China

[admin]

That sector of the economy has been allowed to continue production despite overcapacity, or a glut of supply, for too long. "To us, capacity consolidation holds the key to addressing China's most pressing economic issues: capital misallocation, looming growth in non-performing assets and deteriorating productivity," the note said.

China's need for capacity consilidation - Business Insider9 ways to keep your Windows computer safe | PCWorld

China could see inflows of as much as $3 trillion into renminbi assets over the medium-to-long term as successful inclusion of the yuan in the International Monetary Fund's (IMF) reserve currency basket sets the stage for further opening of the country's financial markets.

China could see $2-3 trillion inflows after yuan enters IMF's currency basket

"A China hard landing would have a profound effect on the global economy. It would weigh heavily on emerging markets. And advanced economies would not be immune," Oxford Economics said in its report.

You should fear a China hard landing

China’s biggest 101 steel companies, which helped fuel the country’s industrial revolution and housing frenzy, lost a combined Rmb72bn ($11bn) in the first 10 months of 2015, or more than double the profits garnered last year. The reversal in fortunes highlights the unwinding of rapacious demand for basic materials — in just two years the country produced more cement than the US did in the entire 20th century — as economic growth slows.

China’s steel industry has its own take on your so-called *law* of supply and demand | FT Alphaville

China is laying the groundwork for a robot revolution by planning to automate the work currently done by millions of low-paid workers. The government’s plan will be crucial to a broader effort to reform China’s economy while also meeting the ambitious production goals laid out in its latest economic blueprint, which aims to double per capita income by 2020 from 2016 levels with at least 6.5 percent annual growth. The success of this effort could, in turn, affect the vitality of the global economy.

China Aims to Retool Its Manufacturing Industry with Robots | MIT Technology Review

[admin]

During the meeting, the discussion explored stepping up supply-side reforms such as dealing with overcapacity and excess labor in state-owned industries and tax cuts, according to a party official familiar with the discussions. Applying the supply-side theory that embraces productivity gains and reduced tax barriers could reinvigorate the public sector while potentially free up room for private enterprise, according to proponents.

The Great China Supply-Side Revolution? Communists Change Tack - Bloomberg Business

On Monday, China's central bank reported $3.4 trillion in foreign exchange reserves, the lowest level since early 2013. November was one of the biggest drops ever. Many investors are trying to get at least some of their money out of the country. Many Chinese see better opportunities abroad, whether it's real estate in New York or London, pricey art, or stocks and bonds in other countries. Exact data is hard to come by from China, but Capital Economics forecasts that November set a record for people moving money out of China -- so-called capital outflows. "Today's data suggest that capital outflows picked up sharply last month," says Julian Evans-Pritchard, chief China economist for research firm Capital Economics.

China's foreign exchange reserves shrink fast - Dec. 7, 2015

The greater risk for the world over coming months is that China stops trying to hold the line aganst devaluation, and sends a wave of corrosive deflation through the global economy.

Chinese devaluation is a bigger danger than Fed rate rises - Telegraph

Lest we forget, China's fixed capital investment has reached $5 trillion a year, as much as in North America and Europe combined. The excess capacity is cosmic. Pressures on China are clearly building up. Capital outflows reached a record $113bn in November. Capital Economics says the central bank (PBOC) probably burned through $57bn of foreign reserves that month defending the yuan peg. A study by the Reserve Bank of Australia calculates that capital outflows reached $300bn in the third quarter, an annual pace of 10pc of GDP. The PBOC had to liquidate $200bn of foreign assets.

Chinese devaluation is a bigger danger than Fed rate rises - Telegraph

[admin]

There have been six reductions in benchmark interest rates since November 2014 and five reductions of the bank reserve-requirement ratio since last February, but this monetary stimulus has had no noticeable effect, largely because there is a lack of demand for money.

How China Could Crash the Global Economy - The Daily Beast

The best case scenario for China is decades of recession or recession-like stagnation. And that is why money is fleeing the country at the moment. Bloomberg reports that there was $461 billion of net capital outflow in the third quarter of last year. In the fourth quarter, there was a $367 billion outflow. The decline from the third to fourth quarter was attributable not to an improvement in sentiment but the imposition of informal, off-the-books capital controls.

