corruption.
“Although there is no good corruption,” Wedeman writes, “there is clearly bad and worse corruption: the corruption that has negative effects, and the corruption that can have potentially catastrophic effects.”
Capital Economics has is pouring cold water on the notion of a recovery in the Chinese property construction sector, despite house prices appearing to bottom out around the middle of this year. Already? Just a few weeks ago we were writing about a thorough argument from Stephen Green of Standard Chartered early this month presented a thorough argument that previously sky-high inventories of unsold apartments were shrinking. Green and colleagues suggested that with falling new starts and stronger sales, it was even possible that inventories could become too low in the second half of 2013, at least in the biggest cities.
Now, we’re not quite so sure… Read more
Today’s China flash PMIs have been a little challenging to unpick. Inventories are down and input and output prices are up — but order backlogs are down, and so is employment, which HSBC notes is contracting at a faster rate. So the mountains of inventory are shrinking and price deflation (against trend) is no longer happening… but employment is down? Read more
The preliminary HSBC/Markit China manufacturing PMI for October was 49.1 — the best result in three months and a decent jump from September‘s final reading of 47.9. Growth is still below trend, but is the relative improvement a sign that monetary easing is having an effect and/or stimulus is taking place? Read more
China’s Q3 GDP data is out on Thursday, and there’s naturally a lot of speculation about whether it will show yet another quarter of declining growth (almost certainly) and whether it will even fall below the official 7.5 per cent target, (quite possibly). However the numbers revealed won’t be suitable for an apples-for-apples comparison with most other countries. In fact, they’ll barely be suitable for comparison with previous Chinese GDP numbers. Read more
It’s not a great choice, if you’re in China. From Reuters today is confirmation that Baosteel has suspended production at a Shanghai plant that has capacity to make 3m tonnes a year of steel.
“The government’s infrastructure investment may only improve sentiment … I don’t expect a big lift in steel demand,” Zhang Dianbo, assistant president of Baosteel, told reporters at an industry conference in Dalian on Thursday.
Another way of looking at the myth of China’s inevitable growth…
[...]Warren Buffett’s net worth over the last couple of years has fallen… from $47 billion to $44 billion. That decrease stands in stark contrast to the performance over the same period of my dog. Quantifying the increase in Patches’ net worth over the last two years is difficult, but the sniff test suggests the improvement in his circumstances exceeds Warren’s by a wide margin (Exhibit 1).
Presenting the latest HSBC/Markit Economics China flash PMI…
…and it’s still bad, just not as bad as last month: 47.8 compared to August’s final reading of 47.6 are the scores on the doors. Read more
The mood at the World Economic Forum this week in Tianjin has been a study in contrasts — bullish foreigners and gloomy Chinese.
As the FT’s Jamil Anderlini reports: 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
The HSBC Markit China manufacturing PMI has been revised downwards to 47.6 in August from the flash number of 47.8 — which was in itself a sizeable fall from July’s final reading of 49.3. The August HSBC PMI signalled a tenth successive month-on-month deterioration in Chinese manufacturing sector operating conditions.
It’s also the lowest reading since March 2009. From HSBC/ Markit: Read more