Chinese Economics Thread

[bladerunner]

China is teaching you folks the new theory of economics. I believe, China know John Adams and The Wealth of Nation better than you. The Great Wall will stand after the Wall Street is Falling!

Ahh, Those comments came "Straight from the Horses mouth" within China, not some Western financial journo wanabe interviewing his word processor.

Regarding walls, actually I think you have got things around the wrong way as much of the Gt Wall is in a state of ruin

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[lostsoul]

It is not all rosy for Sany!

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Sany Heavy Industry Co Ltd, a major heavy machinery maker controlled by one of China's richest men, is asking its lenders to waive a financial covenant on $510 million of loans, Basis Point reported, highlighting the growing risks facing the industry in an economic downturn.

 

[J-XX]

Ahh, Those comments came "Straight from the Horses mouth" within China, not some Western financial journo wanabe interviewing his word processor.

Regarding walls, actually I think you have got things around the wrong way as much of the Gt Wall is in a state of ruin

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You want to talk about ruin? Go look at dire state of the US economy, no amount of QE or laughing at others will save the US.

The entire US economy is a debt based ponzi scheme that lives beyond its means by living off the savings of other countries.
The US banking system is full of US government bonds. The banks are lending to the government instead of businesses, once bond prices fall, those banks are in serious trouble.

The US bond market is in a massive bubble right now.

US is the only country that makes Greece look solvent in comparison.

 

[J-XX]

China Financial Reform Urged to Offset Risks


"China needs more reforms to liberalize interest rates and boost bond selling as the country's financial sector faces risks from piling corporate debt and an economic downswing, officials and economists proposed on Wednesday.

China's company debt remains high and is even increasing in some places, building risks for Chinese banks, a major source of company financing, said Dai Xianglong, chairman of the National Council for Social Security Fund, during the ongoing 2012 Summer Davos Forum in north China's Tianjin.................."

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Financial reform is needed.

Especially liberalization of interest rates.
The corporate bond market and the junk bond market must be developed so that SMEs don't have to rely on bank loans to get capital.
The state owned banks lend to SOEs because it's less risky to lend to them than lend to more risky SMEs.

Liberalizing interest rates will make banks compete with each other instead of getting guaranteed profits from the net interest margin. The lending floor and deposit ceiling must be gradually removed.

 

[bladerunner]

You want to talk about ruin? Go look at dire state of the US economy, no amount of QE or laughing at others will save the US.

The entire US economy is a debt based ponzi scheme that lives beyond its means by living off the savings of other countries.
The US banking system is full of US government bonds. The banks are lending to the government instead of businesses, once bond prices fall, those banks are in serious trouble.

The US bond market is in a massive bubble right now.

Yet among'st all this gloom, for individuals, institutions, and countries, the U.S. is still the most popular place to park ones money in times of uncertainty. What strange creatures human beings are.

US is the only country that makes Greece look solvent in comparison.

Not by a long way, as you've overlooked Zimbabwe a country where China has gone out of its way for, and a place where hyperinflation has caused the the cost of a bus ticket to be around 100 trillion zimbabwe dollars.

 

[lostsoul]

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Alibaba has blamed Google for blocking the launch of a smartphone powered by the Chinese firm's operating system.

Journalists had been invited to an event to see a new handset from Taiwan's Acer running on Alibaba's Aliyun software.

However, on arrival the writers were told the launch had been cancelled.

Alibaba later issued a statement accusing Google - which makes the rival Android system - of threatening Acer it would cancel its own links to the firm.

 

[escobar]

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Caixin magazine reports - with disbelief - that the wish-list for industrial parks and mega-projects unveiled by all echelons of the Chinese system has reached 15 trillion yuan by some estimates. This is over $2.3 trillion or nearly four times the blitz of extra spending after the Lehman crisis in 2008, a policy that pushed investment to a world record 49pc of GDP and is now deemed to have been a mistake.

