Category: China & HK

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Asia: India & Hong Kong strengthen

India’s Sensex respected support at 18500. Recovery above 19000 would confirm the primary advance to 21000*. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Breach of support is now unlikely, but would warn of a test of primary support at 16500.

Sensex Index

* Target calculation: 18.5 + ( 18.5 – 16.0 ) = 21.0

Singapore’s Straits Times Index continues an anemic up-trend, consolidating below 3100. Reversal below 3000 would test the lower edge of the trend channel. 63-Day Twiggs Momentum below zero would suggest further consolidation, while a fall below -5% would indicate a primary down-trend.

Straits Times Index

China’s Shanghai Composite Index continues to test resistance at 2150 (and the descending trendline). Reversal below support at 2000 would signal a decline to 1800*. But rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Upward breakout would test 2250.

Shanghai Composite Index

* Target calculation: 2150 – ( 2500 – 2150 ) = 1800

Hong Kong’s Hang Seng Index broke resistance at 22000, indicating a primary advance to 26000*. Rising 13-week Twiggs Money Flow indicates buying pressure, but wait for retracement to confirm the new support level.

Hang Seng Index

* Target calculation: 22000 + ( 22000 – 18000 ) = 26000

Japan’s Nikkei 225 continues to test resistance at 9200. Breakout would indicate a rally to 10200. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of 9200, however, would indicate another test of primary support at 8500.

Nikkei 225 Index

* Target calculation: 9200 + ( 9200 – 8200 ) = 10200

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Is China more legitimate than the West? | BBC

Economist Martin Jacques, author of When China Rules the World, sings the praises of China in BBC Point of View.

“Even though China is still a poor developing country, its state, I would argue, is the most competent in the world. Take infrastructure – the importance of which is belatedly now being recognised in the West. Here, China has no peers…….. we are in a new ball game. With the Western economies in a profound mess and with China’s startling rise, the competence of the state can no longer be ignored. Our model is in crisis. Theirs has been delivering the goods.”

Patrick Chovanec has a different assessment:

“China’s economic miracle was result of govt getting out of way and letting people improve their lives, not planning by all-seeing mandarins.”

China is a developing country, with rapid growth fueled by massive infrastructure investment and strong exports. The country faces diminishing returns on infrastructure investment and dwindling exports — not only from an economic slow-down in the West but from rising wages as the country attempts to boost internal consumption as an antidote to the middle-income trap that is already threatening growth in its richer provinces.

China also faces push-back from the West against trade advantages maintained by suppressing their exchange rate through vendor financing —  balancing trade inflows on current account with outflows on capital account. Why else would a developing country hold more than $1 trillion of investment in US Treasuries at negative real interest rates?

Jacques claims that the Chinese state enjoys popular support:

“But does the Chinese state, you may well ask, really enjoy legitimacy in the eyes of its people? Take the findings of Tony Saich at Harvard’s Kennedy School of Government……… he found that between 80 and 95% of Chinese people were either relatively or extremely satisfied with central government.”

One of the most powerful tools of an oppressive state is fear: fear of the unknown. Many of their citizens would settle for the status quo rather than risk the turmoil that accompanies change. The same is true of many autocratic regimes. That does not make them a beacon of good government.

Western democracy has many problems but the solution does not lie with increasing the size of the state, nor with greater autocracy. Rather we should examine the most successful Western democracies and learn from them. Switzerland would be a good start. Their well-managed economy enjoys low unemployment, a skilled labor force, and GDP per capita among the highest in the world — 70% above the US. The stable democratic government runs with a strong tradition of consensus among political parties, while citizens hold a collective right of veto over government policy. The country boasts a pristine environment with minimal pollution, a strong human rights record — without oppression of its citizens or minorities — and no territorial disputes with its neighbors.

Which state would you say is the most competent?

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Conservatives dominate latest line-up for new Communist Party leadership | South China Morning Post

The Politburo Standing Committee is likely to be packed with conservatives, omitting two reform-minded protégés of party general secretary Hu Jintao. A conservative line-up will dash hopes for bold political reforms.

via Conservatives dominate latest line-up for new Communist Party leadership | Shi Jiangtao | South China Morning Post.

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Middle-income traps in Asian countries | FRBSF

Excerpt from a paper by Israel Malkin and Mark M. Spiegel at the Federal Reserve Bank of San Francisco. The two believe that China’s richest provinces, Beijing and Shanghai, are experiencing a slow-down in GDP growth (per capita) as they experience a classic middle-income trap, while China’s poorer provinces continue to experience high GDP growth rates.

What evidence exists for middle-income traps in a group of Asian economies that, like China, experienced episodes of rapid growth? We pool data for Hong Kong, Japan, Korea, and Taiwan from 1950 to 2009……. growth of these economies slowed markedly after they reached middle-income status.

Growth rates for these economies are highest just below the $10,000 per-capita-income level and then slow down rapidly as income increases. …..[the] economies grew on average at a 4.8% rate when per capita income reached $17,000, down from a high of 7.2% at the $7,800 level.

