AssassinsMace
Lieutenant General
Yeah and it's been lower than that in the past half year. I like the headline I read on one article that said China was headed to another doomsday. When was the first one?
Chinese Economics Thread
- Thread starter Norfolk
- Start date
Yeah and it's been lower than that in the past half year. I like the headline I read on one article that said China was headed to another doomsday. When was the first one?
The thing that most analyst mis about China's economy is that real wages are rising rapidly. The reason why wages are rising is because it's rapidly moving up the value chain and the Chinese are making more higher end goods and is doing more value added work. China's economy is shifting away from mass low end production and towards higher end production and services. In this process there are winners and losers. The problem is that the media is too focussed on the losers of this process and does not give enough attention to the winners of this process. And as a result they have a very skewed view of the Chinese economy.
All this of course has an impact on the patterns of imports and exports as well as on other indices of the economy. The import numbers are being effected by low commodity prices and China is also becoming less reliant on foreign technology. Which has also help China to reduce its import bills by billions each year. The export volume is dropping but the value of what is shipped out is increasing. China is also becoming less reliant on coal and more reliant on other energy sources like hydro, wind, solar and nuclear. And therefor the shipment of coal in the freight system is much reduced. And moving up the value chain also means that they need less energy and raw materials to create the same amount of value. And the services sector uses much less energy than the industrial sector does. All this means that freight cost and energy use are coming down. But at the same time growth is not overtly effected. They see all those things like the fall in import and export volumes and low energy output and freight cost as indications of a slowing if not collapsing Chinese economy. And simply doesn't take into account the changes in the Chinese economic structure. People's view of the Chinese economy is still of what it was 15 or 20 years ago and does not reflect the reality of China today. The majority of China's debt has been invested in infrastructure and industry. And as the income of the Chinese grow higher and higher a lot of the previously considered to be uneconomic investments are now beginning to make sense. The high speed trains is a very good example. Back in 2009 to 2012 they insisted that the high speed trains were a disaster as the trains are running halve empty and they simply said that the people can't afford it. Now they are no longer saying that as the trains pull in and out of the station full of people. The reason are the higher incomes that now able more and more people to upgrade themselves and take a ride on the HSR.
Having said all that the Chinese economy is indeed slowing down. That is being caused by low foreign demand on the oneside and over investment in the property sector on the otherside. That has help to slowdown investment domestically and will drag on growth for many years to come. But it won't cause the sky to fall down either. The slowdown in construction is also a factor in the low import numbers.
As for the current turmoil in the markets. The Chinese markets are going down for the same reason why global markets are going down. And that is the prospect of a tightening cycle in the US economy. The volatility of the Chinese markets are much larger because its largely made up of small investors. who buy and sell on a whim. But also because of the badly designed circuit breaker that end the trade for the day rather than pause the trade like in other exchanges. And the crude interference of the government in the market also doesn't help. But the stock market fall in China won't have the same effect as in the Western markets because, one consumption in China is driven by higher income and not higher asset prices and two there are very few institutional investors in the market so the fall won't trigger a chain reaction like that of 2008.
All this of course has an impact on the patterns of imports and exports as well as on other indices of the economy. The import numbers are being effected by low commodity prices and China is also becoming less reliant on foreign technology. Which has also help China to reduce its import bills by billions each year. The export volume is dropping but the value of what is shipped out is increasing. China is also becoming less reliant on coal and more reliant on other energy sources like hydro, wind, solar and nuclear. And therefor the shipment of coal in the freight system is much reduced. And moving up the value chain also means that they need less energy and raw materials to create the same amount of value. And the services sector uses much less energy than the industrial sector does. All this means that freight cost and energy use are coming down. But at the same time growth is not overtly effected. They see all those things like the fall in import and export volumes and low energy output and freight cost as indications of a slowing if not collapsing Chinese economy. And simply doesn't take into account the changes in the Chinese economic structure. People's view of the Chinese economy is still of what it was 15 or 20 years ago and does not reflect the reality of China today. The majority of China's debt has been invested in infrastructure and industry. And as the income of the Chinese grow higher and higher a lot of the previously considered to be uneconomic investments are now beginning to make sense. The high speed trains is a very good example. Back in 2009 to 2012 they insisted that the high speed trains were a disaster as the trains are running halve empty and they simply said that the people can't afford it. Now they are no longer saying that as the trains pull in and out of the station full of people. The reason are the higher incomes that now able more and more people to upgrade themselves and take a ride on the HSR.
