Tag: China

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Australia and the Endgame

John Mauldin: We wrote about Australia in a full chapter of Endgame. Their economy never really suffered in the recent debt crisis, in large part due to their growing housing market and their trade with China. If you talk to the average Aussie, they think that all is right with the world. They acknowledge a few issues but see nothing major like the rest of the world has experienced. Jonathan and I think otherwise. Their housing market is by recent standards in a clear bubble (which I know will get me a lot of email). Their banking system is dominated by foreign deposits (shades of Northern Rock, but not as bad as Iceland). They are vulnerable to a Chinese economic slowdown. I should note that Chinese GDP growth was “down” to 7.6% last quarter. That China might slow down should not come as a surprise. No country can grow at 10% forever. Eventually the laws of large numbers and compounding take over. All that being said, Australian government debt and deficits are under control. Any problems should be of the nature of “normal” business cycle recessions and accompanying issues.

Comment:~ Massive Chinese stimulus saved Australia from the GFC but that is no reason to become complacent. As Steve Keen recently pointed out, Australia is in a similar position to Spain in 2006. Spain was generating a fiscal surplus which it used to reduce government debt below 40% of GDP, but its banks were exposed to a large housing bubble funded by offshore deposits. Australian banks are similarly exposed to offshore funding and are leveraged 50 to 1 on residential mortgages (Macrobusiness May 4, 2012) — even after adjusting for mortgage insurance — leaving them highly vulnerable to a contraction. We also need to recognize that Australia is not exposed to a slowdown in China’s GDP growth, but to a slowdown in Chinese spending on infrastructure and housing. While GDP growth may fall to zero, the Chinese economy will still survive, but what are Australia’s chances if that is accompanied by say a 50 percent fall in new infrastructure and housing projects? The fall in iron ore and coking coal exports would have a far greater impact on the Australian economy.

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China’s failed gamble for growth

Zarathustra: The idea of this gamble is simple. With the financial crisis in 2008 hitting the developed world, it naturally affected external demand. The Chinese knew these. At the end of 2007, trade surplus accounted for more than 7.5% of GDP. Currently, the same number is at its low single digit, probably 2% or so. No longer is China’s growth driven by trade. It is now driven largely by domestic demand.

And this is where the gamble lies. The massive stimulus was meant to stimulate domestic demand for a few years, in hope that perhaps the rest of the world will recover, and hence external demand would have recovered. Or else, in hope that domestic demand will become strong enough and sustainable so that the economy no longer depends on the health of the rest of the world…..

via China’s failed gamble for growth.

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Westpac: China credit supply outstrips demand

Phat Dragon is placing the most value on new information regarding credit demand and supply. It is credit growth that tells us more about the shape of activity later this year than any other macro indicator……the supply side of the credit equation is moving decisively higher (greater policy emphasis, increased willingness to lend) but ……sluggish demand for loans is holding the system back. Indeed, the June quarter observation for “loan demand” (bankers’ assessment) fell to 12% below average, lower even than the Dec-2008 reading, even as the “lending attitude of banks” (corporate assessment) rose for a second straight quarter and the ‘easiness’ of the monetary policy stance (bankers’ assessment) rose to 21% above average.

via Westpac: Phat Dragon – a weekly chronicle of the Chinese economy.

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China in deflation, and how to reflate it at all costs

Zarathustra: [Chinese] over-investment over the past many years, and particularly in the years after the financial crisis, has created massive over-capacity across the economy that no one is really able to quantify. We have already got over-building in the real estate sector which resulted in massive number of empty apartments and empty shopping malls…. We are also aware of the over-capacity and inventory build-up in various sectors like coal and steel….. steel industry profits have fallen by 96.7% in the first four months of the year compared to the same period a year ago….. actual CPI figures are already in negative territory on a month-on-month basis. In short, deflation is already here for China….

via China in deflation, and how to reflate it at all costs.