Interestingly, the middle-income trap appears to arise in Asia at lower income levels than has been found for broader groups of emerging-market economies. It may be that large Asian countries with relatively low prevailing wages cause the dynamic of the middle-income trap to shift. In Asia, countries may begin to become uncompetitive for certain labor-intensive activities at lower income levels than in other parts of the world……

via FRBSF Economic Letter: Is China Due for a Slowdown? (2012-31, 10/15/2012).

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Twin China PMI surveys show economy perking up | Reuters

By Lucy Hornby

“The return of the PMI above 50 suggests economic momentum has indeed picked up. It indicates the effect of policy easing may have been stronger than the consensus expected,” Zhiwei Zhang of Nomura said in a comment emailed to Reuters. “We believe macro data will continue to surprise on the upside in coming months, as the government continues to ease policy through the period of leadership transition.”…….

via Twin China PMI surveys show economy perking up | Reuters.

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Dirty money cost China $3.8 trillion | Reuters

By Stella Dawson

China has lost $3.79 trillion over the past decade in money smuggled out of the country, a massive amount that could weaken its economy and create instability, according to a new report. And the outflow — much of it from corruption, crime or tax evasion — is accelerating. China lost $472 billion in 2011, equivalent to 8.3 percent of its gross domestic product…..

via Dirty money cost China $3.8 trillion 2000-2011: report | Reuters.

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Chinese TV Host Says Regime Nearly Bankrupt | Epoch Times

A sobering assessment of China’s economy reported by Matthew Robertson:

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy.

The youtube audio requires translation:

http://youtu.be/comHcv7qSBg

Robertson summarizes Lang’s assessment into five key points:

  1. The regime’s debt sits at about 36 trillion yuan (US$5.68 trillion).
  2. The real inflation rate is 16 percent, not 6.2 percent as claimed.
  3. There is serious excess capacity in the economy, and private consumption is only 30 percent of economic activity.
  4. Published GDP of 9 percent is also fabricated. According to Lang, GDP has contracted 10 percent.
  5. Taxes are too high. Last year, direct and indirect taxes on businesses amounted to 70 percent of earnings…..

via Chinese TV Host Says Regime Nearly Bankrupt | Business & Economy | China | Epoch Times.

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Asia: China & Japan weak, India & HK bullish

China’s Shanghai Composite Index respected resistance at 2150 and the descending trendline, indicating another down-swing. Breach of support at 2000 would confirm. Reversal of 63-day Twiggs Momentum below its rising trendline would strengthen the bear signal.

Shanghai Composite Index

* Target calculation: 2150 – ( 2500 – 2150 ) = 1800

Rising 13-week Twiggs Money Flow indicates buying pressure on Hong Kong’s Hang Seng Index. Breakout above 22000 would indicate a primary advance with a long-term target of 26000*.

Hang Seng Index

* Target calculation: 22 + ( 22 – 18 ) = 26

India’s Sensex continues to test its new support level at 18500. Recovery above 19000 would confirm the primary up-trend, while breach of support at 18000 would warn of a test of primary support at 16500. Rising 63-day Twiggs Momentum favors a primary advance.

Sensex Index

* Target calculation: 18.5 + ( 18.5 – 16.0 ) = 21.0

Singapore’s Straits Times Index is in a weak up-trend, consolidating below 3100. Breach of support at 3000 would test the lower edge of the trend channel. Reversal of 63-day Twiggs Momentum below zero would suggest further consolidation, while a fall below -5% would indicate a primary down-trend.

Straits Times Index

Japan’s Nikkei 225 is testing resistance at 9200. Breakout would indicate a rally to 10200. Oscillation of 63-day Twiggs Momentum below zero, however, continues to indicate a down-trend. Respect of 9200 would indicate another test of primary support at 8500.

Nikkei 225 Index

* Target calculation: 9200 + ( 9200 – 8200 ) = 10200

South Korea’s Seoul Composite index is testing support at 1900. Breach would warn of a correction to primary support at 1750. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal.

Seoul Composite Index

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Here Comes the Dollar Wave Again | WSJ.com

Wall Street Journal opinion on the impact of QE3 on Asia:

If Asia stays true to form, the world is in for a bout of foreign-exchange interventions — some coordinated, some not — in a quest for stability. Yet these interventions will only encourage greater speculative flows, as some investors start betting on the next policy move. This would be America’s problem, too, given the growing number of American businesses trading with Asia that will grapple with a chaotic exchange-rate system…….

via Review & Outlook: Here Comes the Dollar Wave Again – WSJ.com.

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A Hard Landing Down Under | The Big Picture

Andy Xie has a bearish outlook on China and believes 2013 could be a tough year for Australia:

The market went from not believing in China’s growth story a decade ago to extrapolating past performance into the infinite future……The year 2008 should have been the end of this boom cycle. China’s stimulus misled the market into believing otherwise…..The Australian economy is probably a bubble on top of China’s overinvestment bubble. The latter’s unwinding will sooner or later trigger the former to do so, too…..

via A Hard Landing Down Under | The Big Picture.

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