Chinese Economy : Updates and Discussions
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"Like Living In North Korea": China Daily Power Cuts Hit Homes, Factories
Goldman Sachs Tuesday lowered its annual economic growth forecast for China as nationwide power cuts hit millions of homes and halted production at factories, including some supplying Apple and Tesla.
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China's falling factory activity a sign of economic woes ahead
BEIJING, Oct 31 (Reuters) - China's factory activity contracted more than expected in October to shrink for a second month, hurt by persistently high raw material prices and softer domestic demand, pointing to more economic disquiet in the final quarter of 2021.The official manufacturing Purchasing Manager's Index (PMI) was at 49.2 in October, down from 49.6 in September, data from the National Bureau of Statistics (NBS) showed on Sunday.
The 50-point mark separates growth from contraction. Analysts had expected it to come in at 49.7.
China's sprawling manufacturing sector has steadily slowed this year, with output in September growing at its most feeble pace since March 2020 due to environmental curbs, power rationing and higher raw material prices. read more
In line with the softer headline PMI, a subindex for production slipped to 48.4 in October from 49.5 in September. A subindex for new orders also contracted for a third month, coming in at 48.8.
"About one-third of the surveyed companies listed insufficient demand as their biggest difficulty, indicating inadequate demand had restricted their production," said Zhang Liqun, an analyst at the China Logistics Information Center.
More worryingly, a subindex for output prices rose to 61.1, the highest since 2016 when the statistics bureau started publishing the indicator, suggesting rising inflationary pressures while broader economic growth slows.
"The production index has dropped to the lowest level since it was published in 2005, excluding the global financial crisis period in 2008/09 and the COVID outbreak in February 2020," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"The output price index rose to the highest level since it was published in 2016. These signals confirm that China's economy is likely already going through stagflation."
POLICY TIGHTROPE
Factory gate inflation rose to a record last month on soaring commodity prices but weak demand capped consumer inflation, forcing policymakers to walk a tightrope between supporting the economy and further stoking producer prices. read more
Analysts polled by Reuters expect the People's Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.
"Production remains weak, indicating the demand problem may be relatively large, and some easing of policy is still needed," said Zhou Hao, senior economist at Commerzbank.
The official non-manufacturing PMI in October eased slightly to 52.4 from 53.2 in September, when services swung back to expansionary at the end of a COVID-fraught summer.
New clusters of COVID-19 returned in October, especially in the north, which could again disrupt economic activity and deal yet another blow to the services sector because of tough restrictions to contain the disease.
"Due to the impact of the epidemic and weather, consumers were more inclined to spend their holidays at home or travel for short distances," said Zhao Qinghe, a senior NBS statistician, in an accompanying statement.
While the transport sector including air and railway services expanded, the growth was relatively weak, Zhao said.
China's official October composite PMI, which includes both manufacturing and services activity, stood at 50.8, down from September's 51.7.
China's falling factory activity a sign of economic woes ahead
China's factory activity contracted more than expected in October to shrink for a second month, hurt by persistently high raw material prices and softer domestic demand, pointing to more economic disquiet in the final quarter of 2021.
"Smaller Than Parking Space": Life In Hong Kong's Microflats, Nanoflats
For Max Lee, a 26-year-old Hong Kong doctor, life in his single-room apartment revolves around the bed. It's the first thing you see walking in.
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China Looks a Lot Like Japan Did in the 1980s
How weak is China’s economy? A raft of data in recent weeks suggest it has slowed sharply. It may not even be growing at all, given the unreliable nature of China’s domestic statistics. Most observers say the slowdown is due to the government’s attempt to stamp out Covid-19 and, more importantly, the woes of the country’s highly leveraged real-estate sector. Actually, the property sector’s travails are more a symptom than a cause of China’s problems. The nation’s economic model is probably broken, much like Japan’s was three decades before — and for remarkably similar reasons.I suspect China will avoid an all-out crisis, but economic growth will limp along at next to nothing or worse. Like those of other North East Asian countries, China’s growth model has relied heavily on the one pursued by Japan after World War II. As well as five-year economic plans, the Japanese banking system was corralled into lending to favored sectors. The whole system was, in essence, designed to strip out and socialize credit risk, thereby making borrowing cheaper for the economy as a whole. Lending was collateralized, generally with property. Companies aimed for market share rather than profitability. The flip side of cheap capital was poor returns for investors. Regulators were able to pull off this trick via heavy restrictions on where investors could put their money.