But as Caixin also reports, the authorities are running out of easy money. Land transfer fees for the 300 largest cities have fallen 38pc over the last year. The central government’s tax revenues have grown 8pc, but spending has risen 37pc. "The good days of overflowing government coffers are over," it said.

Mark Williams from Capital Economics said the fiscal blitz is a mirage. Most of the road and urban rail plans were already in the pipeline. Spending will be spread over years. "We can see no sign of a fresh stimulus. The project approvals are interesting solely because the government chose to publicise them," he said.

China may have to muddle through the downturn after all with less extra juice than hoped. This will be sobering. The country’s cost advantage over America - and others - has vanished. A new report by PricewaterhouseCoopers entitled "A Homecoming for US Manufacturing" claims it is now cheaper for whole clusters of US industry to produce at home, close to their markets.

Firms are "re-shoring" -- to use the vogue term -- to cut transport and inventory costs and take advantage of cheap shale gas. The weaker dollar has iced the cake. PwC said the US has clawed back a cost advantage of 2pc in steel output against China, at least for the North American market. Its "heat map" gives the US the edge in chemicals, primary metals, electrical products, machinery, paper, transport equipment, and wood, in that order.

This did not stop Republican candidate Mitt Romney accusing China of job "theft" and "currency manipulation" on Sunday. He needs to keep up with the literature. The yuan is no longer undervalued in any meaningful sense. Nomura thinks China will have a current account deficit by 2014.

Google is building its Nexus Q Music and video player in the US. General Electric and Ford are switching to plants at home. So is Caterpillar, which is interesting since its chief Chinese rival Sany Heavy Industry is in trouble. It has just asked creditors to waive a $510m financial covenant.

Boston Consulting Group has been banging on this homecoming drum for some time, arguing that wage inflation of 16pc annually for a decade has eroded China’s lead. The gap in "productivity-adjusted wages" was 22pc of US levels in 2005. It will be 43pc (61pc for the US South) by 2015.

It issued a fresh report last week -- "The End of Easy Growth" -- warning that the profit margin of China’s leading companies has been slipping behind since 2009. It fell to 11pc last year compared to 18pc for global peers.

The group studied 50 fast-growing companies -- among them Sany, as it happens -- concluding that they are at an "historical turning point". Either they make the changes needed to break through in the global big league as Brazil’s Vale, Mexico’s Cemex, or India’s Wipro have all done, or they risk languishing as also-rans.

The World Bank made much the same argument for the country as a whole earlier this year in a joint report with Beijing’s Development Research Centre. It said the export-led growth model launched by Deng Xiaoping over thirty years ago is obsolete. China risks a drift into the "middle income trap" unless it abandons its top-down strategies and grasps the nettle of free-market reform.

"Innovation at the technology frontier is quite different in nature from catching-up technologically. It is not something that can be achieved through government planning," it said. Premier Wen Jiabao agrees, but there are others at the top of the Communist Party who think the 2008-2009 crisis vindicated tight party control of industry and the banking system. It did no such thing.

You could argue that East-West rebalancing in labour costs is just what the world needs. The question is whether China can tolerate the shock. I missed the World Economic Forum in Tianjin last week but Jamil Anderlini from the Financial Times reported a pervasive tone of "despondency and cynicism" from Chinese officials and economists, in marked contrast to the bullish certainties -- or naïveté? -- of foreigners at the event.

"I believe China is going to experience a very serious economic downturn and I think it has already started," said one leading economists. "The government is trying now to stabilize the economy but the instruments they have are very limited. If it can’t turn things around then I expect huge and widespread social unrest."

There are degrees of bearishness on China. My own view as a "soft bear" -- based more on anthropology than economics -- is that the country will ultimately pull through and reclaim its rightful place as a global superpower. The dynamism is unstoppable, much like the US in the Roaring Twenties.

