Chinese Economics Thread

[CottageLV]

China CPI growth eases to 3.4% in April

I don't believe in these stats. They are heavily manipulated and only the good figures were used in reports. This is a widely known secret in China. Even the chief scientists and department officials indirectly admitted this, which is saddening.

---------- Post added at 12:21 PM ---------- Previous post was at 12:16 PM ----------

China's problem is it's economy is overheating and the human side of the infrastructure buildup is not catching up. It needs to slow down first, soothing the internal problems, whether it's political, social, foundational plus any other related problems. Right now China as a country, and its economy, are both floating in the air without a solid foundation. It needs to calm down first.

Like in a professional kitchen, rush hours often create a lot of mess, you have to clean up and organize everything first before further proceed. If not, you could end up getting stabbed by a random knife or slip on grease.

A country and its economy works the same way.

[J-XX]

I don't believe in these stats. They are heavily manipulated and only the good figures were used in reports. This is a widely known secret in China. Even the chief scientists and department officials indirectly admitted this, which is saddening.

---------- Post added at 12:21 PM ---------- Previous post was at 12:16 PM ----------

China's problem is it's economy is overheating and the human side of the infrastructure buildup is not catching up. It needs to slow down first, soothing the internal problems, whether it's political, social, foundational plus any other related problems. Right now China as a country, and its economy, are both floating in the air without a solid foundation. It needs to calm down first.

Like in a professional kitchen, rush hours often create a lot of mess, you have to clean up and organize everything first before further proceed. If not, you could end up getting stabbed by a random knife or slip on grease.

A country and its economy works the same way.

personally i have more trust in chinese economic data than american and british economic data.
the americans are the kings when it comes to manipulating the numbers. the american inflation rate is so laughable that many people know its made up. and since the inflation number is understated, the gdp number is totally fake due to the gdp deflator, i dont think the US economy grew last year at all, its all a political game those numbers. so is the unemployment number. the american media is so powerful no one questions them thus they receive no scrutiny.

china's economy is not overheating, it WAS overheating to due 2009-2011 lending, thus the government introduced very tough monetary measures including raising RRR to 21%(US RRR is currently at 10%) and interest rate to 3.5%(US interest rate is at 0.25%), then house buying was tightened incredibly with 40% down payment for 1st house, 60% down ayment for 2nd house and banned from buying 3rd house, auto buying was tightened.

under this tight environment, the economy will slow, it was designed to slow. inflation was running too high due to the lending but also hot money inflow from QE2 from bernanke. because of QE2 china didnt raise interest rates further because speculators will buy the assets of the country with the higher interest rates, the higher china raised interest rates, the more money would come into china, thus worsening inflation. that is why RRR was used instead. another problem for china was the out of control property prices due to the lending in 2009-20011, which had to be brought down to reasonable levels so the average chinese can afford them and to destroy the property speculators.

these tight conditions have been in force for a while now and you are seeing inflation coming down and property prices are falling. these were the 2 things china wanted to achieve.

now you will see china loosen policies both in monetary, fiscal(tax cuts, increase spending), and in the 2nd half loosen housing policies.

[AssassinsMace]

If it's believed that China manipulates figures, then why not believe in manipulating to make it look weaker just to fend off Western trade criticism of Chinese economic strength while they go through a recession? That was the criticism when the West was waiting for China to collapse in the aftermath of the 2008 financial crisis and didn't happen like they were hoping. There's a difference from what people believe and what they want to believe.

[bladerunner]

True, through out history there's always will be those who are in-tolerate of the new or old beliefs due to religion, because man kind still fears death.

O.T.
" Yeah though I walk in the Valley of the Shadow of Death
I shall fear no evil
Because I'm the biggest bastard of the lot"

I think someone associated with the "Beatles " said or had it ingraved on his tombstone.

[Equation]

O.T.
" Yeah though I walk in the Valley of the Shadow of Death
I shall fear no evil
Because I'm the biggest bastard of the lot"

I think someone associated with the "Beatles " said or had it ingraved on his tombstone.

Was it John Lennon or George Harrison?

[bladerunner]

Was it John Lennon or George Harrison?

O.T.
No, it was some with a managerial position. Rock group romoter P.R. Recording , ?

Actually its been suggested that "General George Patton" said something similar.

[escobar]

FDI in China falls for sixth month

Foreign direct investment (FDI) into China fell for a sixth straight month in April amid global economic woes.

In year-on-year terms, FDI edged down 0.74 percent to $8.4 billion in April, following a 6.1 percent drop in March, 0.9 percent decline in February and 0.3 percent fall in January, the Ministry of Commerce said Tuesday.