How China Could Crash the Global Economy - The Daily Beast

Steven Barrow at Standard Bank said the problem with trade-weighted indices was they failed to take into account the financing role of currencies, in particular the use of the dollar to price commodities. That meant the “financial squeeze” on China from the renmninbi’s weakness against the dollar was more significant than movements in the index, said Mr Barrow.

China faces currency issues beyond US dollar - FT.com

China is perilously close to a devaluation crisis as the yuan threatens to break through the floor of its currency basket, despite massive intervention by the central bank to defend the exchange rate. The country burned through at least $120bn of foreign reserves in December, twice the previous record, the clearest evidence to date that capital outflows have reached systemic proportions. “There is certainly a sense that the situation is spiraling out of control,” said Mark Williams, from Capital Economics.

Capital flight pushes China to the brink of devaluation - Telegraph

China’s reserves have dwindled from $4 trillion to $3.33 trillion and are no longer far from the $2.6 trillion deemed to be the prudent threshold by the International Monetary Fund, given China’s $1.2 trillion dollar liabilities.

Capital flight pushes China to the brink of devaluation - Telegraph

Though some industries suffer from overcapacity, there’s still a significant shortage in health care and education…. The moment you show the direction, a lot of resources and energy in the country will come forward.

Can China Pull Off the Great Economic Recasting?

China's currency has already dropped quite a bit in the new year, but the yuan is still headed "meaningfully" lower this year, Goldman Sachs said. The dollar will be fetching 7.0 yuan by year-end, up from 6.5807 currently, Goldman Sachs forecast in a note Monday.

Goldman Sachs expects yuan weakness to persist

[admin]

According to HSBC economist, Frederic Neumann, a slowdown in the Chinese economy is "not exactly the end of it all." Possible clues to China's fate could be gauged from how the world reacted to Japan's economic malaise, he reckons. At the end of the 1980s, Japan's contribution to global gross domestic product was about the same as China does today. While the Japanese economy has failed to muster meaningful growth since then, the world "sailed on with barely a blip in the 1990s" after Japan's boom and stumble in the decade before, Neumann noted in a report.

Why a China slowdown will not hurt that much

China's share of the world's growth in terms of purchasing power parity has jumped to well over 16 percent from 10 percent in the past decade while its share of global gross domestic product (GDP) in U.S. dollar terms has also tripled in the same period to just under 15 percent last year. "So, if Chinese demand stumbles, would this knock out world growth? Not necessarily. Take the example of Japan in 1989 when the bubble burst. At the time, its share of global U.S. GDP was a touch above 15 percent. The subsequent slowdown, however, didn't push the world to the brink." China imports have grown dramatically but as a major export hub, but the share of retained merchandise imports in China's GDP is lower than Japan's today, wrote Neumann. A significant share (30 percent by some estimates) of China's imports are components used for exports and thus not subject to swings in local demand, Neumann believes. "From this perspective, then, China may not be quite as important a global growth driver as often thought."

Why a China slowdown will not hurt that much

A major contributor for this imminent recession is the fallout from a faltering Chinese economy. The megalomaniac communist government has increased debt 28 times since the year 2000. Taking that total north of 300 percent of GDP in a very short period of time for the primary purpose of building a massive unproductive fixed asset bubble that adds little to GDP. Now that this debt bubble is unwinding, growth in China is going offline. The renminbi's falling value, cascading Shanghai equity prices (down 40 percent since June 2014) and plummeting rail freight volumes (down 10.5 percent year over year), all clearly illustrate that China is not growing at the promulgated 7 percent, but rather isn't growing at all. The problem is that China accounted for 34 percent of global growth, and the nation's multiplier effect on emerging markets takes that number to over 50 percent.

A recession worse than 2008 is coming—commentary

While China's economy may implode, the simple, plain vanilla explanation sees a yuan in need of realignment. This is not the End of Days, but the fixing of an earlier policy mistake. When the yen and won devalued against the dollar, no one was saying that Korea or Japan were finished. If China had a floating exchange rate, the yuan would have devalued with won and yen, and no one would have given it a thought. In a fixed exchange regime, however, policy mistakes become magnified. A devaluation is filled with meaning. Be that as it may, the primary interpretation of a Chinese devaluation, at this point, is the correction of an earlier problem, not the end of Chinese civilization as we know it.

