Wednesday, 21 January 2009 23:00

Now that the world is forced to agree with Reggie on China's growth propsects...

Now that the world agrees with me on China...

Bloomberg: China's Economy Grew 6.8% in Fourth Quarter, Slowest Pace in Seven Years

China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.

Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today. The figure matched the median estimate of 12 economists surveyed by Bloomberg News.

Plummeting Chinese demand for parts and materials for exports is reverberating across Asia and the Pacific, driving Taiwan, South Korea and Australia closer to recessions and worsening Japan’s slump. Premier Wen Jiabao said this week that the government must work urgently this quarter to reverse the slowdown and maintain social stability amid a “very grim” outlook for jobs.

Even more gloomy from my man, Nouriel: The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8%

The Chinese came out today with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter on quarter annualized seasonally adjusted (SAAR) basis.

When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters’ positive growth.

Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.

Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% in y-o-y basis; the Chinese PMI has been below 50 and close to 40 for five months now.

And with manufacturing being about 40% of GDP , manufacturing is certainly in a sharp recession (negative growth) and the overall economy may be close to a recession

So the 6.8% growth was actually a 0% growth – or possibly negative growth – in Q4; and the Q1 figures look even worse. So China is in a recession regardless of what the highly massaged official numbers claim.

.. and another "I told you so" about 5 months ago when the sell side analysts and MSM world was clamoring for China and India to save the world, if you can only save the cheerleader (Heroes quip). From yours truly...

China Macro Update (a one percent drop in the US growth rate will effectively slow down China’s growth by 1.3 percent.)
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)

China: An Insight into its Past Growth and the Future (also of interest is the HSBC opinion and 2H08 update) China’s massive growth in the last decade has taken the world by surprise. Curr
Tuesday, 19 August 2008
This is one of the reasons why we are up over 500% on HSBC, with the trade capable for an additional 200% more. See:

Part one of three of my opinion of HSBC and the macro factors affecting it
(Reggie Middleton's Boom Bust Blog/MyBlog)

HSBC Holdings, one of the largest global banks, has remained relatively unaffected by the ongoing credit turmoil and housing downturn in the US until now. The bank has outperformed its peers, most
Thursday, 14 August 2008

HSBC 1H 08 results update
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)

Decline in net income HSBC’s net income fell 29% y-o-y to US$7.72 billion (or US$0.65 per share) in 1H 08 from US$10.9 billion (or US$0.94 per share). The bank’s prof
Thursday, 14 August 2008
Last modified on Wednesday, 21 January 2009 23:00

12 comments

  • Comment Link shaunsnoll Monday, 26 January 2009 15:11 posted by shaunsnoll

    since i would then be a corrupt dictatorship, i would just short all commodities, then release startling slow economic numbers, then cover shorts and go long, then release strong economic numbers, a big "stimulus" package, and just keep doing that. since there is no rules there who would stop them?

    Report
  • Comment Link Rumi Sunday, 25 January 2009 19:47 posted by Rumi

    I think I'd just take all those treasuries and convert them for oil and agriculture. Sure, I'd lose some of the value of the treasuries and then drive up the price of the oil and food, but I guess it's better to exit while the rest of the world is stupid enough to accept those Tbills.

    Actually, if I were China and the US continued to piss me off with their "currency manipulation" rhetoric, I'd just convert all my US holdings and let my currency float. That'd probably shut them up pretty quickly, I think.

    Report
  • Comment Link Rumi Sunday, 25 January 2009 13:39 posted by Rumi

    //The west printed its way to luxury while China slogged it out. Now they have a environment that is beset with pollution and factories that are sitting idle and a workforce now looking at the rulers and it all makes for a molotov cocktail.//

    The West did the same thing at the beginning of its rise during the industrial revolution, and it also had its share of strife--look at the effect coal had in England, for example. Things still worked out pretty well up until recently--about the time it decided that factories weren't necessary, but that paper-chasing was the be all and end all. I have no problems with this, and hope to make a lot of money chasing paper as well. I just don't see how not going that route is a bad thing.