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Since Lehman’s collapse, China’s money supply has doubled

Zarathustra: We have just discovered that China’s M2 money supply has doubled once more since the collapse of Lehman brothers. M2 money supply currently stands at around RMB90 trillion, and it was at about RMB45 trillion the month before Lehman collapsed. Thus the so-called RMB4 trillion stimulus after Lehman’s collapse (which is more like a RMB8 trillion fiscal stimulus in reality) has translated into a RMB45 trillion increase in M2 money supply.

via Chart: Since Lehman’s collapse, China’s money supply has doubled.

Hat tip to macrobusiness.com.au

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The China-driven commodities super-cycle debate: Nomura edition

Nomura: We have performed a detailed analysis of metal intensity of GDP for steel, copper and aluminium in the following pages, which we believe clearly outlines our view that China’s economy is not large enough (in GDP terms) to support a continuation of the rapid growth in metal consumption seen in 2000-11.

Our conclusions are based on an analysis of China’s metal intensity of GDP rather than metal consumption per capita, and reflect a simple premise that while a country’s population size may be an important indicator of a country’s potential demand for industrial metals (per capita), the ability to meet potential demand is determined by the quantity of metal consumed in relation to the size of economic output (ie, GDP, not GDP per capita). Hence, in our view, metal intensity of GDP is a more important variable to monitor than per capita metal consumption.

Zarathustra: The reason is that, according to Nomura, the per-capita analysis ignores the composition of China’s GDP growth. China’s investment driven growth is very metal intensive.

via The China-driven commodities super-cycle debate: Nomura edition.

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Has the Chinese government given up on rebalancing already?

Zarathustra: As more and more evidence suggests that the Chinese economy is slowing rapidly, there is also more and more evidence that the Chinese central government has given up on real estate market curbs even though they say they will continue, and they have given up cleaning local government debts even though they said they were cleaning them up. And by giving these up, they have also unofficially given up on rebalancing the economy away from investment driven to consumption driven once more.

via Has the Chinese government given up on rebalancing already?.

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Authoritarian Rulers Get Subtler: Putin, Chavez, China's Chiefs – WSJ.com

WILLIAM J. DOBSON: A handful of retrograde, old-school dictatorships have managed to limp into the 21st century. They are the North Koreas, Turkmenistans and Equatorial Guineas of the world. But they represent dictatorship’s past….

Today’s smarter dictators, by contrast, understand that in a globalized world, the more brutal forms of intimidation—mass arrests, firing squads, violent crackdowns—are best replaced with more subtle forms of coercion.

Rather than arrest members of human-rights groups, Russia’s Vladimir Putin deploys tax collectors or health inspectors to shut down dissident groups. In Venezuela, Hugo Chávez ensures that laws are written broadly and then uses them like a scalpel to target groups that he deems a threat….

via Authoritarian Rulers Get Subtler: Putin, Chavez, China's Chiefs – WSJ.com.

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EconoMonitor » U.S.-China Trade War in the Offing?

China wants to develop what it sees as key industries by giving Chinese companies a leg up in both the Chinese and global market. Its trading partners don’t want to see their firms placed at a disadvantage, and in several cases have challenged Chinese policies. China is challenging them right back, arguing that those countries do the same thing, and that people who live in protectionist glass houses shouldn’t throw stones. If they do, China can match them “tit for tat.” (A similar battle involving cross-accusations and threats between the EU and China began unfolding this week — you can read about it here).

There’s a critical difference, though, between China and its trade partners. They all may both have policies that can be called protectionist, but they come from different starting points. In the U.S., trade restrictions and subsidies tend to be the exception to the rule, and when they do occur, are usually transparent. There’s a public approval process and an overt policy that can be challenged at WTO. In China, restrictions and subsidies are pervasive, due to the large state role in the economy, and often hard to pin down.

via EconoMonitor : EconoMonitor » U.S.-China Trade War in the Offing?.

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