China IS fixing its economy—commentary

[admin]

In the last six months of 2015 capital left China at an annualised rate of about $1 trillion. The persistent gap between the official value of the yuan and its price in offshore markets suggests investors expect the government to allow the currency to fall even further in future. And, despite a record trade surplus of $595 billion in 2015, there are good reasons for it to do so, at least against the dollar, which is still being propelled upwards by tighter monetary policy in America. The problem is that the expectation of depreciation risks becoming a self-fulfilling loss of confidence. That is a risk even for a country with foreign-exchange reserves of more than $3 trillion. A sharply weaker currency is also a threat to China’s companies, which have taken on $10 trillion of debt in the past eight years, roughly a tenth of it in dollars. Either those companies will fail, or China’s state-owned banks will allow them to limp on. Neither is good for growth.

The yuan and the markets | The Economist

China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning. Wasif Latif, who manages $1.6 billion at USAA Investments, agrees. "These data reports next week could be very important in their power to either confirm or refute the current narrative that China is experiencing a very bad slowdown," said Latif.

Buckle your seatbelts: China could rock markets next week

Investors who spoke with CNBC say if the data disappoints, the central bank will be under more pressure to allow the onshore currency to weaken, which will most likely result in a widening spread between the onshore and offshore yuan. That could spell trouble for stocks. Societe Generale team says widening spreads over the past nine months has been followed by a surge in U.S. equity market volatility.

Buckle your seatbelts: China could rock markets next week

"It may be more important to the market to get insight on what is happening inside China from upcoming earnings calls than from the economic releases. Last quarter, companies with manufacturing end-markets in China generally saw weakness while those with consumer end-markets generally saw resilient strength in demand. If earnings calls indicate the tone is changing on either side, the market could react sharply, no matter what the December economic data say," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co. to CNBC.

Buckle your seatbelts: China could rock markets next week

[admin]

On a quarter-on-quarter basis, economic growth eased to 1.6 percent in the fourth-quarter, versus expectations of 1.7 percent and down from 1.8 percent in the third quarter. Industrial output rose 5.9 percent in December from a year earlier, missing forecasts of 6.0 percent, and slowing from November's 6.2 percent. Retail sales climbed 11.1 percent in December from a year earlier, but less than an 11.3 percent rise expected by the market and November's 11.2 percent. Fixed-asset investment growth, a crucial driver of the economy, grew 10.0 percent in 2015 from the previous year, also missing market expectations.

China fourth-quarter growth slows to 6.8 percent, weakest since 2009 - Yahoo Finance

China's data in the coming week is unlikely to have much market impact.  The Bloomberg consensus is for steady growth in industrial output at 6.1% year-over-year pace.  The risk is on the downside, but even a high 5% reading would be the envy of most countries.  The consensus expects retail sales to accelerate to 11.3% year-over-year from 11.2%.   Note that in the three months before the August plunge of Chinese shares, retail sales rose at an average pace of 10.4%.  In the three months since the pace has quickened to 11%. The other data highlight is China's Q4 GDP.  The consensus is that the economy expanded at a 6.9% year-over-year.  It is expected to be the third quarter that China recorded a 1.8% quarterly expansion.

Many disparage the accuracy of Chinese data, which often seems quickly tallied, without the volatility that other countries show, and sometimes seemingly self-serving.  However, critics often do this is by innuendo and accusations, not a robust examination.   In this context, we note the San Francisco Fed report in 2013 that found that: "These alternative domestic and foreign sources provide no evidence that China’s economic growth was slower than official data indicate."  Of course, this is not a comprehensive study and it covers only a short period.  Still, it is suggestive.  We also note that China has agreed to adopt the more robust data regime offered by the IMF.  Lastly, in comparison, reporting data and then revising it ad nauseum for years, which is what many countries including the US, do, might not, at any one point, be providing more accurate data, which ought not be confused with the latest revision.

Week Ahead: What Will It Take to Stabilize the Capital Markets? | Marc to Market

It is even possible that the event that markets most fear – a controlled depreciation of 10 per cent or so – might be the only way of restoring calm, if accompanied by other reforms. Until the renminbi is deemed by the global financial system to be at a sustainable level, fear of disruptive change will dominate sentiment.

