China Economy

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Is a Chinese Yuan reversal coming?

by Chris Becker Following on the heels of a trade “deal” with the EU, the Trump administration is now trying to arrest the biggest front in the trade war – China. Last night and into the pre-morning session there was some speculation of a new trade deal underway. From the WSJ: Treasury Secretary Steven Mnuchin

2

Yet another take on a slowing China

Via Credit Suisse this time: 1. Credit tightening Credit has been steadily tightening in China with total social credit growth at historical lows. Credit momentum tends to lead IP by five months, and is pointing to a sharp slowdown in the latter, as shown in Figure 4 below. The slowdown is especially salient in areas

3

How far can China’s latest property bubble up carry it?

Some nice charts via Vertical Group (which is an MB client in case you’re wondering): While many have attributed the resilience in China’s steel prices this year to Xi Jinping’s “supply-side reform magic”, we believe a much more basic measure is at play. More specifically, we believe that as external pressures began growing last year, intensifying

1

Another view on a slowing China

Via Barclays: Credit crunch, escalating tariffs, more easing Moderating April-May data suggest the rise of a “credit crunch” due to various government bodies’ sustained policy tightening, which has started to have a visible effect on the economy. With our theme of moderating growth, tightening regulations and escalating trade tension continuing to play out into H2,

32

China has unleashed its property market

Hold your horses. The Chinese correction has a new entrant. June house prices are out today and there’s no disputing the emerging trend now. China has unleashed it property market as external pressures grow. June new house prices accelerated for the fourth straight month to a robust 1%: Tier one cities are still in check

1

Chinese lending slows faster

There’s no stopping the slowdown in Chinese credit. In June banks extended RMB1840bn but total aggregate financing fell to just RMB1180bn: The shadow banking share has collapsed: Year on year new loans eased into the positive but the three month moving average remains down: The rolling annual nudged higher: M2 slumped to 8%: Mortgage growth

1

Chinese trade suggests slowing economy

Via Capital Economics: • Chinese exports held up well on the eve of US tariffs. But weaker-than-expected import figures point to a renewed slowdown in domestic demand heading into the second half of the year. • Export growth edged down last month, from 12.6% y/y to 11.3% in US dollar terms, but held up better

17

World rounds on China trade cheat

Via Bloomie today: U.S. President Donald Trump’s assault on China’s trade policies will garner several high-profile advocates on Wednesday, as some of the world’s largest commercial regions will meet in Geneva to thresh out the ramifications of Beijing’s entrance into the World Trade Organization 17 years ago. Chinese representatives will say things are going well and that the

0

Chinese inflation pulse muted

Chinese June inflation is out and shows little sign of trouble: In June 2018 , the national consumer price rose by 1.9% year-on-year . Among them, the city rose 1.8% , the rural rose 1.9% ; food prices rose 0.3% , non-food prices rose 2.2% ; consumer prices rose 1.5% , service prices rose 2.4% . In the first half of the year, the national consumer price rose by 2.0% over the same period last year . In

10

Why things are about to get much worse for China

Excellent work from Damien Boey at Credit Suisse: PBoC intervention Overnight, we saw the PBoC intervene to stabilize the USD/RMB around 6.7. Alongside the intervention, two PBoC officials spoke about the Bank’s commitment to exchange rate stability, with one also suggesting that recent devaluation was due to speculative outflows rather than a deliberate policy attempt

18

Double shock! Combined China/Australia financial crisis looms

From Spectrum Asset Management: Spectrum principal Damien Wood said both countries have seen a build-up of private debt to record levels: from the business sector in China, and from households (via residential mortgages) in Australia. Both countries are vulnerable to what is known as a ‘Minksy moment’, a term coined by US economist Paul McCulley

3

China’s PMIs auger slower growth

Via Capital Economics: • The latest PMI readings suggest that the economy lost some momentum last month. With credit growth still cooling and US tariffs imminent, we expect further weakness ahead. • After holding steady at 51.1 in May, the Caixin manufacturing PMI edged down to 51.0 in June. The index is generally a better

1

China PMIs slow slowly

China’s official July PMIs were out over the weekend. Manufacturing came in at 51.5 and services at 55: The manufacturing purchasing managers’ index continues to operate in the expansion zone. Since the beginning of this year, the manufacturing PMI has been operating in the boom zone of 50.0% or above. The average value of the first half of the year

31

Yuan selloff accelerates as PBOC cuts deep

The daily fix for Chinese Yuan has come in at 6.5960 versus the previous level at 6.5569, a near 400 point cut! The selloff has accelerated, with a steeper trendline on the USDCNH pair: Where will it end? What’s the uncle point for the Chinese authorites? Somewhere around 6.70 but it could overshoot to the 6.90

27

China headed for “financial panic”

Via Bloomie: A leaked report from a Chinese government-backed think tank has warned of a potential “financial panic” in the world’s second-largest economy, a sign that some members of the nation’s policy elite are growing concerned as market turbulence and trade tensions increase. Bond defaults, liquidity shortages and the recent plunge in financial markets pose

16

China is overreaching in war with US

Bloomberg has good article today that I largely agree with: In recent weeks, prominent academics have begun to question if China’s slowing, trade-dependent economy can withstand a sustained attack from Trump, which is already started to weigh on stock prices…Yu Zhi, an economic professor from Shanghai University of Finance and Economics, questioned the wisdom of

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China bans HBO on John Oliver Xi parody

Great stuff from John Oliver on China: And the fallout: HBO’s website has been blocked in China after censors on Chinese social media platform Weibo banned mentions of John Oliver following the British comedian’s parody of Chinese president Xi Jinping. According to the anti-censorship and monitoring group Greatfire.org, HBO’s website was completely blocked within China as of Saturday, days

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China cuts reserve ratio requirement again, and?

Via the PBOC: To further promote the market-based legalization of “debt-to-equity swaps” and increase support for small and micro enterprises, the People’s Bank of China decided to reduce the large state-owned commercial banks, joint-stock commercial banks, and postal savings banks from July 5, 2018 onwards. The reserve ratio of RMB for urban and commercial banks,

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Fed, Trump and debt: Is a China financial crisis looming?

On this episode of MB Fund Webinar, China Triple Threat will have David Llewellyn-Smith joining Damien Klassen and Tim Fuller to cover the latest from China. How will China handle the EM crisis? How will Xi respond to Trump’s Trade War? Is China slowing or is it unleashing more debt? What are the implications for investment?

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PBOC looks set to stabilise Chinese stocks

After the near 4% drop in A-shares yesterday on the Shanghai Composite, precipitated by another round of punitive tariffs by the Trump administration, it was inevitable that Chinese authorities would step in somehow. An event like this on US markets would usually involved the rolling out of Fed officials to placate fears, but without any official intervention,

2

Here comes the Chinese tech bubble

by Chris Becker It’s no joke that Chinese stock markets are havens for speculative activity, more so than the casinos on Wall Street as the quasi-capitalist communist country catches up on the Great Moderation aka bubble to end all bubbles. It has been quite the ride – witness the epic rise and fall of the

12

Chinese house prices reaccelerate

Hmm, Chinese house prices are out today and there’s life in this sucker yet. Monthly gains accelerated for the fourth straight month to 0.7% though year on year was flat at 4.7%: Here is the raw data: The seventy city price balance chart shows a reasonably broad-based acceleration: Though it is clearly still weighted heavily