What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing?
The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come.
You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example:
The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP.
China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.
- Reuters on Tuesday
Rising unemployment that leads to social instability in China = scary and anathema to China’s leaders.
SO, also from Reuters with our emphasis:
China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.
The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by “zombie” state firms.
Hmmm. A longer timeline and funding? That almost sounds like… good news? Read more
We don’t have too much to add to the Shambaugh-generated “is the Chinese Communist Party cracking up” debate. Apart from suggesting that…
1. It seems that the debate itself is noteworthy and wouldn’t have happened even one year ago. As JCap’s Anne Stevenson-Yang said, this “may represent the first time in three decades that a prominent foreign expert on China has been willing to so thoroughly blow his entrée in Beijing by publishing an incendiary piece, and only two months after the China Foreign Affairs University had ranked Shambaugh No. 2 among the top 20 international scholars who are best informed about China! That will not be happening anymore. Shambaugh’s boldness, or recklessness, in itself may be the most potent sign yet that China’s soft power has waned.”
2. The trouble the CCP is apparently finding itself in seems an almost inevitable reaction to the economic pressures China is facing. Read more
Massive kudos to Societe Generale for attempting to answer a question we’ve long wondered (but figured would be insanely difficult to estimate).
The question is: if China does have a ‘hard landing‘ — or anything significantly below the consensus — how will that affect assets x, y, and z? Read more
What IS a hard landing in China?
Well, BAML’s latest survey of fund managers defines it as less than 7 per cent growth. And incidentally, only 8 per cent of those surveyed believe it will happen, half the percentage of the November survey. Read more
Remember Nomura last year estimated there was a 1-in-3 chance of a hard landing in China?
Anyway, they’ve updated the index on which it was based. Nomura’s chief Asia economist, Rob Subbaraman, says the 1-in-3 odds indicated by the China Stress Index remain, but the hard landing is less likely: Read more
The farce of the eurozone’s debt crisis is understandably captivating, but is an even bigger situation developing in China? Credit-fuelled gullibility lies at the heart of most bubbles, but such gullibility provides quality fodder for fraudulent schemes too. No one notices on the way up. But Charles Kindleberger showed in his seminal history of financial manias that they start emerging on the way down. In this context, China’s newsflow is worrying indeed.
So begins the latest note from SocGen’s Dylan Grice. And it’s something of a treat. He’s puzzled that so few people are forecasting a hard landing for China given the developing distress in the highly speculative (and pivotal) sector of its economy. Read more
A new Nomura report puts the odds at one-in-three of a hard landing in China in the next three years, which they define as four consecutive quarters of sequential GDP growth at 5 per cent or less.
It’s a pretty epic paper, with numerous authors, charts, and historical references, so we’ll focus here on their key six reasons why they’re becoming more wary of a hard landing. Read more