China devaluation – a necessary evil? | Gavyn Davies

Take the China explanation.  A collapse of growth in China would indeed be a world changing event.   But there is just no evidence of such a collapse.  At most there is suggestive evidence of a mild slowdown, and even that is far from certain.  The mechanical effects of such a mild decrease on the US economy should, by all accounts, and all the models we have, be limited.   Trade channels are limited (US exports to China represent less than 2 percent of GDP), and so are financial linkages.  The main effect of a slowdown in China would be through lower commodity prices, which should help rather than hurt the United States.

RealTime Economic Issues Watch | The Price of Oil, China, and Stock market Herding

Chinese property stocks advanced after data showed home prices increased in more cities last month. The benchmark stock index swung between gains and losses. The Shanghai property index climbed 0.8 percent at 10:04 a.m., the biggest increase among industry groups. Gemdale Corp. led gains for developers, surging to the highest level in almost a month. New-home prices climbed in 39 cities, compared with 33 in November, the National Bureau of Statistics said Monday. The Shanghai Composite Index added 0.3 percent, erasing a loss of as much as 1.9 percent.

Chinese Property Stocks Rise After Home-Price Recovery Spreads - Bloomberg Business

For an economy facing its slowest economic growth in a quarter century, a 7.7 percent year-on-year rise in new home prices in December would seem to offer China some light at the end of the tunnel. But the headline number, published by the National Bureau of Statistics on Monday, masks China's massive property problem - a vast amount of unsold apartments mainly in its smaller cities.

Strong China property data masks big problem: unsold homes | Reuters

China's top state-owned asset administrator has vowed to clean-up the country's so-called "zombie" industrial companies by 2020, the official Xinhua News Agency has reported. Zhang Yi, Chairman of the State-owned Assets Supervision and Administration Commission (SASAC), told a central and local enterprise work conference convened at the weekend that the agency will "basically" resolve the problem of unproductive "zombie" firms over the next three years.

China to clean-up 'zombie' companies by 2020: Xinhua - Yahoo Finance

[admin]

The Economist has calculated that if only 5 percent of China’s population decides to take advantage of the $50,000 annual limit on foreign investment, the outflow in 2016 would be equivalent to the whole of China’s $3.3tn in foreign exchange reserves.

Fight or flight | The Economist

Ample reserves, capital controls, a trade surplus and a determinedly interventionist state mean that China is a long way from a full-fledged crisis. Neither is all the apparent capital flight as worrying as it might appear: purchases of foreign securities by Chinese corporates may look like a stampede for the exits, but can serve to hedge firms with foreign-currency debts against depreciation.

Fight or flight | The Economist

the internals of the report suggest that China’s new growth engine – services and consumption – continued to perform strongly, managing to offset a slowdown in heavy industry, investment and trade, the areas that once powered China’s economy. According to the NBS, the nation’s tertiary industry – largely encompassing services – accounted for 50.5% of GDP in 2015, an acceleration of 2.4 percentage points on a year earlier and some 10.0 percentage points above secondary industries, the sector that up until recently was the largest component of China’s economy.

The growth of China's service sector - Business Insider

Oil prices rose more than 3 percent on Tuesday as data showed Chinese oil demand likely hit a record high in 2015, but contracts remained near 12-year lows as the IEA said the market should stay oversupplied this year.

Oil rises on record Chinese demand, oversupply caps gains | Reuters

[admin]

According to a report from the Institute of International Finance, $676 billion left China in 2015. It's a huge number. To put it in perspective, all emerging-market economies together saw outflows of $111 billion in 2014.

China doesn't want to devalue the yuan - Business Insider

When the yuan depreciates, yuan holders have an incentive to exchange it for a currency that isn't losing value. That market force only makes it depreciate more, and that's bad for China because China has things to do with those yuan. It has a corporate sector to deleverage and restructure, it has a housing market to prop up, and it has projects to fund. And of course, conversely, if the yuan is steady, more people will buy or hold the yuan. So no. The Chinese government has no intention of depreciating the yuan even though the market seems to be begging for it. It just doesn't feel like that to traders who are getting up in the middle of the night to check its value.