But that is the sweep of history. The ups and downs of economic cycles are another matter. The Politburo clearly misjudged the difficulty of deflating a property bubble after letting loans grow by almost 100pc of GDP in five years (IMF data), almost double the rate in Japan over the five years before the Nikkei bubble burst or in US before the sub-prime peak.

Albert Edwards from Societe Generale -- an Ice-Age bear -- thinks China’s downturn has reached an inflexion point. The balance of payments were in deficit in the second quarter. Capital outflows trumped the trade surplus. Foreign reserves fell.

Let us not forget that reserve accumulation -- the side-effect of holding down the yuan to pursue export share -- was the prime cause of China’s credit bubble in the first place. It automatically forced China to import a US monetary policy that was far too loose for the needs of a fast-growing, over-heating economy, as Alan Greenspan warned at the time. It seemed to work marvellously, but Faustian Pacts come due.

This powerful process is now going into reverse. Lombard Street Research estimates that capital flight has reached $320bn over the last year. Monetary policy is tightening by default. "It is a massive shift down through the gears for the monetary printing press. And if the capital outflows accelerate, the next gear may yet be reverse," said Mr Edwards.

China’s $3.2 trillion reserves may be large at 22pc of the M2 money supply, but they were even larger -- 35pc -- for the Asian Tigers just before their currencies buckled in 1997. The reserves prove nothing either way. The issue that matters is whether they are enough to overwhelm the actions of China’s own elites, should they continue to squirrel money abroad as fast as they can.

This capital flight appears to be `tail-risk’ insurance by well-informed Chinese, a hedge in case the 10-year power transition in October goes badly wrong or in case the pressures of a secular downturn cause another of China’s sudden political pivots, as in 1898, or at the onset of the Cultural Revolution, or indeed in case a "war" engulfs the Pacific region -- as US Defence Secretary Leon Panetta warned over the weekend.

What is clear is that the deeper effects of the global crisis and the Long Slump have at last caught up with China. The headwinds will be greater from now on. A President Xi Jinping -- if it be he -- will face an entirely different landscape.

 

[Equation]

Another Chinese downfall predictions economist "expert" will continue to underestimate the sheer size of China and it's continuing growth (whether it's slowing down or speeding up, never the less it's growing).

 

[AssassinsMace]

I've been reading stuff like how Western expats are leaving China as a sign of economic collpase or how the rich and are not spending as much.

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Downturn? Not in first class, say China's globetrotting shoppers
By Melanie Lee | Reuters – 4 hrs ago.. .

SHANGHAI (Reuters) - Rich Chinese tourists paying $40,000 to hunt elk in Utah or booking the entire first-class cabin for a family flight to France show China's economic slowdown has yet to thin the wallets or dull the appetites of its deep-pocketed elite.

China's "Golden Week" holiday, a popular time for overseas travel, starts on Saturday. This year it coincides with the Mid-Autumn Festival to create a rare eight-day break, and visitors to Europe will not be there to get a taste of austere living.

Helen Shen, a travel planner in Shanghai, said a private business owner had booked the whole first-class section of a Lufthansa jet to fly his family of four to Paris this month.

Shen is one of many luxury travel organizers who still see the money rolling in from executives and members of the "fu er dai" - the second generation of wealthy families - despite China's economic uncertainty.

"If you look at your affluent Chinese overseas, they are your tourist, your shopper, your investor all in one," said Christine Lu, co-founder of Affinity China, a Shanghai-based luxury travel firm.

"Even though there is all the talk of a slowdown in China, the luxury sector we are dealing with is a segment that can still afford to travel," Lu said.

This is good news for luxury brands facing the prospect of weaker demand within Greater China as Beijing cracks down on conspicuous consumption at home.

In the rest of the world, rich Chinese tourists are famed for their lavish spending. To avoid steep sales taxes at home, many of them unleash the cash on deluxe goods and premium cosmetics with every stamp of their passports.

