China Economy

10

Wen changes his tune

Courtesy of Also Spracht Analyst After China’s disastrous macroeconomic data in April, the People’s Bank of China has cut the reserve requirement ratio by 50 basis points. Unfortunately, with debt deflation and a worsening capital flow situation, cutting RRR is going to be totally useless in stimulating credit. So here comes Wen Jiabao. He has recently been

6

China’s April property prices

China’s April property prices were just released and increasingly widespread falls are apparent in the year on year figures: ============================================================================ April March Feb. Jan. Dec. Nov. Oct. 2012 2012 2012 2012 2011 2011 2011 ============================================================================ —- Number of Cities on Yearly Change in Price —– New Residential Apartments Increase 23 28 37 53 62 66

3

China’s new housing starts turn negative

Courtesy of Also Spracht Analyst. The chart below shows that new housing starts (residential) year-to-date in terms of floor area is below what it was in the same period of last year.  This points to a negative impact on the GDP growth figure and not only because real estate investments contributes roughly 10% of GDP, its

19

China real estate unravels

Those that read my morning post will perhaps have clicked through to Patrick Chovanec’s blog to read his post on the unravelling Chinese property market. If you are not one of them, find it below, reproduced with the kindly permission of the good Professor! As a prelude to a broader analysis of China’s GDP, and the accuracy

67

A China hard landing?

Perhaps I’m wrong but today it looks to me like China is heading into a hard landing. There are three stories that you must read to make this case. Happily, all three are available at MacroBusiness. The first is Zarathustra’s description of the monetary pain that is growing in China. It describes the capital outflow

4

Money is fleeing China

The detailed statistics from China’s April monetary statistics show that the change in the position of forex purchases has turned negative again in April. With a relatively large trade surplus in April, this indicates that capital flow turned hugely negative.  I estimate that excluding the trade surplus, capital outflow would be RMB177 billion (I don’t distinguish the type

10

Wenzou’s debt deflation

In a debt deflation, debt liquidation leads to falling asset prices. As the process continues, the repayments of debt (and default) outpace extension of new credits, meaning that the banking system is destroying money through credit contraction.  That means deposits fall, and so does money supply. That leads to sharper falls in asset prices, more repayment

11

Is China entering a debt deflation?

Yes, I am talking about the dreaded debt deflation (in Irving Fisher’s sense) in China. It works like this, more or less: Banks create money by extending credit; when banks lend you money, your deposit account balance increases.  That money created by bank’s extending credit is included in the money supply calculation.  Increasing debts in the economy means increasing

1

China cuts the RRR

With uniformly bad data in April, the PBOC decided to cut the bank reserve requirement ratio (RRR) last night by 50bps. As I have stressed, when the cause of the slowdown is an asset deflation, loan growth is more demand driven than supply driven. Also, we have to pay attention to the trade surplus and

2

China’s ugly April

It’s official, the Chinese economy did not bottom out in the first quarter, and the latest data confirms just how badly the economy is doing (or just how optimistic the market has been). While I am bearish on China and did not think the worst was over for the Chinese economy, I did think that

4

Big miss in Chinese industrial production

by Zarathustra The latest figures from the National Bureau of Statistics show that industrial production in China was weak. Industrial production grew by 9.3% yoy (real terms) in April, below market estimates of 12.2% yoy, and down from 11.9% yoy of March. As can be seen from the charts, industrial production figures have completely diverged

1

More on tepid Chinese inflation

From Zarathrustra, note retail sales and industrial production numbers will follow this afternoon. China’s consumer price inflation continued with the downward trend in April. Consumer price inflation increased by 3.4% on an year-on-year basis, falling from 3.6% yoy of the previous month, in-line with market estimates.  On a month-on-month basis, consumer price fall by 0.1%

0

China links

Courtesy of Sinocism: We hear a lot about Weibo and censorship. Baidu, which failed in its own attempt to run a microblogging service, has in some ways benefited from the rise of Sina and Tencent Weibo, as so much of the regulatory focus, pressure and costs have shifted from Web 1.0 to Web 2.0, and specifically

0

Chinese inflation a very Western 3.4%

No surprises today with Chinese CPI printing on the button of consensus at 3.4%: The PPI, on the other hand, undershot consensus by a couple of points at -0.7%: A good result for the CPI then and some evidence of ongoing weakness in the industrial economy in the PPI although at least the sharp price