The country received $37.88 billion of FDI in the first four months, down 2.38 percent from a year earlier, MOC spokesman Shen Danyang said at a press conference in Beijing.

Investment from the debt-ridden European Union plunged 27.9 percent in the January-April period from a year ago. However, that from the United States and Japan climbed 1.9 percent and 16 percent, respectively, Shen said.

The nation approved the establishment of 7,016 foreign-invested companies in the first four months, down 13.94 percent from a year ago.

However, as investment into China drops, the country's outbound investment has surged. The country's non-financial overseas direct investment totaled $23.16 billion in the first four months, up 72.8 percent from a year earlier.

[escobar]

MOC to tally US$150 bln in outbound investment

The Ministry of Commerce (MOC) announced Tuesday that outbound investment from the world's second-largest economy is expected to total 150 billion U.S. dollars in 2015.

The country's overseas investment is predicted to grow by an annual rate of 17 percent during the 2011-2015 period, according to the MOC.

Meanwhile, the MOC forecast that the contract value of overseas projects will hit 180 billion U.S. dollars in 2015, while the business volume in overseas-contracted projects may hit 120 billion U.S. dollars.

Amid accelerating Chinese investment, the ministry also predicted that the country would send 550,000 more Chinese staff to work on these projects in 2015, with the total number of Chinese staff working under these projects to hit one million by the end of 2015, the MOC forecast.

As of the end of 2010, Chinese-invested overseas projects were conducted in nearly 200 countries and regions, with outbound investment during the 2006-2010 period growing by 30 percent annually, according to the MOC.

The latest data from the MOC showed that the country's non-financial overseas direct investment totaled 23.16 billion U.S. dollars in the first four months, up 72.8 percent from a year earlier.

[escobar]

Economist defends state-owned enterprises

China's state-owned enterprises (SOEs) and private businesses are not oppositional forces, but complementary ones, and allegations of a widening development gap between the two sectors is a totally "false proposition," according to a renowned Chinese economist.

Hu Angang, director of the Center for China Studies at Tsinghua University, refuted a popular description of the Chinese economy that says SOEs have gained rising dominance over the withering private sector, or that "the state advances and the private sector retreats."

The premise of such a notion is that SOEs and the private sector are playing a zero-sum game that involves no cooperation and one sector's gain results in the other's loss, but this does not agree with the facts, Hu wrote in his latest article.

"The true relationship between the two sectors is not one of opposition, but one of mutual promotion and coordinated development," he wrote, noting that there has not been a clear definition of "the state advances and the private sector retreats" and it is not supported by professional analysis.

As an economist, Hu felt obliged to clarify the truth and basic trends to the public based on existing data.

Whether judging from the number of enterprises, employment statistics, industrial output or profits, such a phenomenon does not exist based on the figures of both sectors' developments in past years, he wrote.

Figures from the National Bureau of Statistics show that the number of Chinese industrial above-scale SOEs have declined from 64,700 in 1998 to 20,300 in 2010, and provided 27.8 percent of the total industrial profits of above-scale enterprises that year.In the same period, the number of above-scale industrial private enterprises surged to 272,300 in 2010 from 10,700 in 1998, comprising more than 60 percent of the total number of above-scale enterprises. These private enterprises accounted for 28.5 percent of the nation's total industrial profits in 2010, up from 4.6 percent in 1998.

SOEs have also contributed more to government tax revenue than private businesses, according to Hu. In 2010, SOEs turned in 71.7 percent of government revenue from main business taxes and surcharges of above-scale industrial enterprises, while private enterprises only contributed 14.6 percent.

The government has also reduced tax burdens on private firms starting with a taxation pilot reform in 2007, which resulted in a decline in private enterprises' contribution rate to tax revenue, according to Hu, who expected an even more relaxed environment as the reform trials were expanded this year.

China's central finance authorities also draw up special budget plans for SOE profits, which have been a major contributor to the country's public financial support for programs that improve people's livelihood, he added.

Hu stressed that his analysis is a general evaluation not focused on particular industries in certain years, and it can only result in something that is "partially true" and cannot represent whole picture.

"Walk on two legs"

Hu wrote that SOEs and private enterprises play different roles in the development of the Chinese economy, and they are both close partners and competitors in supporting the country's economic development.

"It's like a man walking on two legs, which is steadier, faster and more coordinated than walking with only one leg," he explained.

