China: The Great Fall

Judging by the latest Merrill Lynch survey of fund managers, investors have a touching faith that China is going to rescue us all and re-ignite the commodity boom. How can this be? Taiwan's exports to China fell 55pc in January, Japan's fell 45pc. These exports are links in the supply chain for China's industry. Manufacturing output in the Shanghai region fell 12pc in January. Source

China nears deflation trap as rail freight collapses
Railway freight in China’s Shanghai region plunged 31pc in January and industrial production fell 12pc, dashing hopes that Beijing’s stimulus policies will soon begin to fuel recovery.

China consumer markets are shrinking

China Taxes Reveal Spending Slowdown, Goldman Says

By Chua Kong Ho and Paul Panckhurst

Feb. 26 (Bloomberg) -- China investors should be “defensively positioned” as a decline in the nation’s tax receipts signals a steeper slowdown in spending than retail sales figures show, according to Goldman Sachs Group Inc.

“Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.

Value-added tax has “de-linked sharply” from retail sales figures, the analysts wrote. VAT rose 1 percent in the fourth quarter from a year earlier, while retail sales gained 21 percent, according to the note.

China is trying to boost domestic spending to shore up its economy as recessions in the U.S. and Europe smother demand for its exports. The nation’s growth has slowed for six straight quarters, while outbound shipments slumped 17.5 percent in January, the most in almost 13 years, customs bureau data showed this month.

Growth in China’s individual income-tax receipts “slowed down significantly” in the second half and shrank in December and January, the Goldman Sachs analysts wrote. This compares with nominal wage growth of 21 percent in the third quarter, the report said.

“We think the government’s fiscal stimulus package announced so far may help create jobs, but may not necessarily help boost wages which, in our view, is the key driver of consumption growth,” the note said. “As such we are not hopeful that China’s consumption slowdown will bottom out soon.”

China equity market set to crash ( even further)

US mutual funds cannot invest in short positions. They must invest in long positions. But where in the world can they place their funds?

Like a flock of birds fund managers seem to have decided in 2008 that a safe place to land (for now) is in China. As long as more and more mutual fund managers keep putting more and more funds into China equities the equity markets defy gravity and don't fall. Lol! It's a repeat of mutual funds flocking into commodity equities in 2007--which crashed in 2008.

Where in China is the good news? China’s exports are falling and, due to rising unemployment, domestic demand will be difficult to stimulate. How long until the mutual funds fly away and the flock follows?

China Stock Gains to End as Profit Drops, Xie Says

(Bloomberg) -- China’s stocks rally, having turned the Shanghai Composite Index into the world’s best performer this year, will falter as profits are “non-existent,” said Andy Xie, former chief Asian economist at Morgan Stanley.

The Shanghai measure has gained 22 percent this year, the most among 90 global stock gauges tracked by Bloomberg. The index is valued at 17.4 times earnings, the most expensive among the so-called BRIC markets of Brazil, Russia, India and China.

The rally will run out of steam as “profits are non- existent and valuations are still expensive,” Xie, who is now an independent economist, said in an interview yesterday.

Investors opened 427,460 new accounts to trade stocks last week, according to data posted on the Web site of China Securities Depository & Clearing Corp. yesterday, almost double the number in the previous week and the most since the five days to March 28.


"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Chinese Firms Turn to Pawn Shops as Loans Dry Up

(Source: Reuters, 19 Feb 2009)

With China's economy stumbling along at its slowest growth in seven years and banks wary of lending as defaults rise, small business operators are hocking belongings and company assets for loans from pawn shops.

"Banks are reluctant to lend," said Huang Jing, deputy business manager at Shanghai Oriental, the city's second-biggest pawn shop. "But we have a lower threshold and can provide loans much more quickly and with shorter terms".

From gold bullion to houses and factory equipment, customers are offering all sorts of assets to get loans from pawn shops. An auto dealer pawned his downtown apartment against a 4 million yuan ($585,000) credit line to secure funds for his business. A real estate developer gave his unsold properties as collateral to get an emergency loan while waiting to secure bank funds. And a construction company owner hocked his villa to get a loan to pay workers' salaries.

