China

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Fitch said all forms of credit - including local government bond issuance - grew at annual rate 16.1pc last year while nominal GDP expanded at just at 8pc. "The rapid increase in credit required to keep GDP growing at its current rate strongly suggests that a sustainable rate of medium-term economic growth is well below the authorities' prevalent targets," it said. Wei Yao from Societe Generale said total non-financial debt is approaching 270pc of GDP - up from 250pc at end-2015 - and is on track to hit 300pc within three years unless the Politiburo abandons its "arbitrary" targets. The country has tangled itself in knots and faces its own version of the 'Impossible Trinity'.

Fitch warns time is running out for China's debt-driven boom

Despite China's efforts to curb capital outflows, the country "will keep bleeding money," a foreign exchange strategist said Tuesday. The world's second largest economy released foreign-exchange reserves data for January on Tuesday. Economists polled by Reuters had said China's FX reserves would likely fall about $10.5 billion in January, roughly a quarter of the drop seen in December, leaving them hovering around the closely-watched $3 trillion level. UBS' foreign exchange strategist Wayne Gordon said China's foreign exchange reserves will likely fall to $2.7 to $2.8 trillion by the end of the year, with USD/CNY reaching 7.2.

USD/CNY to rise as China’s capital outflows intensifies: Strategist

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China has got the yuan in a sweet spot. The nation’s authorities have let the currency rise enough against the U.S. dollar to put a spanner in President Donald Trump’s assertion that China deliberately undervalues its exchange rate. At the same time, it has weakened against a trade-weighted basket of currencies, giving China a competitive edge in exports.

China Has Got the Yuan in a Sweet Spot - Bloomberg

That seems to irritate certain people..

"No matter how hard the Trump administration rattles the cage in an attempt to talk the dollar down, if the markets anticipate significant future stimulus in the U.S. and further tightening by the Fed, then whatever short-term wobbles there may be in the U.S. dollar, the dollar will only go one way relative to most other currencies," Buiter said. “And that’s up.”

World's Biggest FX Trader Says Trump Currency Talk Is 'Hogwash'

Deutsche Bank experts warn savvy investors that President Donald Trump most likely will soon fulfill his campaign vow to label China a currency manipulator. "Some time in the next couple of weeks, we think it is likely that President Trump will declare China a currency manipulator and propose penalties if it does not enter into negotiations to lower its trade surplus with the US," the team led by Michael Spencer, chief economist at Deutsche Bank, wrote in a note to clients last week, Business Insider reported. "This has been a consistent campaign promise and he has demonstrated since taking office his determination to deliver on his promises, however controversial," the bank’s note read.

Deutsche Bank: Trump Poised to Name China a 'Currency Manipulator'

"Existing US law and its application by the Treasury in recent years are unlikely to satisfy the President's desire for strong penalties for unfair trade, so we anticipate that the proposed measures could go far beyond what has thought possible even a few weeks ago," the bank's note read.

Deutsche Bank: Trump Poised to Name China a 'Currency Manipulator'

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The reserves are not as large as they look given the scale of the financial pressures and the structure of the Chinese economy. The ratio of the M2 money supply to reserves has collapsed to a 15-year low and this may prove to be the crucial ratio in a confidence crisis. Standard Chartered said nobody knows at what point the PBOC will lose its room for manoeuvre but the balancing act is becoming ever harder. “If the reserves are allowed to fall meaningfully below $3 trillion, people will start to worry about reserve adequacy. The markets will grab hold of this,” said Mr Robertson.

Asia's top banks warn that Chinese capital flight is becoming dangerous

China’s producer prices increased the most since 2011, further lifting the outlook for global reflation with the world’s biggest exporter poised to give more support to gains. The producer price index rose 6.9 percent in January from a year earlier, compared with a median estimate of 6.5 percent in a Bloomberg survey and the 5.5 percent gain in December. The consumer-price index rose 2.5 percent, boosted by the week-long Lunar New Year holiday beginning in January this year, versus a 2.4 percent increase forecast by analysts.

China Factory Prices Jump Most Since 2011 in Reflation Boost - Bloomberg

China’s central bank is running out of ways to stem capital flight and faces a near impossible task trying to manage the fall-out from extreme credit growth, two of Asia’s most influential banks have warned. “Defence of the currency by the People’s Bank (PBOC) is no longer a viable option,”  said Eric Robertson, the head of global macro strategy for Standard Chartered. The Asia-focused lender said powerful forces are driving capital out of the country and the picture is fundamentally more disturbing than it was during last year’s devaluation panic. This is putting the PBOC in an invidious position as it attempts to deal with festering troubles in the banking system. The Institute of International Finance estimates that outflows reached a record $725bn (£581bn) last year and there is little sign of any slow­down despite ever tighter capital controls.

Asia's top banks warn that Chinese capital flight is becoming dangerous

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China's less-certain outlook isn't alone. January data shows the global uncertainty gauge is also well above last year's average level.  Baker, Bloom and Davis pull their global indexes from a wide range of publications, but they limit China's to the SCMP because mainland news is controlled by the government. The gauge is constructed from a count of articles that include words or phrases referencing four criteria: China, economy, uncertainty and policy.  "The indices we construct have a lot of strengths and weaknesses," said Davis, a professor of economics at the University of Chicago's Booth School of Business. "One of the strengths is they can capture anxiety about things that don't show up in standard statistical sources."