SOEs are like elite field troops that shoulder the responsibility of competing with top global companies and becoming industrial leaders with advantages in resources, capital and technology, Hu wrote.Meanwhile, private enterprises are local armies aiming to create more jobs to boost regional development, and some have also emerged amid global competition due to their flexibility and creativity, Hu wrote.

"The development of Chinese enterprises is not about dominating the domestic market, but about the competition between Chinese and foreign firms," he wrote.

Competition and cooperation between SOEs and private enterprises have helped both sides improve, he wrote, adding that in 2011, 69 Chinese enterprises were ranked among the top 500 companies in the world, up from only four in 1995.

Moreover, Chinese SOEs only dominate the nation's seven sectors, including tobacco production, oil and gas exploitation and water supplies, which are either resource industries or related to public utilities, said Hu.

He also noted that these industries do allow the entrance of private capital but with strict and clear criteria.

China should focus on the development of both SOEs and private enterprises according to its own conditions in order to strengthen both of its "two legs," wrote Hu.

"The question is not about which sector dominates the market, but how and at what pace they are making progress," he wrote, adding that discussing "the state advances and the private sector retreats" is "completely meaningless."

Hu wrote that with "two strong legs," he expects that more than 120 Chinese enterprises will enter the global top 500 ranking in 2020, including 20 to 30 private enterprises, and that China will overtake the United States as the world's largest economy by 2020.

[Equation]

China should focus on the development of both SOEs and private enterprises according to its own conditions in order to strengthen both of its "two legs," wrote Hu.

I couldn't agreed with him more, he's right about that. It's funny you always read business magazines always trumped private sector over SOEs any day, but isn't the private sectors are the ones that's laying off people left and right? There's are some things private couldn't do what an SOE could, like the space industry or large manufacturing that requires great resources for research and development. Innovation can come from SOEs, not just the small and medium size businesses.

[Red___Sword]

China should focus on the development of both SOEs and private enterprises according to its own conditions in order to strengthen both of its "two legs," wrote Hu.

I couldn't agreed with him more, he's right about that. It's funny you always read business magazines always trumped private sector over SOEs any day, but isn't the private sectors are the ones that's laying off people left and right? There's are some things private couldn't do what an SOE could, like the space industry or large manufacturing that requires great resources for research and development. Innovation can come from SOEs, not just the small and medium size businesses.

Not to mention this little thing called economy crisis caused by cut-the-cost by non-natioanl-consensus individuals called "private sector", that cut their own cost, and transfer that cost to the public society to bear.

There is no cure-all script, but many tend to paint privatization as one such thing. SOEs do not cure-all, but nor total privatization. China is going his own paces.

[Norfolk]

Bit of an end-of-week news roundup:

From The South China Morning Post:


Hang Seng Index loses 5.1pc over week, AFP, 18 May, 2012:

Hong Kong shares fell on Friday, capping a week where the Hang Seng Index fell 5.1 per cent, amid growing concerns over Greece’s uncertain political future and after 16 Spanish banks saw their credit ratings slashed.

The benchmark Hang Seng Index shed 1.30 per cent, or 249.08 points, to 18,951.85 on turnover of HK$65.76 billion (US$8.49 billion). The index had slumped 3 per cent at one point to its lowest level since January 9.

and:

Barclays said “risk sentiment is likely to deteriorate again in the absence of a contingent policy plan to deal with a potential exit from the euro zone by Greece”, adding that a policy was unlikely to materialise any time soon.

No kidding.

China home prices fall for second month, Reuters, 18 May, 2012:

Chinese home prices fell in April for a second month in a row compared with year ago levels, as a downtrend takes hold in the market while the government has vowed to continue its more than two-year campaign to make housing more affordable.

Average home prices in 70 major Chinese cities fell 1.2 per cent last month from a year earlier, after a 0.7 per cent fall in March, according to Reuters calculations from data published on Friday by the National Bureau of Statistics.

and:

“Chinese home prices still have room to fall further. The inventory level is very high right now,” said Jian Chang, an economist with Barclays Capital in Hong Kong.

A Reuters poll in April showed economists expected a further fall in home prices of 10 to 20 per cent in the April-December period, after a slip of 5 per cent in the first three months of the year.

Reuters notes that they have been "calculating" China housing data only since the beginning of last year, however; take with requisite grain of salt.

From Caijing Magazine:

SASAC: Profits From Central Government-Owned Companies Down 13.2Pct in Jan-April, 18 May, 2012:

The profits from the central government-owned Chinese companies fell 13.2 percent in the January-April period, compared with the same period a year ago, the nation’s state-owned assets guarder announced today.