Having said all that the Chinese economy is indeed slowing down. That is being caused by low foreign demand on the oneside and over investment in the property sector on the otherside. That has help to slowdown investment domestically and will drag on growth for many years to come. But it won't cause the sky to fall down either. The slowdown in construction is also a factor in the low import numbers.
As for the current turmoil in the markets. The Chinese markets are going down for the same reason why global markets are going down. And that is the prospect of a tightening cycle in the US economy. The volatility of the Chinese markets are much larger because its largely made up of small investors. who buy and sell on a whim. But also because of the badly designed circuit breaker that end the trade for the day rather than pause the trade like in other exchanges. And the crude interference of the government in the market also doesn't help. But the stock market fall in China won't have the same effect as in the Western markets because, one consumption in China is driven by higher income and not higher asset prices and two there are very few institutional investors in the market so the fall won't trigger a chain reaction like that of 2008.
Guys, this is really getting pretty ridiculous.
STOP the incessant verbal wars, JAPAN-CHINA bickering (this thread is not about comparisons or historical biases and differences that is NOT WANTED, and NOT ALLOWED), and constantly blaming the media for how you do not agree with their articles.
If you do not like an article...ignore it. or, refute it with facts and not with the tired old (on both sides quite frankly) argument that it is media bias...either western or eastern.
Such comments and such endless debates are meaningless and will be deleted.
This thread is so chock full of childish behavior and abject bias that it drowns out the viable economic posts that are made.
So...STOP it.
Discuss the economic news and its impact without all of that other, or the thread will be closed.
DO NOT RESPOND TO THOS MODERATION
STOP the incessant verbal wars, JAPAN-CHINA bickering (this thread is not about comparisons or historical biases and differences that is NOT WANTED, and NOT ALLOWED), and constantly blaming the media for how you do not agree with their articles.
If you do not like an article...ignore it. or, refute it with facts and not with the tired old (on both sides quite frankly) argument that it is media bias...either western or eastern.
Such comments and such endless debates are meaningless and will be deleted.
This thread is so chock full of childish behavior and abject bias that it drowns out the viable economic posts that are made.
So...STOP it.
Discuss the economic news and its impact without all of that other, or the thread will be closed.
DO NOT RESPOND TO THOS MODERATION
I'd like to add to Franklin's post that the Chinese stock market isn't strongly connected to the real economy. Not to the extent that it is in the US. I'll post a source or two when time permits. For now though, I'll leave this historical graph of the Shanghai composite Index I got from Wikipedia (accuracy shouldn't be a problem here).
Obviously there's a lot of volatility there, but I can't see any good reason for the general trend not to continue heading in a positive direction.
Obviously there's a lot of volatility there, but I can't see any good reason for the general trend not to continue heading in a positive direction.
plawolf
Lieutenant General
I think all this focus on the Chinese stock market is misleading for 3 reasons.
1) The West has an irrational worship on 'the market', effectively venerating it as some all knowing, infallible diety. There is a general feeling in the west that the Chinese economy must be in real trouble if the market gods have turned its face from them. It is nothing remotely close.
The market brings a lot of benefits, but is far from perfect, and any first year economics student can list plenty of textbook examples of market failure.
The stock market is an especially risky area of the economy for market forces because so much of it is unsubstantiated. I know that there are all sorts of economic and performance indicators good investors could and should use to judge the worth of companies and shares, but that's not how the stock market works in reality.
There is a massive amount of speculation and downright betting going on, even in the largest and most professional investment firms. With some of the bigges names in the industry having been caught actually fixing key economic indicators to make a quick profit.
I could write an essay at least on how flawed the market is, but to cut to the quick, look back to basics, what is the stock market supposed to represent and what is its foundation?
The stock market is supposed to allow ordinary investors to get a piece of the corporate pie, by being allowed to buy a small piece of listed companies, and so benefit from their success. The listed companies benefit from being able to raise huge amounts of funds to aid their expansion and modernisation.
However, when was the last time any stock market tracked its host economy in an accurate way?
In my book, as soon as you see instances where companies' stock value is growing disproportionate to its actual real world performances, and does so consistently over a number of years, you need to worry.
'Value added' is the word financial analysis to love to bandy about to characterise their work, but much of it is make work or downright fiction.
What a company's market value grows way beyond what it's recognisable accounting value is, that difference, in my view, is only explained by market failure. I whimsically call it 'greed premium' made possible and sustained by wishful thinking and self deception.
This is where a stock raises beyond all reason and hope, and keeps on going, so the greedy pour their money in, hoping to ride this inexplicable rise and being able to cash out before the inevitable fall.