China Economic Policy Has Never Been More Uncertain. Sort of. - Bloomberg

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It came not with a bang but a whimper. The January data from China finally confirmed that the country’s foreign-exchange reserves fell by $12.3 billion to $2.998 trillion, which compares with the all-time high of $3.993 trillion in June 2014 (see chart). A trillion here, a trillion there, and pretty soon we’re talking real money, right?
What the official reserve data do not show is that massive borrowings outside China have accumulated over the past 15 years, bringing net reserves down to about $1.7 trillion, according to statistics prepared by Kynikos Associates..

China’s economy is dangerously close to unraveling - MarketWatch

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Since 2008, debt has been piling up primarily in China’s state-owned enterprises, which faced the stark reality of flagging returns on assets in recent years, the paper noted. In comparison, the private sector achieved superior returns with a substantially lower debt burden. Such structural misallocation of capital toward the less profit-oriented SOE sector is a major factor preventing China’s economy from exiting the prolonged period of slower growth.

A radical new cure for China’s hypertension debt load | Asia Times

China’s corporate leverage ratio — or the total amount of debt in the nonfinancial business sector relative to annual GDP — is already the fourth-highest in the world at 167.6% as of the end of June, 2016, according to Bank for International Settlements data. In fact, only the international offshore financial centers of Luxembourg, Hong Kong and Ireland are more leveraged. China now accounts for US$18.4 trillion of the US$25.4 trillion global total of emerging market nonfinancial corporate debt, according to the IIF’s Global Debt Monitor published in January 2017.

A radical new cure for China’s hypertension debt load | Asia Times

Fortunately, China’s high-savings rate and hence its domestically financed investment-led growth pattern allows the economy to endure — and even sustain — a relatively high leverage ratio compared with other nations, the authors argue. Of course, neither is the sky the limit. And let’s not forget that with a higher debt level comes a greater burden of interest expenses. The paper noted that a large portion of China’s annual debt expansion — between 40% and 50% — is used solely to service the interest on existing debt. With the prospect of interest rates edging higher globally this year, the problem of rising debt-servicing costs doesn’t affect only China. “Higher borrowing costs could raise concerns about debt sustainability,” the IIF’s report said.

A radical new cure for China’s hypertension debt load | Asia Times

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Average hourly wages in China’s manufacturing sector trebled between 2005 and 2016 to $3.60, according to Euromonitor, while during the same period manufacturing wages fell from $2.90 an hour to $2.70 in Brazil, from $2.20 to $2.10 in Mexico, and from $4.30 to $3.60 in South Africa. Chinese wages also outstripped Argentina, Colombia and Thailand during the same time, as the country integrated more closely into the global economy after its 2001 admission into the World Trade Organisation.

…Manufacturing wages in Portugal have plunged from $6.30 an hour to $4.50 last year, bringing wage levels below those in parts of eastern Europe and only leaving them 25 per cent higher than in China.

That is from Steve Johnson at the FT.

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If you don’t think fabricated data is a problem in China, just ask Liaoning Province’s provincial governor Chen Qiufa. The senior official admitted in January that the province inflated fiscal revenues in the province by at least 20% over a period of four years.

Why you should worry about China’s economic data | Asia Times

China’s capital controls are biting, but that doesn’t mean policy makers can relax. The curbs -- under fire from company chiefs to offshore investors -- are keeping order in Chinese markets, which risk descending into volatility should authorities loosen their grip on money flows and the yuan, says Thomas Deng, UBS Wealth Management’s chief China strategist. This concern has the firm’s parent bank and Standard Chartered Plc backing the controls as well.

How China's Capital Curbs May Be Paying Off - Bloomberg

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China added more credit last month than the equivalent of Swedish or Polish economic output, revving up growth and supporting prices but also fueling concerns about the sustainability of such a spree. Aggregate financing, the broadest measure of new credit, climbed to a record 3.74 trillion yuan ($545 billion) in January, exceeding the median estimate of 3 trillion yuan in a Bloomberg survey New yuan loans rose to a one-year high of 2.03 trillion yuan, less than the 2.44 trillion yuan estimate

China Credit Surging to Record Underscores PBOC Shift to Tighten - Bloomberg

When it comes to the world's second-largest economy, capital outflows and real estate are two key areas of concern for former Treasury Secretary Larry Summers. "I think they (policymakers) are building strains in terms of debt accumulation, what's happening in real estate, markets, pressure for capital outflows," he told CNBC at the China Development Forum in Beijing on Sunday. These challenges "point to potential areas where there could be a slowdown," he continued.

China Development Forum: Larry Summers' concerns on China

China’s riskiest corporate borrowers are raising an unprecedented amount of debt overseas, leaving global investors to shoulder more credit risks after onshore defaults quadrupled in 2016. Junk-rated firms, most of which are property developers, have sold $6.1 billion of dollar bonds since Dec. 31, a record quarter, data compiled by Bloomberg show. In contrast, such borrowers have slashed fundraising at home as the central bank pushes up borrowing costs and regulators curb real estate financing. Onshore yuan note offerings by companies with local ratings of AA, considered junk in China, fell this quarter to the least since 2011 at 31.3 billion yuan ($4.54 billion).

China Debt Risks Go Global Amid Record Junk Sales Abroad - Bloomberg

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China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year, according to data compiled by Bloomberg. In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction. While it’s still far from a crisis point, the defaults shows how policy makers’ efforts to reduce the liquidity that had propelled the bond market until late last year is exacting casualties.

China Has Its Worst-Ever Start to a Year For Defaults - Bloomberg