4

China trade underwhelms

Chinese trade balance figures for April just came out and surprised to say the least, with expectations of a $9.9 billion positive balance blitzed by coming in at $18.42 billion: The year on year growth figures were not impressive. Whilst export growth remained positive, it has decelerated markedly, with y-o-y growth of only 4.9% (expected

5

A soy Taiping point?

by Michael Feller Like a pensioner on his birthday, the Australian financial media yesterday enjoyed an annual spasm of exuberance with the release of the 2012-2012 Federal Budget. Yet amid the dense pages of analysis over every minutiae of detail,  few dared ask whether the prospects for the Chinese economy are a realistic backdrop for Treasury’s

29

China’s unbelievable banks

If you can recall, some time ago I talked about the CBRC’s annual report on the Chinese banking system. The report said that Chinese banks are very well capitalised, with non-performing loans falling every year and capital adequacy ratio rising every year. You could have guessed that I disagree.  As I have talked about previously, China simply

5

China’s divergent PMIs

On Tuesday, the official PMI showed continued expansion in manufacturing.  Yesterday, theHSBC/Markit China manufacturing PMI, on the other hand, remained in contractionary territory for the 6th consecutive month, with the latest reading at 49.3, slightly improving from 48.3, indicating a slower slowdown. The chart below from Michael McDonough of Bloomberg Brief slows the continued divergence in two PMIs’ headline numbers: The usual

4

China official PMI edges up

Courtesy of ANZ • The headline PMI rebounded to 53.3 in April, lower than market expected, but higher than with March’s 53.1. • The production index rose strongly to 57.2 from 55.2 previously. • While the new orders index declined by 0.6pts to 54.5; the export order index rose 0.3pts to 52.1. • Inventories of finished goods

16

Hugh Hendry remains bearish on China

Hugh Hendry of Eclectica Asset Management hasn’t written for quite a while, nor has he been actively out there on the telly as his clients “ban him from media appearances”. Hendry has been bearish on China for quite a while, since he posted a video talking in his Scottish accent in front of large empty buildings in China talking

3

An L-shaped recovery for China?

A few days ago, I mentioned that banks were undertaking stealth easing where mortgages rates have come down somewhat and mortgages are easier to come by. With March strong loan growth, stealth easing is happening even though the more aggressive easing actions like cutting reserve requirement ratio have not happened. In his latest note, Dong Tao

3

Chinese banks and stealth easing

Although many are probably still hoping for official monetary cuts in China, credit easing appears underway anyway in mortgages. This is not completely new. In fact, some weeks ago I became aware of some banks offering mortgages with interest rates reduced by 10-15% for first-time buyers.  Sina is now reporting that reduction of mortgage rates

0

US earnings trace slowing China

Several bell weather US firms have reported earnings that provide an insight into the state of the Chinese economy. ABB (ABBN.VX) and Caterpillar (CAT.N) both blamed shifts in their accounts on slack Chinese demand. To start with, ABB’s bottom-line beat expectations but margins declined.  The company’s presentation said that a “Weaker China offset by good growth in N America”. 

2

China Flash PMI improves a bit

The China Flash PMI is out and shows a small improvement from 48.3 in March to 49.1 in April. Ouput, new orders and exports all contracted at a slower rate: This is welcome. However, a quick look at the charts shows that the trends are all solidly sideways: The global zombie plods on! China Flash

0

China’s April lending weak?

Caijing reports that sources close to the big 4 Chinese Banks (ICBC, Bank of China, China Construction Bank, and Agricultural Bank of China) suggested that the 4 banks have lost more than RMB1 trillion of deposits, while new loans are not really growing. The hugely positive picture of above expectation new loans in March appears to be

7

Nomura joins commodity super cycle bears

Various investment banks have been weighing in on whether or not the end of the commodity/ steel/ metal and other super-cycles, which have been led primarily by China’s increasing demand. Credit Suisse has different teams on either side of the debate, and Citi thinks that it’s over.  Now it is Nomura’s turn. Similar to Citi’s argument,

27

China’s Achilles Heel

By Leith van Onselen The Economist today published an interesting article about the demographic time bomb that threatens to derail China’s economic development: Over the past 30 years, China’s total fertility rate—the number of children a woman can expect to have during her lifetime—has fallen from 2.6, well above the rate needed to hold a

56

An illustration of China’s unsustainable growth

The corruption and purging of Bo Xilai is illustrative of the shortcomings of China’s unsustainable growth model. After Bo Xilai was purged and as new people will be running the Chongqing government, a review of the debts outstanding for the government, including the local government financing vehicles, which are used in funding many of the infrastructure projects,