A very interesting piece about China from B'berg, but do I have questions, doubts, etc., about all this.
If China's 3d quarter output is up 19.2%, what is happening to inventories if exports are down 1.3%? Not only that, imports are up 26.7% and the money supply boomed up, suggesting serious pump-priming, clearly risking a toxic credit bubble like the one we had.
In short, the Chinese are clearly Keynesians. Notwithstanding the irony of this, they are engaged in the creation of synthetic growth, a very dodgy proposition.
The rest of the world is simply not growing. How is China going to deal with all this credit and easy money? It has to certainly look to internal markets, but these are tiny by comparison to export markets, and export markets are not growing. The Chinese consumer market is small, and the savings rate has gone up, not down. This guy has some very good observations on the issue: mpettis.com and his conclusions are that the increase in domestic Chinese consumption has to be so huge that, given innate thriftiness, it appears unlikely that it can take place. Thus, a complete re-doing of the export-accumulate reserves-finance the importer model has to take place. That will clearly take a lot of time even if the Chinese are interested in moving off a strategy that served them so well for so long.
So, if the Chinese money/credit base is growing, its exports are down because global growth is anemic or non-existent, and imports are up, all while the [tiny by comparison to global standards] Chinese consumer saves even while goaded to consume by the credit bubble, how can China avoid a SHTF moment down the line? The Chinese are very clever, but I have a hard time seeing how they can avoid some very serious trouble.
See, this, too, another excellent source: theautomaticearth.blogspot.com
Well, at least the Chinese are promoting the purchase of gold with the bubbled-up credit infusion so they are not entirely insane.
By the way, I think HK real estate is a product of the mainland credit bubble, so make hay while the sun shines for it probably won't, at the end of the day.
If China suffers some serious reversals, as I think the fundamentals suggest it will, the global 'recovery' [which is a joke] will also get hit hard. This has some interesting implications for the USD, probably positive in the long run. I've got to figure out the answer to the easier-said-than-done question: how can small fish like us can profit from all this, though I think I know your answer to it.
The B'berg article that got me thinking along these lines follows:
China’s Output Beats Estimates as Export Slide Slows (Update2)
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By Bloomberg News
Dec. 11 (Bloomberg) -- China’s industrial production grew more than economists estimated in November, exports fell the least in 13 months and imports surged, confirming the nation’s role as leader of the world recovery.
Factory output climbed 19.2 percent from a year earlier, the statistics bureau said in Beijing. That was more than the 18.2 percent median estimate in a Bloomberg News survey of 25 economists. Exports slid 1.2 percent. Imports rose 26.7 percent.
New loans topped forecasts and money supply expanded by a record, extending a credit boom that may fuel asset bubbles and inflation and has prompted plans by lenders including Bank of China Ltd. to replenish capital. The government this week adjusted its stimulus policies to curb property speculation, while extending subsidies for rural purchases of consumer goods and pledging a “moderately loose” monetary policy in 2010.
“Industrial output, money supply growth and fixed-asset investment are not only restored to pre-crisis levels but are approaching overheating territory,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. The central bank may raise lenders’ reserve requirements in the first quarter of 2010 “to mitigate the inflation and bubble risk,” he said.
Consumer prices rose 0.6 percent, the first increase in 10 months, the statistics bureau said.
The Shanghai Composite Index swung between gains and losses today after climbing almost 80 percent this year. Data released yesterday showed property prices rose by the most in 16 months in November.
Economic Acceleration
China’s growth accelerated to 8.9 percent in the third quarter on the record lending and a $586 billion, two-year stimulus package, helping Asia to lead the recovery from the global economic slump. Today’s figures showed Southeast Asian demand aiding exports. Shipments to the region jumped 20.8 percent as those to the U.S. and Europe fell at a slower pace.
The industrial output number was boosted by the low base in November 2008, after the collapse of Lehman Brothers Holdings Inc. intensified the global financial crisis. Steel product output reached a record last month and power generation rose by the most in five years.
In contrast, India reported a lower-than-forecast 10.3 percent gain in industrial production today, partly because of weakness in electricity output.
In China, urban fixed-asset investment gained 32.1 percent in the January-to-November period from a year earlier after climbing 33.1 percent through October, today’s data showed.
BMW, Sinopec
Forecasts for China to maintain the fastest growth of any major economy are encouraging companies to expand. The nation’s gross domestic product will expand 9.3 percent next year, according to a Bloomberg News survey of economists.
China Petroleum & Chemical Corp., the country’s biggest refiner, said this month that it plans to expand the capacity of its second-biggest oil-processing plant by a third. Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, said last month that it will build a new factory worth 5 billion yuan ($732 million) to tap an auto market set to overtake the U.S. as the world’s largest this year.
Imports climbed the most in 16 months because of rising commodity prices, the boost to domestic demand from stimulus policies and the low base in November 2008. The trade surplus narrowed to $19.1 billion.
Twelve-month non-deliverable yuan forwards slipped 0.2 percent to 6.6665 per dollar as of 2:22 p.m. in Hong Kong after the improvement in exports was smaller than economists forecast.
Climbing Retail Sales
Retail sales climbed 15.8 percent in November from a year earlier, compared with 16.2 percent in October, according to the statistics bureau. Producer prices fell 2.1 percent. New loans were 294.8 billion yuan. M2 money supply grew 29.7 percent.
The State Council said this week that the government will re-impose a sales tax on homes sold within five years after cutting the period to two years in January. It also extended subsidies for rural consumer purchases, while scaling back tax breaks for some car buyers.
“Beijing’s fine-tuning of stimulus measures shows that it’s getting more comfortable with the economy’s recovery,” said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. “The government may start to exit stimulus via curbing investment and loans from April.”
China’s banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. In the first 11 months of this year, loans reached 9.21 trillion yuan.
The government is wrestling with overcapacity and excess production in some industries, such as steel, where an oversupply is depressing profits for mills including Baoshan Iron & Steel Co. |