Japan’s problems started when markets began to be liberalized in the early 1980s, while leaving the existing structure and incentives in place. The corporate sector’s financial deficit started to balloon, meaning it spent much more than it earned. The gap was filled by borrowing. On the face of it, the debt looked manageable because the price of land, which backed the loans, rose vertiginously. Not having been in the business of assessing and managing risk, the country’s banks and regulators were unconcerned by rapid growth in lending. World Bank data show bank credit to non-financial companies grew by 60 percentage points of gross domestic product in the 10 years to the end of 1989.
Rapid Growth
Bank credit to non-financial Japanese companies soared in 1980s
Sources: World Bank, Bloomberg
Then the virtuous circle turned vicious. First stock prices crashed, then land prices. Not only was the banking system crushed by bad loans and struggled to finance itself in overseas markets (the infamous Japan premium), but just as importantly companies were forced to start saving. The corporate financial deficit rapidly turned into a surplus and stayed that way, becoming a huge drag on the economy. Given that the country ran a huge current-account surplus, by definition the government had to run a huge budget deficit, otherwise the economy would have imploded. All these problems were compounded by a working-age population that began to shrink from the mid- 1990s, leading to lower employment and less productivity.
Under Pressure
Japanese stocks have yet to recover to their record highs of 1989Source: Bloomberg
China’s current problems look eerily similar, and in some ways worse. Demographic problems are an example. Much is made of the crippling effects of an aging population on Japanese growth. Japan’s working-age population started to fall in the mid-1990s, and its overall population started to shrink in 2008. China’s working-age population peaked 10 years ago and its overall population is probably already contracting. Japan’s underlying demographic drag came after its economic bubble popped; China’s has been a drag for years already.
Trailing Off
China's population has been growing at a much slower rate this century
Sources: U.S. Census Bureau, Bloomberg
Growth is normalized to a starting point of 100.
China’s bubble-like dynamics, however, have masked the fallout. Deregulation spurred Chinese corporate spending. Andrew Hunt, who runs Andrew Hunt Economics Ltd in London and is an old Japan hand, estimates that the corporate deficit has been running at around 14 percentage points of GDP in recent years, sometimes higher. The shortfall expands to 20 percentage points of GDP and more when including local governments. In Japan, it peaked at about eight percentage points of GDP. Small wonder that Chinese bank lending growth has been even more rapid than Japan’s. According to Bank for International Settlements numbers, credit to GDP ballooned by 65 percentage points, to 205% of GDP, in the 10 years to 2019. In Japan, the limits of growth were reached when annual corporate interest expense rose above nominal GDP -- the point when debt dynamics turn ugly.
Credit Splurge
Lending to Chinese companies soared between 2009 and 2019
Sources: Bank for International Settlements, Bloomberg
China is now at that point, and as companies are forced to save, its economy will struggle – perhaps more so than Japan’s, and not just because of demographics. For one thing, the property sector is much more important to growth. Since local governments have relied on selling land to cover their spending, huge amounts of lending have gone into construction. In 1989, according to Hunt, construction spending in Japan amounted to just under 8% of GDP; it is 15% in China. True, property prices don’t appear to have been quite as effervescent in China, but the country is not as strapped for space as Japan. Moreover, Chinese regulators have been struggling to contain property speculation for years without much success.
The Chinese banking system — and everyone that relies on it — is likely to be crippled for years. Many Chinese banks are already struggling to fund themselves. In Japan, most corporate debts were denominated in yen. Hunt estimates that Chinese companies have some $5 trillion of foreign-currency denominated liabilities, roughly equivalent to 10% of the financial system’s liabilities.