"Most of the people who are going abroad already have quite a bit of wealth and buying things overseas is still much cheaper than buying things in China," said Renee Hartmann, a luxury retail consultant based in Los Angeles.

HOW MUCH FOR YOUR VILLAGE?

Tax-free shopping firm Global Blue said in July that Chinese travellers were the biggest spenders in duty free shops, racking up 2.1 billion euros ($2.70 billion) in sales in 2011, up 68 percent from last year.

"The (weakness) of the euro and the pound, plus the post-Olympic effect, is increasing the draw of Europe as a tourist destination and enticing wealthy Chinese to shop in Europe," said You Jinzhang, chief executive of HHtravel, a luxury travel brand under China's top online travel firm Ctrip.com International Ltd.

The firms that sell coveted brands do not see their Chinese customers suddenly discovering asceticism.

Italian fashion designer Brunello Cucinelli, whose eponymous firm sells cashmere sweaters for almost 2,000 euros ($2,600), shrugged off concerns about a slowdown, saying Chinese demand for old-world luxury remains strong.

Some of Beijing's better-heeled are not content with adorning their wardrobes with fine cashmere. Cucinelli told a story of a group of Chinese investors who once visited his company in its hilltop home of Solomeo in central Italy, and were so smitten by the place that they asked how much it would cost to buy the whole village.

"The Chinese love what we do, what we wear. They want to be like us. This is the Chinese century," Cucinelli said.

WINE AND SHOTGUNS

For this year's holiday, most boutique-bingeing tourists from China will still travel to Europe and the United States as those trips were planned months in advance, but the pure shopping jaunts in Asia may take a hit.

"(Overall) sales (for the golden week) can come down by 10 to 15 percent both in Hong Kong and China," said Lam Tung-hing, a general manager in the retail operation of Oriental Watch Holdings Ltd. He cited economic concerns, but also the preference of many shoppers for London, Paris and New York over Hong Kong and Macau.

It isn't just ringing tills in retail outlets that show the upper echelons of Chinese society are immune to the slowdown. Top-end tourists lap up exclusive experiences such as meeting the family of Swiss watchmaker Patek Philippe, or having their genes analysed in Munich.

Affinity's Lu said her company will host a trip for wine connoisseurs to Bordeaux in France, while Luke Song of Hua Luxury will take Chinese groups to race sports cars in Europe.

52Safari, a hunting club that caters to wealthy Chinese, is also having a good year. Scott Lupien, the club's American founder, will run three hunting tour groups this holiday. One couple, heading to the U.S. state of Utah for an elk hunting trip, is paying 250,000 yuan ($39,600).

"This is going to be our best October in four years of business, we have more demand than ever," Lupien said. ($1 = 0.7788 euros) ($1 = 6.3020 Chinese yuan)

(Additional reporting by Antonella Ciancio in MILAN and Donny Kwok in HONG KONG; Editing by Daniel Magnowski)

This is good news for luxury brands facing the prospect of weaker demand within Greater China as Beijing cracks down on conspicuous consumption at home.

I didn't know the government was actually taking action to rein in domestic spending on luxuries. And course just like the government takes steps to slow down the economy, when it does the media declares China collapasing.

 

[jackliu]

Just my 2 cent on the current Chinese economy situation, they are going to have less growth and this is actually expected and healthy, they had over 10% growth average for the past 20 years, that inevitably means there are going to be sectors of economy that is over stimulated, over invested, and now when the global economy is slowing down, this exposes the issue, so in the end, they have to suffer.

And this is the best outcome, but if the government were trying to protect them by artificially invest and injection of money, it would be even worse, because those inefficient sectors are not going to get better just because they got more money, they are only pushing back the reckoning down the line. In the end the government is going to be in debt and those inefficient sectors of the economy does not have any incentive to stay competitive because they know if they fails, they government would just bail them out again.

This is actually what happened in Japan in the 1980s to now, and US from 2008 to now. It is no accident that US and Japan's debt is at all time high and continuing growing.