This is how fortunes are made, and what separates the 'exceptional' lowly traders from the average. But it's more down to luck rather than reason for someone to get their buy and sell timing right.
The stock will continue to rise so long as the market expects It to keep rising, but as soon as, for whatever reason, the market looses that confidence, such stocks can plummet and wipe out fortunes as quickly as it made them.
In many ways, this aspect of the stock market is a tool for wealth redistribution rather than creation. One man only wins out because another looses out. When a 'winner' cashes out at the perfect time, just before the stock nose dives, he doesn't sell his shares to some imaginary entity called the market, he sells to another person, who then sees the value of the new shares he/she bought get wiped out.
That's just the small fry. They truly big players, who can consistently deliver, does so because they effectively abuse the very market itself.
Many of the top players and firms are so large and powerful, that when they make a move, it actually skews the market. So a whole new sub game has effectively developed where the biggest players tries to trick the market into behaving the way the want with massive transactions, and a lot of the small fry tries to guess what the big boys are up to so they can use that to their own advantage in deciding what and when to trade.
Of course, all of this is deeply in the 'greed premium' side of the market, so when the big boys win big, it comes at the expense of vast number of little guys loosing.
Needless to say, I think the world stock markets are desperately in need of a fundamental overhaul.
2) On top of all these deep structural and conceptual flaws with modern stock markets in general, the Chinese stock market has additional weaknesses which goes a long way to explaining its volatility.
Firstly, there is a strong and widespread perception that performance indicators and accounting data of Chinese companies are unreliable. It doesn't matter if it's true or not, so long as the market believes that, it will have the same effect irrespective of the truth.
Secondly, unlike in the west, where individual investors typically trust their money to a hedge fund or brokerage firm, who trade on their behalf (and can leverage their combined wealth and size to play in the big leagues), Chinese domestic stock holders typically trade themselves.
Lastly, say what you will about big funds and 'whales', they employ some of the best minds in the industry and spend huge amounts of money on hardware, software and external firms to analyse vast quantities of data and employ all sorts of complicated analytical and predictive models to aid them in their choices.
Even if those models and projections are all wrong, because all the biggest players believe in them and are using largely the same methods and data, they will mostly all arrive at the same or very similar conclusions.
That convergence of belief and expectations, even if wrong, is usually enough to shape the general direction the market will go in, so im effect, it's a self fulfilling prophecy, so if you can get enough of the biggest players to believe something will come true, they will make it come true in the market.
All of these factors combined means that the Chinese stock market is traded by a vast number of little guys, who either don't trust the published stats to base their investment decisions on them, and/or don't have the technical training and expertise to make much sense of those stats even if they trusted them.
Unlike western professional firms, who would use all the data available and their models and software to calculation a baseline expected valuable for a company, and so can afford to play the long game and ride out small volatility in share prices by looking at how the market price compares to their baseline, these Chinese little guys don't have a baseline to compare against, and since it's their own money they are trading, and not clients', it all combines to mean the Chinese traders are far more proven to panic compared to western traders.
This means there is no common rule book in play to create any convergence of belief in the market. Instead, convergence of belief in the Chinese stock market is created by rumours and gossip. Which is why it's so volatile and unpredictable.
That volatility and unpredictability also makes it a poor indicator for how the Chinese economy is performing.
3) The tiny size of the Chinese stock market compared to the economy as a whole also means its impact is far smaller.
A stock market crisis in China is still a crisis. Just nowhere as big as it would be for a western economy.
1) The West has an irrational worship on 'the market', effectively venerating it as some all knowing, infallible diety. There is a general feeling in the west that the Chinese economy must be in real trouble if the market gods have turned its face from them. It is nothing remotely close.
The market brings a lot of benefits, but is far from perfect, and any first year economics student can list plenty of textbook examples of market failure.
The stock market is an especially risky area of the economy for market forces because so much of it is unsubstantiated. I know that there are all sorts of economic and performance indicators good investors could and should use to judge the worth of companies and shares, but that's not how the stock market works in reality.
There is a massive amount of speculation and downright betting going on, even in the largest and most professional investment firms. With some of the bigges names in the industry having been caught actually fixing key economic indicators to make a quick profit.
I could write an essay at least on how flawed the market is, but to cut to the quick, look back to basics, what is the stock market supposed to represent and what is its foundation?
The stock market is supposed to allow ordinary investors to get a piece of the corporate pie, by being allowed to buy a small piece of listed companies, and so benefit from their success. The listed companies benefit from being able to raise huge amounts of funds to aid their expansion and modernisation.