Total net profits stood at 253.3 billion yuan in the first fourth months, and revenue grew 11.4 percent year-on-year to 6.77 trillion yuan, according to data published by the State-owned Assets Supervision and Administration Commission.

however:

Profits of the central government-owned companies fell 13.6 percent in April only, after posting a strong monthly gain of 50.6 percent in March, the data showed.

and:

On a monthly basis, the SOEs’ profits edged down 0.5 percent in April, the ministry said in a statement on its website.

Let's wait and see how this is trending by the beginning of the summer.

China Says No to Carbon Tax Despite EU Warning on Penalties, 17 May, 2012:

China refused to comply with EU's new bill on airline carbon emissions fee despite a penalty warning on its flights in and out of Europe, Chinese media reported.

The European Union has asked the world's airliners to submit carbon emission data under a new carbon tax levy scheme that has taken effect from January, 2012.

<snip>

The Asian giant accused the scheme of being an unilateral trade levy disguised as an attempt to fight climate change while pushing for a two-way resolution.

Analysts estimate the new bill will bring EU as much as 26billion dollars in revenue by 2020.

Good for the Government of China. Call 'em out.

From Caixin Online:

Demography and Destiny, by Nailene Chou Wiest, 18 May, 2012:

The panic now is that China is growing old before it has gotten rich. The 2010 census showed that the population grew barely 0.57 percent a year over the previous decade, and in major cities the rate was even lower.

Doesn't say much that hasn't already been said before by many, many others. But these sorts of articles have been appearing more frequently in the past few years.

Only Reforms Can Revive Growth, by Andy Xie, 17 May, 2012:

Weak external demand means the key to improving China's economy lies in cutting taxes, addressing the imbalance between investment and consumption, and finally dealing with corruption

China's April economic data continue to show deceleration. The odds are that the slowdown in the second quarter is more dramatic than in the first. Imports didn't rise in April, exports rose by 4 percent and electricity consumption rose by 3.7 percent, but retail sales still increased by 14.1 percent. The data suggest weak external demand, decelerating investment demand and some inventory destocking, but still-robust household consumption.
a

External demand is obviously weak and may not improve in the foreseeable future. The European debt crisis is still raging. If Greece pulls out of euro zone, it may make debt financing more difficult for Italy and Spain, causing further weakness in European demand. The U.S. economy is growing at about 2 percent and unlikely to accelerate in the next two to three quarters. Emerging economies are all cooling due to inflationary pressure, tightening financing conditions and weakening exports. China is lucky to have export growth at all.

More at the link. My apologies to escobar if he has posted something like this article before, it seems vaguely familiar, but I'm not sure. Caixin seems on a bit of an editorial/opinion kick the past few days.

Commercial Real Estate Is No Safe Haven, by Chen Jian, 18 May, 2012:

Since the central government enacted policies to slow the residential housing market in January 2010, investors have switched their focus to commercial real estate.

In the first quarter of 2012, the average vacancy rate of class A office buildings in Beijing was 4 percent – a new low – and the average rent climbed 39 percent from the same period in 2011. Investors saw this as a good sign and the building of commercial property projects to increase supply was accelerated.

But is commercial real estate really the safe haven investors are seeking? A bubble has developed and risks involving homogeneous construction, a lack of professional management, vague measurement of risk and inadequate experience in the capital market were ignored.

And, finally, Michael Pettis.

Normally, posting a link to a non-China economics piece is off-topic for this thread, but since the world trade/financial system bear heavily upon China's own economic fortunes as well, and of course since Pettis' specialty is China's economy, it'll be slipped in here:

Europe’s depressing prospects, by Michael Pettis, China Financial Markets, 18 May, 2012:

Normally I don’t like to write about European prospects in the midst of a very rough patch in the market because in that case there isn’t much I can say that isn’t already being said. I find it more useful to wait for those recurring periods in which the markets recover and optimism rises. Still, given the conjunction of political uncertainty in Beijing, low Chinese growth numbers, and another round of deteriorating circumstances in Europe, I will spend most of this issue of the newsletter trying to outline the possible paths countries like Spain must face.

Pettis goes on to describe the EU's policies (and prospects) as "Humpty Dumpty economics". May be worth a read if you have the time, and a glass of port or sherry handy.

[SampanViking]

Pettis goes on to describe the EU's policies (and prospects) as "Humpty Dumpty economics". May be worth a read if you have the time, and a glass of port or sherry handy.

These days I can't read the financial press without a lot of something far stronger.

