Chinese Premier Wen Jiabao Wednesday said stabilizing prices is still the government’s top priority, signaling that concerns over a global slowdown still don’t outweigh inflation risks.
Chinese manufacturing index rises but export outlook dips | The Australian
Exports were a problem area during the month, as the official survey’s new export orders subindex fell to 48.3 from 50.4 in July, slipping into contractionary territory for the first time since April 2009.
Economists said the weak exports reading could be an ominous sign for the export-dependent economy.
“It is a sign that China was affected by turbulent global markets in August,” said Standard Chartered economist Li Wei.
via Chinese manufacturing index rises but export outlook dips | The Australian.
Shanghai Composite confirms down-trend
The Shanghai Composite Index respected resistance at 2650, confirming the primary down-trend. Expect a test of 2350. 13-Week Twiggs Money Flow reversal below zero would warn of rising selling pressure. In the long term, failure of support at 2350 would offer a target of 1600*.
* Target calculation: 2400 – ( 3200 – 2400 ) = 1600
Monday’s long tail on the Hang Seng Index and higher volume indicate short-term support at 19000. Expect a rally to test the recent high at 20500.
* Target calculation: 19000 – ( 22000 – 19000 ) = 16000
China commits to down-trend
The Dow Jones Shanghai Index reversed below primary support at 328, confirming the primary down-trend signal from the Shanghai Composite Index. The 21-day Momentum peak barely above zero strengthens the bear signal.
* Target calculation: 330 – ( 360 – 330 ) = 300
Dow Jones HongKong Index broke short-term support at 415, indicating a down-swing to its 2010 low at 365. The longer-term 63-day Momentum below zero strengthens the bear signal.
* Target calculation: 415 – ( 445 – 415 ) = 385
Whack-a-Mole: IMF Not Impressed With China Bubble Management – WSJ
[IMF China mission chief Nigel] Chalk argues that China faces a potent cocktail of ingredients pushing house prices up:
- High domestic savings, and limited opportunities to take cash offshore
- Limited domestic savings options and bank deposit rates below the rate of inflation
- No property tax or capital gains tax, which makes it cheap to buy and hold property
- Rapid growth, high wages and urbanization, which mean real demand continues to grow
The government’s crackdown on high housing prices has had some success. But Chalk believes that the restrictions on speculators introduced so far treat the symptoms, not the causes, of the malaise.
via Whack-a-Mole: IMF Not Impressed With China Bubble Management – China Real Time Report – WSJ.
China bank lending slows — but not enough
China’s growth in bank lending has slowed to an annual rate of 15% from its peak of 35% in 2009, but indicates that further tightening is required to bring the inflation hangover under control.
Behind its lectures, China is a sinner, too – FT.com
The main point is that China’s debt burden is far higher than it likes to admit, and much of that debt has piled up in the past few years, as a result of Beijing’s response to the global financial crisis.
“Even though headline sovereign debt levels are low in China, so much quasi-sovereign activity happens through the banking system that if you include some of those contingent liabilities, the number can get very big,” says Charlene Chu, head of Fitch’s China Bank Ratings.
“People forget that China undertook its fiscal stimulus package through the banking system rather than by issuing public debt in the way that other countries did.”
China Momentum v. Money Flow
The Shanghai Composite displays a similar bullish divergence on 21-day Twiggs Money Flow to the DJ Shanghai Index. Follow-through above 2660 is likely, but resistance at 2820 is expected to hold.
* Target calculation: 2600 – ( 2800 – 2600 ) = 2400
The Hang Seng Index shows a similar (Twiggs Money Flow) bullish divergence to the Shanghai Composite, but both display a sharp fall on 63-day Momentum below zero, warning of a primary down-trend. Expect a rally to test resistance at 21500, but the bear market will continue.
* Target calculation: 19500 – ( 21500 – 19500 ) = 17500
China bucks the trend
Despite the global bear market, Dow Jones Shanghai Index rallied above resistance at 330, with bullish divergence on 21-day Twiggs Money Flow indicating buying pressure. Expect a test of 360. In the long term, breakout above 360 would signal reversal to an up-trend.
* Target calculation: 330 – ( 360 – 330 ) = 300
Dow Jones HongKong Index displays a similar bullish divergence on 21-day Twiggs Money Flow, indicating buying pressure. Resistance at 450 is unlikely to hold, leading to a re-test of 480.
* Target calculation: 450 – ( 480 – 450 ) = 420
China faces lower growth
China’s growth over the past couple of decades was based on large increases in government-directed investment. As a consequence, it had to run large trade surpluses to absorb the resulting excess capacity in manufacturing……. This can’t continue.
~ By Michael Pettis – WSJ.com
As Japan and other fast-growing economies in the past have discovered, continued infrastructure spending grows increasingly wasteful and fails to deliver further growth. Subsidizing business through artificially low interest rates may encourage private investment as an alternative, but leads to:
- bloated, inefficient corporations;
- high inflation; and
- massive speculative bubbles.
Options are narrowing and a shift to private consumption as the main driver of future growth is not without its risks:
- low interest rates and high inflation are eroding private savings;
- higher interest rates, however, would unmask business inefficiencies and collapse the speculative property bubble;
- higher wages, on the other hand, will fuel inflation.
This Chinese puzzle may not be easy to solve.