However, when was the last time any stock market tracked its host economy in an accurate way?
In my book, as soon as you see instances where companies' stock value is growing disproportionate to its actual real world performances, and does so consistently over a number of years, you need to worry.
'Value added' is the word financial analysis to love to bandy about to characterise their work, but much of it is make work or downright fiction.
What a company's market value grows way beyond what it's recognisable accounting value is, that difference, in my view, is only explained by market failure. I whimsically call it 'greed premium' made possible and sustained by wishful thinking and self deception.
This is where a stock raises beyond all reason and hope, and keeps on going, so the greedy pour their money in, hoping to ride this inexplicable rise and being able to cash out before the inevitable fall.
This is how fortunes are made, and what separates the 'exceptional' lowly traders from the average. But it's more down to luck rather than reason for someone to get their buy and sell timing right.
The stock will continue to rise so long as the market expects It to keep rising, but as soon as, for whatever reason, the market looses that confidence, such stocks can plummet and wipe out fortunes as quickly as it made them.
In many ways, this aspect of the stock market is a tool for wealth redistribution rather than creation. One man only wins out because another looses out. When a 'winner' cashes out at the perfect time, just before the stock nose dives, he doesn't sell his shares to some imaginary entity called the market, he sells to another person, who then sees the value of the new shares he/she bought get wiped out.
That's just the small fry. They truly big players, who can consistently deliver, does so because they effectively abuse the very market itself.
Many of the top players and firms are so large and powerful, that when they make a move, it actually skews the market. So a whole new sub game has effectively developed where the biggest players tries to trick the market into behaving the way the want with massive transactions, and a lot of the small fry tries to guess what the big boys are up to so they can use that to their own advantage in deciding what and when to trade.
Of course, all of this is deeply in the 'greed premium' side of the market, so when the big boys win big, it comes at the expense of vast number of little guys loosing.
Needless to say, I think the world stock markets are desperately in need of a fundamental overhaul.
2) On top of all these deep structural and conceptual flaws with modern stock markets in general, the Chinese stock market has additional weaknesses which goes a long way to explaining its volatility.
Firstly, there is a strong and widespread perception that performance indicators and accounting data of Chinese companies are unreliable. It doesn't matter if it's true or not, so long as the market believes that, it will have the same effect irrespective of the truth.
Secondly, unlike in the west, where individual investors typically trust their money to a hedge fund or brokerage firm, who trade on their behalf (and can leverage their combined wealth and size to play in the big leagues), Chinese domestic stock holders typically trade themselves.
Lastly, say what you will about big funds and 'whales', they employ some of the best minds in the industry and spend huge amounts of money on hardware, software and external firms to analyse vast quantities of data and employ all sorts of complicated analytical and predictive models to aid them in their choices.
Even if those models and projections are all wrong, because all the biggest players believe in them and are using largely the same methods and data, they will mostly all arrive at the same or very similar conclusions.
That convergence of belief and expectations, even if wrong, is usually enough to shape the general direction the market will go in, so im effect, it's a self fulfilling prophecy, so if you can get enough of the biggest players to believe something will come true, they will make it come true in the market.
All of these factors combined means that the Chinese stock market is traded by a vast number of little guys, who either don't trust the published stats to base their investment decisions on them, and/or don't have the technical training and expertise to make much sense of those stats even if they trusted them.
Unlike western professional firms, who would use all the data available and their models and software to calculation a baseline expected valuable for a company, and so can afford to play the long game and ride out small volatility in share prices by looking at how the market price compares to their baseline, these Chinese little guys don't have a baseline to compare against, and since it's their own money they are trading, and not clients', it all combines to mean the Chinese traders are far more proven to panic compared to western traders.
This means there is no common rule book in play to create any convergence of belief in the market. Instead, convergence of belief in the Chinese stock market is created by rumours and gossip. Which is why it's so volatile and unpredictable.
That volatility and unpredictability also makes it a poor indicator for how the Chinese economy is performing.
3) The tiny size of the Chinese stock market compared to the economy as a whole also means its impact is far smaller.
A stock market crisis in China is still a crisis. Just nowhere as big as it would be for a western economy.
Great explanation.
Frankly I'm not sure if the reporting on the stock market from the various media and business media outlets is due to honest ignorance on their part in relation to the various factors you listed, or if they simply smell a story and are willing to print what sells.
plawolf
Lieutenant General
The cynical part of me suspect baser, financial motivations also.
One does not spend millions or billions to gain control of mainstream news media without seeking to get a return on that 'investment'.