[Norfolk]

A couple of related news items from Reuters:

Chinese buyers default on coal, iron ore shipments-trade, by Fayen Wong and Randy Fabi, 21 May, 2012:

Chinese buyers are deferring or have defaulted on coal and iron ore deliveries following a drop in prices, traders said, providing more evidence that a slowdown in the world's second-largest economy is hitting its appetite for commodities.

China is the world's biggest consumer of iron ore, coal and other base metals, but recent data has shown the economy cooling more quickly than expected, with industrial output growth slowing sharply in April and fixed asset investment, a key driver of the economy, hitting its lowest in nearly a decade.

Coal and iron ore prices could fall further before recovering towards the tail end of the second quarter, traders say, sparking more defaults or deferred deliveries.

"There are a few distressed cargoes but no one is gung-ho enough to take them. Chinese utilities aren't buying because they have a lot of coal and traders are also afraid of getting burnt. It's very bearish now," said a trader.

Not surprising when this is considered:

Analysis: China's towering metal stockpiles cast economic shadow, by Fayen Wong and Jane Lee, 18 May, 2012:

Copper stocks in Shanghai's bonded storage, the biggest in China, are now double the 300,000 metric tons (330,693 tons) average of the past four years and iron ore stocks are about a third more than their 74 million metric tons average.

China is the world's biggest buyer of industrial metals, which are then manufactured for domestic use or exported to the rest of the world.

Several euro zone economies are in recession and there are serious fears about the solvency of several more. The United States, the world's biggest economy, is sputtering along, with a recovery just out of reach.

Then there's China itself, where the economy is still growing, but at a significantly slower pace. Economists keep predicting the slowdown will end soon, but it's hard to see how when the rest of the world appears headed for the doldrums.

While the sellers are undoubtedly unhappy that the buyers are deferring or even defaulting on some of their contracts, the news is not all bad. At least some of the FX reserves have been turned into massive stockpiles of useful commodities. We'll see how long it takes for commodity prices to stabilize, if they stabilize, one way or the other. QE3 (amongst other things) could really through a monkey in the wrench if it were to materialize.

Dip buying on deck?

[escobar]

China IPO market at the crossroads

The recent moves by the China Securities Regulatory Commission to reform the A share initial public offering mechanism to enhance the integrity of the market and regain investor confidence could not have come at a more opportune moment, as all signs point to the US knocking China off its perch as the world's top IPO market for the first time since 2008.

According to CapitalVue data, 63 companies went public on the domestic bourses during the first four months, raising a total of 46.36 billion yuan (US$7.36 billion), a 64.3 percent year-on-year decline. This is less than the US$11.9 billion raised by new listings in the US during the same period, according to Dealogic. The gap widened further with the Facebook's US$16 billion IPO last week.

Although China was the top dog in the initial public offering market last year, with a total of 289.43 billion yuan raised from the share sales of 281 companies on the domestic exchanges, the amount raised was a significant decline from the 488.26 billion yuan raised in 2010, according to CapitalVue data.

Overcoming malaise

The market is hoping the reform measures will provide the spur needed to overcome the malaise surrounding the Chinese initial public offering market, which is currently beset by a number of problems. Investors have long complained of the high price-earnings ratios of new share offerings, significant drops in earnings growth soon after listing and continued weaknesses in the shares of many newly listed companies. For instance, high-end automobile distributor Pangda Automobile Trade, which went public last April at 45 yuan per share, closed trading yesterday at 7.35 yuan per share.

In addition, there have recently been more cases of companies terminating their share offerings due to their inability to meet the regulatory requirement of having more than 20 institutions participate in their bookbuilding. JiangyinHaida Rubber & Plastic, a maker of rubber components used in the subway, construction, automobile and shipping industries, was the third company which failed to meet this criteria.

In the past, Chinese companies that failed to obtain approval to list on the domestic bourses had tended to attempt listings in the US, Hong Kong and other overseas exchanges. However, accusations of accounting fraud by listed Chinese companies in the US and the poor stock performance of Chinese companies in Hong Kong have made this option harder as investors view them as being tarred with the same brush.

Another factor that would make a Hong Kong listing harder is the reform currently being pursued by the territory's Securities and Futures Commission, which seeks to impose criminal penalties on bank officials or sponsoring firms that fail to conduct proper due diligence. With sponsors certain to face higher costs and risks from arranging initial public offerings in Hong Kong, smaller Chinese companies may find it tougher to list in the special administrative region as the risk-reward ratio for the sponsors become less compelling...