Lingering inflationary concerns aside, the People’s Bank of China, the country’s central bank, is probably reluctant to cut interest rates further because of the effect on bank profits. But cut them it will at some point, such will be the headwinds buffeting the Chinese economy. That will help only at the margin, for the problems affecting the economy run too deep. Optimists think leadership will always find a way to jumpstart growth. A better way of thinking of it is that the moral hazard of the government always stepping in is what has kept the country fizzing for so long.
President Xi Jinping’s “Common Prosperity” drive should be seen in this context; not as an attempt to spread wealth but to pool losses, with the richest having to pay much more. That will help China guard against financial crisis and economic implosion, though will not guarantee that they will be sidestepped. I suspect that “Common Prosperity” is an implicit acknowledgment that it will take many more years — and a new economic model — for China to work its way through these problems.
China’s Factory Inflation Grows at Fastest Pace in 26 Years on Soaring Energy Prices
China’s Factory Inflation Grows at Fastest Pace in 26 Years on Soaring Energy Prices
China’s factory-gate prices surged at the fastest pace in 26 years in October due to higher energy costs, adding to anxieties that global inflation will persist while constraining Beijing’s ability to stimulate the nation’s economy.
www.wsj.com
China's factory inflation hits 26-year high as power crunch bites
China's factory gate inflation hit a 26-year high in October as coal prices soared amid a power crunch in the country's industrial heartland, further squeezing profit margins for producers and heightening stagflation concerns.
China’s Factory Inflation Grows at Fastest Pace in 26 Years on Soaring Energy Prices
China’s Factory Inflation Grows at Fastest Pace in 26 Years on Soaring Energy Prices
China’s factory-gate prices surged at the fastest pace in 26 years in October due to higher energy costs, adding to anxieties that global inflation will persist while constraining Beijing’s ability to stimulate the nation’s economy.
China Is Now World's Richest Nation, Ahead Of US
Global wealth tripled over the last two decades, with China leading the way and overtaking the U.S. for the top spot worldwide.That's one of the takeaways from a new report by the research arm of consultants McKinsey & Co. that examines the national balance sheets of ten countries representing more than 60% of world income.
"We are now wealthier than we have ever been," Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
Net worth worldwide rose to $514 trillion in 2020, from $156 trillion in 2000, according to the study. China accounted for almost one-third of the increase. Its wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000, the year before it joined the World Trade Organization, speeding its economic ascent.
Richest 10%
The U.S., held back by more muted increases in property prices, saw its net worth more than double over the period, to $90 trillion.
In both countries -- the world's biggest economies -- more than two-thirds of the wealth is held by the richest 10% of households, and their share has been increasing, the report said.
As computed by McKinsey, 68% of global net worth is stored in real estate. The balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
Financial assets are not counted in the global wealth calculations because they are effectively offset by liabilities: A corporate bond held by an individual investor, for instance, represents an I.O.U. by that company.
'Side Effects'
The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fueled by ballooning property prices pumped up by declining interest rates, according to McKinsey. It found that asset prices are almost 50% above their long-run average relative to income. That raises questions about the sustainability of the wealth boom.
"Net worth via price increases above and beyond inflation is questionable in so many ways," Mischke said. "It comes with all kinds of side effects."
Surging real-estate values can make home ownership unaffordable for many people and increase the risk of a financial crisis -- like the one that hit the U.S. in 2008 after a housing bubble burst. China could potentially run into similar trouble over the debt of property developers like China Evergrande Group.
The ideal resolution would be for the world's wealth to find its way into more productive investments that expand global GDP, according to the report. The nightmare scenario would be a collapse in asset prices that could erase as much as one-third of global wealth, bringing it more in line with world income.
China Is Now World's Richest Nation, Ahead Of US
Global wealth tripled over the last two decades, with China leading the way and overtaking the U.S. for the top spot worldwide.
www.ndtv.com
China Is Now World's Richest Nation, Ahead Of US
Global wealth tripled over the last two decades, with China leading the way and overtaking the U.S. for the top spot worldwide.That's one of the takeaways from a new report by the research arm of consultants McKinsey & Co. that examines the national balance sheets of ten countries representing more than 60% of world income.