    The factories *could* make other things if demand appears in a different area (not for a while, IMO). Also, the skills that were learned to make these things are still intact--they aren't immediately forgotten, and so long as people don't leave in droves, China still has the advantage of scale. On balance, this probably leaves them better off economically than not having ever taken this road to begin with.

    IMO, the environment is a big issue, as are the input resources necessary to keep this thing going. I believe that it's a mistake to try to replicate the West's method of getting rich at this point in time, and that virtually any developing country--especially ones with large populations--should find a different model, but hey, WTFDIK? I have no background in history, economics, politics, or finance, so you should take what I say with a grain of salt.

    //Whatever happens.. will help to hopefully improve working conditions and hum rights in China and eventually drive manufacturing costs thus ensuring that goods are manufactured elsewhere too....//

    I don't understand how this follows.

    Surplus of labour = reduction in bargaining power. Shortage of labour = strengthening bargaining power. If Chinese costs go up for whatever reason, the shift in production will just go to Vietnam or some other 3rd world country. It certainly won't go back to the developing world without a *lot* of government support (which, incidentally, I see coming at some point as gov'ts get more and more desperate to jump start their own domestic economies).

    ___

    BTW, China didn't fund all of the West's buying binge--only a couple trillion of it. The West funded a lot of it as well, as did Japan, Korea, Saudi Arabia, Taiwan, the Phillipines, etc. Instead of thinking of the Chinese as patsies, it may make more sense to view the Japanese et al as the ones who subsidized China's rise. Sure, Japan might have got to sell a couple of other cars and what not, but most of the money that entered the system due to Japan et al.'s policies went to China indirectly.

    Just a thought.

    Report
  • Comment Link Sam Houston Saturday, 24 January 2009 16:24 posted by Sam Houston

    The Chinese power elite has been obsessed with keeping the population employed and busy so that they can hold onto their power and so you saw so many products head towards europe and the US.. entire ship filled with goods heading westward all in return for paper money which is now not of much use. The west printed its way to luxury while China slogged it out. Now they have a environment that is beset with pollution and factories that are sitting idle and a workforce now looking at the rulers and it all makes for a molotov cocktail.

    Whatever happens.. will help to hopefully improve working conditions and hum rights in China and eventually drive manufacturing costs thus ensuring that goods are manufactured elsewhere too....

    Report
  • Comment Link dherkes Friday, 23 January 2009 20:12 posted by dherkes

    " they are all things that most of the Western Economies don't have--they're a decent start, in other words."
    The Western economies don't have as[i] many [/i]as they used too.

    Report
  • Comment Link Rumi Friday, 23 January 2009 16:11 posted by Rumi

    shaunsnol: //hear any solid argument as to why you would be bullish on china other than "well its so bad now and in the past it was bad and if you had held china stocks for 25 years you wouldn't be that bad off now//

    Bullish case for China: China has actual production capacity, even if it's inefficient and has been applied to unproductive areas, balance of payments surplus, large reserve base, high savings rate, and increasingly rich neighbours. None of these guarantee prosperity, but they are all things that most of the Western Economies don't have--they're a decent start, in other words.

    Report
  • Comment Link Rumi Friday, 23 January 2009 16:08 posted by Rumi

    Daedal/shaunsnol: I like both of your points, but I'm not sure I agree with either of you.

    Daedal: //At this point he would have to seriously curtail his spending in order to pay down the debt.//

    The US is different, IMO, because:

    1. It can print money
    2. It has absolutely no intention of paying off its debt (how could it possibly do so unless it prints money, anyway?)

    I agree that the US is pretty screwed, but I don't know why that automatically implies that China will do well. Most likey (IMO), China will do well in time, but I don't see how the next few years are going to be good for *anybody*.

    shaunsnol: Why is the political unrest a certainty? Why can't the government waste its reserves on buying the goods (or substitutes) that the US will no longer buy, or just fund R&D through the teeth, or use the uncertainty to go attack its neighbours or whatever--not that I think this last one in particular is very likely.

