Noted China bear Zhiwei Zhang, once of Nomura and now at Deutsche, is talking up China’s near-term economic prospects.
The reason? He thinks its fiscal slide — predicated on falling land sales which accounted for 22 per cent of general government revenues in 2014 — has come to an end.
You may remember this, from Zhang, in January:
This year, China will likely face the worst fiscal challenge since 1981. We believe this is the most important risk to the economy and one that is not well recognized in the market…
By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World. The TL;DR of this post might be that rebalancing the Chinese economy without a hard landing will be… difficult. Read more
From Credit Suisse’s James Sweeney and team: Read more
I don’t know what you want to call me. Santa Claus is what, eh, [journalist x] called me earlier. You want to call me a hawk.. I don’t know. I don’t go by these things. My name is Raghuram Rajan and I do what I do.
- The RBI governor, 29 September
And yes, that’s certainly A reason for why he cut the policy rate 50bps to 6.75 per cent on Tuesday, twice what had been expected.
Here’s another one, via Credit Suisse’s Neelkanth Mishra: Read more
By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World.
Throughout the Chinese stock market run up and subsequent collapse, the most fundamental question revolved around the robustness of the overall economy. Read more
Only 20 per cent or so of investors polled by BofAML thought that Chinese growth was even approaching the official 7 per cent, ignoring the National Stats bureau’s claims that the figures for Q2 growth “objectively reflect the real situation.” Read more
As above, we got a 7 per cent print for Q2 GDP growth in China last week. Here’s the breakdown from CreditSights — do note the weakness generally vs the contribution from the financial sector. As CreditSights say “The finance sector’s contribution grew by over 20% in 1H15 this is no thanks to the banks and more likely due to profit growth at securities firms and possibly asset management companies. In contrast, the industrial sector, which contributes over a third to GDP, is growing at under 2% YoY.”
Of course, it’s real (ish) activity but it most probably isn’t going to be repeated at that level and without it GDP would have been down closer to 6 per cent, according to UBS.
Which is all interesting stuff, but it’s not why we’re here. Read more
Quite obviously, not many people take China’s own statistics at face value.
Also quite obviously, China is a hard economy to accurately measure anyway. It’s really quite big and its pace of change has made grasping any bit of it for very long more than difficult. Read more
UK chancellor George Osborne has announced new budgetary rules that aim to eliminate the current structural deficit within three years and ensure public sector net debt is falling as a share of national income by 2016-17.
Key to the new vision is a budget surplus by 2017-18.
But as the FT’s Martin Wolf warns on Friday:
…the focus on public debt alone is mistaken. Crucially, it ignores the asset side of the balance sheet altogether. Moreover, other things being equal, the bigger the fiscal surplus, the lower interest rates would be. If that encouraged a run-up of private debt, the economy might end up yet more unstable. Alas, the Office for Budget Responsibility already forecasts a big jump in household debt.
Have a chart Credit Suisse’s Neelkanth Mishra put out back in 2013, the same Neelkanth Mishra who has been arguing persuasively that if “activity in informal industries and rural areas were properly measured, India’s GDP would look bigger and more stable”:
Standard deviation of reported quarterly GDP growth of India is second lowest only to China, you say? Read more
Apple just reported the biggest quarter of net income earned by any public company ever, at least in nominal terms. It remains the world’s most valuable publicly traded company by a large margin. So naturally there are people who want to put these statistics into perspective by comparing a corporation to a country. Unfortunately, most of those efforts miss the mark because they generally don’t compare apples to apples.
The most common way to measure the size of an economy is to look at how much stuff is produced in it each year. (This is GDP.) You might think that is equivalent to corporate revenues, except that a lot of those inflows are offset by outflows to suppliers. In other words, you’d be looking at a company’s GDP without subtracting the imports that represent foreign production. That’s double counting. Read more
What you think of the new one will probably depend on what you thought of the old one. For many people “not much” seems inadequate.
From Capital Economics’ Mark Williams on the likely Tuesday announcement of an upward boost of up to 10 per cent to the Chinese government’s estimate of the size of its economy (our emphasis): Read more
We had feared that one of most famous of Chinese statistical quirks might have abandoned us forever.
The reported combined GDP of China’s provinces came in only slightly above its national GDP in the first quarter, amid reports that more than 70 smaller Chinese cities were dropping GDP as a performance metric.
Perhaps as China stopped evaluating its local government officials on a narrow GDP basis, the officials would stop doing the obvious and fiddling their GDP numbers.
That would in turn stop the sum of China’s regional GDPs always coming in ahead of the national figure… as well as helping with things like unequal income distribution, problems with the social welfare system and environmental costs. Read more
Germany shrank, and France stagnated in the second quarter. Italy we’ve all agreed not to talk about until Matteo Renzi waves his magic liberalisation wand, right? Here’s the FT:
The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.
Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures. The French economy recorded zero growth during the period.
The current level of income inequality in the U.S. is dampening GDP growth.
At least, that’s the conclusion of a new report from S&P Capital IQ. There’s a lot to digest in this exhaustive summary of existing research, including a bunch of interesting data on educational attainment and research on political frictions in times of extreme inequality. But the core argument is driven by a simple relationship: while many people tend to spend most of their earnings (and often more than they actually earn) on goods and services, those who make a lot of money spend a large share of their income on financial assets and property. As more and more of the country’s income shifts upwards to a smaller subset of the population, everyone else is deprived of spending power at the same time as more capital is available to invest. Read more
Let’s peer into the nearish future for the world economy.
Here’s a refreshingly different view on China, courtesy of Karen Ward, senior global economist at HSBC.
Her key point: it’s not that China is necessarily over-investing (as is frequently argued) but that the rest of EM may be under investing. Read more
There’s an interesting debate going on between Steve Randy Waldman, Karl Smith, Scott Sumner, Evan Soltas, Mark Sadkowski (and more).
It started when Waldman proposed a simple but elegant argument that the 1970s great inflation period may have driven not so much by expansionary monetary policy but rather population demographics: namely the baby boom and the entrance of female workers into the economy. Read more
This is what $560bn or so of newly-discovered US economic output looks like.
Yes it’s the latest BEA estimates/revisions of US GDP.
They’re out – and with 1.7 per cent growth in 2013′s second quarter, and 2012 growth revised up to 2.8 per cent from 2.2 per cent at the last estimate, they’re fairly good. Read more
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
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
That’s from Bloomberg Briefs’ Michael McDonough (and yes, he does allow his Twitpic charts to be republished, provided attribution is correct). 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
Another day, another Aussie GDP downgrade.
From BofA Merrill Lynch: Read more