Wednesday , 7 December 2016


China’s Economy: the Good, the Not-so-Good & the Downright Ugly

Much is written these days about the trials and tribulations of the economic miracle of China – but most is totally ignored. Take a moment to read these introductions to a number of such articles. You might find some of them well worth the time to read and reflect upon.

1. China’s Debt Pile Is Frightening And Getting Worse 

The number of stock market accounts has gone exponential in recent days – using borrowed money to the point that nominal GDP growth in China is apparently now lower than interest on debt. China’s economy is clearly slowing down with conflicting reports and estimates of 1Q 2015 growth suggesting possible contraction in the real economy and domestic demand.

2. The Economic Clock: China And America

Overweight China (and thus Hong Kong) relative to America but keep buying America, albeit less enthusiastically than China. This article explains why and which market sectors one should overweight in each country.

3. Is it Really That Bad? The Truth Behind China’s QE Talk

By the middle of 2015, it has become clear that all is not well in the land of China. Now the signs are increasing China will soon engage in its own form of quantitative easing, in what could be seen as a sign of panic.

4. China: Lender of first (and last) resort

While most all scholars agree that the dollar won’t be replaced any time soon, the global yuan infrastructure is nonetheless expanding. There are now 14 offshore clearing centers to convert local currency into yuan, and China has currency swaps agreements with 28 countries. Playing the role of lender of last resort for crisis countries has historically been a good way for a currency to acquire global influence.

5. Beijing’s Folly: Chinese Steel Exports Rise Relentlessly

When domestic markets weaken, most producers turn to export markets to sell excess capacity, but you don’t just break into export markets overnight. It’s not that easy. The tried and trusted short-term approach is to sell cheap, making it hard for buyers to refuse the low-priced product being offered. If those mills are supported by plunging raw material costs and extensive local state support gifting them a break-even price around the lowest in the world, then the intent to simply “dump” metal into export markets has few barriers. So seems the situation in China.

6. Rumours Of China’s Hard Landing Greatly Exaggerated – Here Are the Actual Facts

China is quite the news-maker lately: stimulus on all fronts while equity markets had such a steep run-up that policy makers toughened margin rules to stave off excessive speculation. Is the increase in equities sustainable or a temporary blip? The better question is: how big is the stimulus package expected to be? How serious is the economic situation in China? HERE is a quick run-down of some facts.

7. Something Big Is Going On In China-Europe Trade – and It’s Not Good!

If trade is a reflection of global demand, and if shipping rates are a reflection of the supply of ships by carriers and the demand for those ships by exporters to meet that global demand for goods – well then, we’ve got a situation on our hands.

1. The Shanghai Containerized Freight Index tracks the spot rates from Shanghai to various destinations around the world, and the SCFI component for Northern Europe continues to drop like a stone – a terrific 68% collapse from the same week a year ago – to an all-time low. The question was how much lower could rates drop? A lot lower it would seem.   Something big is going on in the China-Europe trade.

2. The much broader China Containerized Freight Index, which is sponsored by the Chinese Ministry of Communications, paints a similar picture.

While the SCFI tracks spot rates from Shanghai to global markets and can be very volatile, the CCFI tracks spot and contractual rates for all Chinese container ports, is much less jumpy, doesn’t react as quickly to changes in spot rates, and is “more comprehensive and macroeconomic,” as the Shanghai Shipping Exchange, which operates it, explains. It’s considered “the second world freight index” after the Baltic Dry Index, and it has skidded 16% since mid-February to a multi-year low of 899. This is what the 2-month plunge looks like:

China-Containerized-Freight-Index-2015-05-01

Clearly, something is going on in the east-west container business – and beyond – to create this sort of gloom. On top of the list of reasons why is… (read the original article in its entirety HERE).

8. The Bloom Is Finally Off the Chinese Economic Rose – Here’s Why & What It Means For the Rest of the World

The IMF will soon declare that China’s currency is “fairly valued” which is effectively an official recognition of one of the biggest changes in global financial and economic fundamentals in recent years: the end of China’s great economic boom. Here’s why.

The value of the yuan has finally appreciated to the point where a strong yuan makes the outlook for investment returns in China roughly equivalent to the returns, on a risk-adjusted basis, that can be found elsewhere. Capital is now largely indifferent to the investment opportunities in China relative to other places.

Fortunately, it’s not necessarily bad news that China’s economy is no longer booming. Even after a significant slowdown in recent years, China’s economy still is growing much faster than any of the world’s developed economies. What’s changed is that China is transitioning to a more mature economy, with slower and arguably less volatile growth rates going forward.

The bloom is off the Chinese economic rose, but that doesn’t necessarily threaten the outlook for global growth. A bigger, more mature Chinese economy will be purchasing a lot more of the world’s consumer goods and services, now that it is purchasing fewer of the capital goods and natural resources that were necessary during its boom phase. Read the original unedited article HERE.

9. China: Weak Domestic & External Demand Adversely Affecting Economic Growth

China’s economy is plagued by weak domestic and external demand. This is weighing on both factory activity and export measures, which in turn are pushing economic growth lower.

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