Just look at how western markets have reacted to news of the Chinese stock market woes. Hell, the Chinese markets themselves are likely also affected by what the western news media says.
Given the nature of Chinese stock markets, it's entirely possible to exasperate or even cause a panic if one was rich and powerful enough. Spread some rumours, make a few big enough transactions to cause the market to wobble, and fear and panic will do the rest.
Good time to have shorted some stocks if one knew what the headlines tomorrow are going to be.
Influencing or downright controlling what the mainstream media will report is a crucial part of creating the kind of convergence of belief I mentioned before, and can be a game-changing advantage to anyone who can make it happen.
That is, in my view, a huge part of the reason why the modern news barons have gone anonymous.
A well known celebrity news baron like Murdoch shorting shares right before his news empire pans a company and/or country will raise eyebrows if not investigations.
Someone with the same if not greater influence in the other mainstream news organisations who cloaks that ownership and influence with complicated (and costly to create and maintain) shell companies and corporate structures can do as he/she pleases safe in the knowledge no one will be able to link the two.
1% of Americans owns more wealth than the remaining 99% combined.
You would have to be extraordinary naive if you think the rich hasn't used that overwhelming wealth advantage to amass a similarly overwhelming amount of power and influence.
In the western democratic world, the news media determine influence, and in turn where the power flows, which makes them especially valuable acquisitions.
Those who owns and controls the news media can influence and control the news and opinion, so shape the public's views, perceptions, their very values itself.
In a democratic country, such influence can determine who gets into office and whether they stay there, especially if backed by direct money contributions to campaigns.
If you own the media and the politicians, it's easy to get the people to believe and do what you want yet still think it was all their own idea.
Brumby
Major
The financial markets is simply reacting to the Chinese economic numbers as they are released confirming that the economy continues to slow. It also suggest that the various measures taken by the Chinese central government in recent times are not having the desired effect to jump start the economy. Discounting the connection of the Chinese economy to the Chinese stock market and the correlation is missing the point. It is true that not all stock market downturn precedes an economic slowdown or recession. However the historical empirical evidence are there to support the view that all major economic downturn are preceded by similar stock market movements by between 12 to 18 months.
The reasons for such a correlation is actually easy to understand and intuitively self evident. In a rising stock market, companies enjoy a healthy economy with consumer spending driving company profits due to demand. The increasing profits are reflected in enhanced market valuation as evident by increasing PE's. This obviously in turn drive stock prices upwards. When the economy turns, the reversal of fortune starts to take a similar effect on company profits which is reflected in depressed earnings and hence valuation and consequently on stock prices. The major point to note is that in a western type market where market information is efficient, smart money starts to rebalance their portfolio ahead of the general crowd and hence there is always a lag between the economy and the stock market with the latter leading the way by at least 12 months. In the Chinese stock market, institutions are not as heavily weighted and so the correlated pull and effect might be different but the principles remain unchanged. The higher volatility of the Chinese stock market in my view is attributed to basically three things. Firstly it is just one big Chinese casino and investment decisions tend to be generally speculative based on rumours and greed. Secondly, market information is not as efficient and so reactions of market participants tend to over-react when dealing with rumours because of the lag in official information. Lastly, the Chinese central government had been inserting itself in various market interventions and in some cases throwing curve balls.
The reasons for such a correlation is actually easy to understand and intuitively self evident. In a rising stock market, companies enjoy a healthy economy with consumer spending driving company profits due to demand. The increasing profits are reflected in enhanced market valuation as evident by increasing PE's. This obviously in turn drive stock prices upwards. When the economy turns, the reversal of fortune starts to take a similar effect on company profits which is reflected in depressed earnings and hence valuation and consequently on stock prices. The major point to note is that in a western type market where market information is efficient, smart money starts to rebalance their portfolio ahead of the general crowd and hence there is always a lag between the economy and the stock market with the latter leading the way by at least 12 months. In the Chinese stock market, institutions are not as heavily weighted and so the correlated pull and effect might be different but the principles remain unchanged. The higher volatility of the Chinese stock market in my view is attributed to basically three things. Firstly it is just one big Chinese casino and investment decisions tend to be generally speculative based on rumours and greed. Secondly, market information is not as efficient and so reactions of market participants tend to over-react when dealing with rumours because of the lag in official information. Lastly, the Chinese central government had been inserting itself in various market interventions and in some cases throwing curve balls.
AssassinsMace
Lieutenant General
Yeah and they said Western markets were so advanced they didn't need regulation. That was said before 2008.