    Incidentally, I think one of the big advantages that the US had in its ascendency was that it is bordered by only two countries, one of which is very stable. China is surrounded by countries that are both unstable and falling apart, and who all hate each other. Add to that that quite a few of the countries in its neighbourhood either have nukes (Pakistan, India, Russia, NKorea, China itself) or can make them very quickly if it wants (Japan), and its future prosperity, while definitely possible, hardly appears to be certain. The US basically walked in near the end of two major wars and got to divvy up the spoils. China could very well be sucked into a war near the beginning, not the end of a conflict.

    Also, I don't think that they can just grow by consuming oil and other raw materials the way the US did. First, a lot of that stuff is used up, and secondly, the US actually expanded for much of its time (until WWII, roughly) by using its own resource base. China doesn't have that luxury.

    Report
  • Comment Link shaunsnoll Friday, 23 January 2009 15:10 posted by shaunsnoll

    hear any solid argument as to why you would be bullish on china other than "well its so bad now and in the past it was bad and if you had held china stocks for 25 years you wouldn't be that bad off now"

    i seriously can't see one thing going well for china's economy right now. they are going to be in a world of hurt worse than the great depression the US faced in the 30s but with more political unrest. its impossible to quantify but if i had to guess i'd say 50/50 odds that in 10 years china is not one country anymore. if you think the economy over there is bad now, consider what it could be like with 30% unemployment, riots in the streets, and provinces breaking away and battling the military in the streets.

    Report
  • Comment Link Daedal Friday, 23 January 2009 14:11 posted by Daedal

    You're Exactly correct. The Chinese government buys American debt with the money of its citizens. Therein lies the problem: The money on which American economy 'flourishes' is DEBT... and debts have to be repaid sooner or later. Here's an example of the absurdity of American economic system:

    Consider a person who makes $5,000 a month, and who has a credit card limit of $10,000. By spending more than his income, let’s say the total $7,500, that person increased their debt by $2,500 (assuming $5,000 from his income was used to pay down a part of his bill). Next month, instead of spending less than $5,000, in order to help pay down the debt from the month before, he once again spends $7,500. If he continues to spend more than what he makes, eventually he will reach the end of his credit limit. At this point he would have to seriously curtail his spending in order to pay down the debt. Instead, and similar to our government policies, he opens up a new credit card with an even higher credit limit at $15,000, and proceeds uses it to pay down his credit debt from the original card, while using the remainder for even more spending. You can see where this is going.

    Now, replace this 'person' with 'America' and the 'Credit Card company' with China.

    More than 70% of USA GDP is consumer spending! How is consumer spending going to pay down our debt?

    The Chinese don't need to give us money to buy from them; they can keep the money and buy from each other.
    See, once China realizes that America is broke and we cannot repay them they're going to stop lending us money. When that happens, we're screwed.

    Report
  • Comment Link phirang Friday, 23 January 2009 13:11 posted by phirang

    China forces exports using a ponzi-finance scheme whereby they steal the savings of their citizens and underprice their currency.

    DId you know that most Chinese manufacturers make almost no profit on their exports? Yes, it's true: China DUMPS goods into countries.

    Sorry to say it, Lloyd, but the high savings rate is only because there's NO SAFETY NET in China.

    Anyway, sold to you.

    Report
  • Comment Link Lloyd Daedal Friday, 23 January 2009 10:48 posted by Lloyd Daedal

    Read this: http://mises.org/story/3293

    Report
  • Comment Link shaun noll Thursday, 22 January 2009 11:34 posted by shaun noll

    The comparison with 1920’s USA and China are startling, US was on the gold standard so policy adjustments were difficult, China has a fixed exchange rate, both had huge balance of payment surpluses, effectively allowing other countries to export their manufacturing capacity there, so when the global trade adjustments occurred they were/are more affected than the deficit countries. This will be MUCH more difficult for China though than it was for the US in the depression. At the time the US had political outlets for social angst where china has none, and while both ran a similar sized trade surplus (at about .5% of Global GDP) China’s domestic economy is less than 1/5 the relative size of the US in 1929, so the shift to domestic driven consumption will be a painful one indeed. i can only pray it is accomplished in peace....

    Report
Login to post comments