China doesn't want to devalue the yuan - Business Insider

Lin further breaks from the economic consensus when he advocates for what China should do: he argues that growth should continue to be led by investment rather than consumption. His fear is that consumption without investment — especially investment in industrial upgrading, environmental protection, tech innovation, and infrastructure improvement — will restrain productivity growth. And without healthy productivity growth, incomes will remain low and therefore the expected consumption-led growth won’t materialise. Here was a bullet point on one of his slides: “China has plenty of resources for investments: accumulated fiscal debts of less than 60% of GDP, private savings of 50% of GDP annuallly, and $3.5 trillion foreign reserves”.

China and traditional industrialisation-led development: the world was not enough | FT Alphaville

While small countries such as South Korea, Taiwan, or even Japan, have shown that they can continue to drive growth through exports for many decades (and to levels of GDP per capita relative to the US much higher than is currently the case in China), in part this has been due to their small size and limited impact on the markets on which they rely. Even after decades of export-led growth, an economy the size of South Korea is far from a dominant player in the broad import share for Europe and the US. In contrast, despite GDP per capita only increasing to a still-modest 25% of that seen in the US, China now accounts for fully a third of global industrial production (up from only 5% as recently as the 1990s)–see Exhibit 5.

China and traditional industrialisation-led development: the world was not enough | FT Alphaville

China's debt binge has been well documented and now the inevitable deleveraging is occurring. Much like the U.S. in 2008, China now faces tough choices. The political leaders in Beijing must engineer a deleveraging either through recapitalization, currency devaluation, economic growth, or outright default.

How China can avoid 2008-like crisis-—commentary

[admin]

As he sees it, there is no "locomotive" to drive growth. For the past few years, China has driven a third of all the growth in the world, but it's slowing down, which will act as a drag on global growth. He's also worried about the effectiveness of monetary policy right now. He wonders whether it can do anything to spur growth.

Ray Dalio: There is no engine to drive global growth - Business Insider

Prof Rogoff said the official 1.5pc rate of non-performing loans held by banks is fictitious. "People believe that as much as they believe the GDP data," he told the World Economic Forum in Davos. The real figure is between 6pc and 8pc. He warned that unexpected problems can come "jumping out of the woodwork" once a debt denouement unfolds in earnest.

China's banking stress looms like Banquo's Ghost in Davos - Telegraph

Mr Fang admitted that the switch from a crawling dollar peg to the new regime had been badly handled. "We're learning. We have to do a better job. Our system is not able to communicate seamlessly with the markets," he said. Yet he insisted that the yuan has been been basically stable on basket-basis for several months and stressed that the country is a net creditor with little reliance on foreign funding."We have a sizeable current account surplus. There really is no basis for China to depreciate the currency," he said.

China's banking stress looms like Banquo's Ghost in Davos - Telegraph

"Faced with weak domestic demand and overcapacity situation, Chinese refineries are expanding overseas markets," the note continued. "In recent months, Chinese government began to allow teapot refineries to export product oil after granting them the import quota, as a result, the teapot refiners are likely to have higher run rate in 2016." Teapot refiners are now expected to gobble up 20% of China's oil imports in 2016, according to Bloomberg. Thanks in part to their output — which has increased 49% since this time last year — China is now a net fuel exporter.

Wall St got China's oil industry wrong - Business Insider

China’s capital outflows jumped in December, with the estimated 2015 total reaching $1 trillion, underscoring the scale of the battle facing policy makers trying to hold up the yuan amid slower economic growth and slumping stocks. Outflows increased to $158.7 billion in December, the second-highest monthly outflow of the year after September’s $194.3 billion, according to estimates compiled by Bloomberg Intelligence. The total for the year soared more than seven times from $134.3 billion in the whole of 2014 to a record for Bloomberg Intelligence data dating back to 2006.

China Capital Outflows Rise to Estimated $1 Trillion in 2015 - Bloomberg Business

[admin]

CB has now adopted estimates by Professor Wu and the late Professor Maddison. What is the difference between the official and Wu-Maddison estimates? Over the last decade, China has been gradually moving from the Soviet system of collecting information as an output model (measuring production by sectors with information flowing from local officials up the chain) and towards the internationally recognized system of national accounts (SNA), which relies not on internal reporting but rather on sophisticated statistical surveys of consumer spending and investment. Whilst China's systems have been gradually changing, the transition is far from complete and China continues to operate on a version of output system.