"We are now wealthier than we have ever been," Jan Mischke, a partner at the McKinsey Global Institute in Zurich, said in an interview.
Net worth worldwide rose to $514 trillion in 2020, from $156 trillion in 2000, according to the study. China accounted for almost one-third of the increase. Its wealth skyrocketed to $120 trillion from a mere $7 trillion in 2000, the year before it joined the World Trade Organization, speeding its economic ascent.
Richest 10%
The U.S., held back by more muted increases in property prices, saw its net worth more than double over the period, to $90 trillion.
In both countries -- the world's biggest economies -- more than two-thirds of the wealth is held by the richest 10% of households, and their share has been increasing, the report said.
As computed by McKinsey, 68% of global net worth is stored in real estate. The balance is held in such things as infrastructure, machinery and equipment and, to a much lesser extent, so-called intangibles like intellectual property and patents.
Financial assets are not counted in the global wealth calculations because they are effectively offset by liabilities: A corporate bond held by an individual investor, for instance, represents an I.O.U. by that company.
'Side Effects'
The steep rise in net worth over the past two decades has outstripped the increase in global gross domestic product and has been fueled by ballooning property prices pumped up by declining interest rates, according to McKinsey. It found that asset prices are almost 50% above their long-run average relative to income. That raises questions about the sustainability of the wealth boom.
"Net worth via price increases above and beyond inflation is questionable in so many ways," Mischke said. "It comes with all kinds of side effects."
Surging real-estate values can make home ownership unaffordable for many people and increase the risk of a financial crisis -- like the one that hit the U.S. in 2008 after a housing bubble burst. China could potentially run into similar trouble over the debt of property developers like China Evergrande Group.
The ideal resolution would be for the world's wealth to find its way into more productive investments that expand global GDP, according to the report. The nightmare scenario would be a collapse in asset prices that could erase as much as one-third of global wealth, bringing it more in line with world income.
China Is Now World's Richest Nation, Ahead Of US
Global wealth tripled over the last two decades, with China leading the way and overtaking the U.S. for the top spot worldwide.
www.ndtv.com
China Tech Rout Deepens to $1.5 Trillion as Didi Emboldens Bears
Chinese tech companies have already been grappling with Beijing’s tightened regulations on areas ranging from digital finance and data security to online games and overseas listings. Separately, U.S. Securities and Exchange Commission in July vowed to require more information for Chinese firms seeking listings in the country.Didi is aiming to file for the Hong Kong listing around March, people with knowledge of the matter said.
A delisting from the U.S. stock market could raise the Chinese firms’ cost of capital, according to a Bank of America report last month. More than 270 Chinese ADRs are trading in the U.S. with a combined market capitalization of $1.8 trillion, and over 150 of them do not qualify to list in Hong Kong, the report said.
“Generally Hong Kong equities trade at lower multiples” than their U.S. peers, said Bloomberg Intelligence analyst Marvin Chen. “In the current environment, definitely their valuation expectations will be reset” if they seek re-listing in Hong Kong, he added.
NetEase Inc., Bilibili Inc. and JD.com Inc., which all have American Depositary Receipts, were the top losers in the Hang Seng Tech Index on Friday, each sliding more than 4.7%. The declines followed the Nasdaq Golden Dragon China Index’s drop overnight to the lowest in almost 19 months in the U.S.
“Didi will be the template for other Chinese companies listed in the U.S.,” said Justin Tang, head of Asian research at United First Partners. “A delisting in the U.S. will see a company lose exposure to investors who can only trade on the U.S. exchanges.”
| The Hong Kong gauge has lost 46% since a February peak, with declines accelerating in recent weeks after disappointing earnings season and a report that China plans to ban companies from going public on foreign stock markets through variable interest entities. |
The continued selloff this week came after big international financial institutions increased their calls for bargain hunting last month. Goldman Sachs upgraded offshore Chinese equities to overweight from market-weight while BlackRock Inc. has had more neutral positions on China, up from underweight.