"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Violent unrest rocks China as crisis hits

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

• On January 15 there were pitched battles at a textile factory in the nearby city of Dongguan between striking workers and security guards.
• On January 16, about 100 auxiliary security officers, known in Chinese as Bao An, staged a street protest after they were sacked by a state-owned firm in Shenzhen, a boom town adjoining Hong Kong.
• About 1,000 teachers confronted police on the streets of Yangjiang on January 5, demanding their wages from the local authorities.
• In late December, 2,000 workers at a Singapore-owned firm in Shanghai held a wage protest and thousands of farmers staged 12 days of mass demonstrations over economic problems outside the city.
• In southern China, hundreds of workers blocked a highway to protest against pay cuts imposed by managers. At several factories, there were scenes of chaos as police were called to stop creditors breaking in to seize equipment in lieu of debts.
• In northern China, television journalists were punished after they prepared a story on the occupation of a textile mill by 6,000 workers. Furious local leaders in the city of Linfen said the news item would “destroy social stability” and banned it.
• A legal advocate for migrant workers, Xiao Qingshan, told a tale of violent intimidation by the state in collusion with unscrupulous businessmen. On January 9, Xiao said, 14 security officers from the local labour bureau broke into his office . . . "That evening I was ambushed near the office by five strangers who forced a black bag over my head and then threw me into a shallow polluted canal,” he said.
  

China Fears Tremors as Jobs Vanish From Coast
Although the government has not released updated information about rural unrest, officials have been strategizing about how best to keep large protests and riots from spreading, should the dispossessed grow unruly. This week, more than 3,000 public security directors from across the country are gathering in the capital to learn how to neutralize rallies and strikes before they blossom into so-called mass incidents. At a meeting of the Chinese cabinet last month, Prime Minister Wen Jiabao told government leaders they should prepare for rough times ahead. "The country’s employment situation is extremely grim," he said.

"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers

Asia in trouble

Recent news from Asia:

• Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December.
  
  
• Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further—43.1 percent, twice as much as December's 21.3 percent year-on-year drop.
  
  
• More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.
  
  
• India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
• New Delhi's public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.
  
  
• South Korea's exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction.
  
  
• Taiwan, the sixth largest Asian economy, saw its exports fall 44.1 percent in January from a year earlier—the biggest fall since records began in 1972. Imports plunged 56.5 percent in the same month. For an economy where exports account for 70 percent of GDP, the impact is devastating.
  

More discussions of Asia's economic problems:

• http://mpettis.com/2009/02/more-terrible-trade-numbers-from-china/
• http://blogs.cfr.org/setser/2009/02/13/a-truely-global-slump/

Think "domestic demand" will be easy to stimulate in China? I doubt it. China has huge unemployment problems. Unemployed people just don't have money to spend. Want more evidence that domestic demand will be difficult to stimulate? Then please read this:
http://globaleconomicanalysis.blogspot.com/2009/02/inside-china-sculptors-view.html

Comments:

1. To the extent that imports are necessary inputs to Asia & China's production process then falling imports may be a leading indicator of even greater declines in production and exports.

2. Falling imports may also be an indicator of much greater unemployment than is being reported--unemployed people don't buy imports.

3. If unemployment is under-reported or accelerates it becomes doubtful that domestic demand can be stimulated and domestic demand may actually fall.

Implications:

- China's exports seem destined to fall and domestic demand will be difficult to stimulate.
- China's economy appears to be a bubble about to pop.
- If/when the China bubble bursts, China's equity markets will crash.

China Stock Gains to End as Profit Drops, Xie Says

(Bloomberg) -- China’s stocks rally, having turned the Shanghai Composite Index into the world’s best performer this year, will falter as profits are “non-existent,” said Andy Xie, former chief Asian economist at Morgan Stanley.


"This is your captain speaking, everyone remain calm, everything is under control. "

Cheers