Real China GDP growth charts - Business Insider

Service businesses are largely clean, unlike the factories China has long relied on. And services generate more jobs per yuan of output, an important benefit as the country shifts to a slower growth rate. The industry expands in tandem with higher household incomes as families spend more on education, insurance, restaurants, travel, and the other trappings of middle-class life.

China Trumpets Its Service Economy - Bloomberg Business

A large part of 2015’s gain from services came from the financial sector. It grew 15.9 percent as China’s stock markets soared in the first half of the year. “There was an enormous boom in trading volume, which had a huge impact on the growth of the services sector,” says Christopher Balding, associate professor at Peking University HSBC Business School in Shenzhen. “But it is very unlikely it will be repeatable in 2016.”

China Trumpets Its Service Economy - Bloomberg Business

Regulatory barriers to competition in finance, health care, and telecommunications, areas dominated by government-connected companies, hinder growth in services. “So much of it is still state-owned,” says Andrew Polk, senior economist at the Conference Board China Center for Economics and Business. “The government needs to unleash the service sector.”

China Trumpets Its Service Economy - Bloomberg Business

In the past week a leaked memo from the People’s Bank of China spelled out what many assumed — that its leaders are in a deep policy bind with no painless way out. It told how officials were reluctant to trim bank reserves ratio — a key monetary policy stimulus tool in China — because of concerns this will just add to capital outflows. The “impossible trinity” — of maintaining an independent domestic monetary policy and a semi-fixed exchange rate having loosened capital account restrictions — is hitting home.

You don’t need Soros to tell you that China is the big short - MarketWatch

China is not slowing. It is picking itself up slowly after a "recession" in early 2015. Car sales give us a steer. They collapsed early last year and touched bottom at 1.27m in July. Sales have been rising every month since, surging to a record 2.44m in December thanks to lower taxes. New registrations were up by 37pc for GM and 36pc for Ford and Mercedes. House prices have been climbing for three months. The nationwide index was up 1.6pc in December. Shanghai rose 15.5pc and Shenzhen 47pc. Even the "Tier 3 and 4" cities are coming back from an epic glut.

Hysteria over China has become ridiculous - Telegraph

A short-term economic rebound is already baked into the pie. Fiscal spending jumped 30pc in October and November. New bank loans and local government bond issuance - together, the proper measure of credit - reached a 12-month high of 14.4pc in December. It is stimulus as usual. The Politburo is back to its bad old ways. "Despite talk of deleveraging, credit growth continues to expand far more rapidly than GDP growth because, quite simply, they are not willing to tolerate any slowdown," said Prof Christopher Balding from Peking University.

Hysteria over China has become ridiculous - Telegraph

The Achilles Heel is capital flight. The authorities botched their switch from a dollar peg to a trade-weighted currency basket in August, and botched it again in December when they fleshed out the details. The result was an exodus of money in two big bursts. Both Chinese and foreign investors concluded that this was camouflage for devaluation. Fang Xinghai, a top adviser to president Xi Jinping, admitted in Davos that communications had gone horribly wrong. "We're learning," he said. He vowed that the Party is absolutely committed to the defence of its new basket. "It is the decided policy of China," he said. The facts bear him out. JP Morgan estimates that the authorities spent a record $160bn defending the yuan in December, a colossal mobilisation of resources.

Hysteria over China has become ridiculous - Telegraph

So the vital question is the scale and make-up of the capital outflows. Fresh data from the Bank for International Settlements show that the foreign liabilities of Chinese companies and investors dropped to $877bn in September from a $1.1 trillion peak in September 2014. Short-term debts have dropped from $858bn to $626bn, and have undoubtedly fallen much further over the past three months. In other words, the Chinese are paying off dollar debts and unwinding the dollar "carry trade" as fast as possible in advance of further rate rises by the US Federal Reserve. Bhanu Baweja from UBS said the repayment of foreign debts accounted for almost all the capital flight in the third quarter. It is therefore arguably harmless, potentially a one-off effect that will play itself out.

Hysteria over China has become ridiculous - Telegraph