Posts Tagged: china

Is the BRICS rise over?

27 July 2014 - 11:49 am

On one level, this seems like a rather odd time to be asking such a question, especially when the BRICS political leaders have just agreed to set up a joint development bank to be headquartered in Shanghai. So the BRICS name is certainly here to stay, and in terms of global governance, their influence is likely to rise as a group because of this development.   Previously, the BRICS political leaders meetings had failed to agree anything specific and even once the creation of such a bank was first mooted, for the past two years, they appeared to have difficulties in agreeing where it might be located and how it should be capitalised. At this Fontaleza meeting in Brazil, they have confounded sceptics by agreeing not only both these key things, but also to have the first head of the Bank to be an Indian. What the Bank will prioritise in terms of lending and projects, we will have to wait and see, but one can think of many good ideas including shared road and rail infrastructure challenges, especially those with some common borders, projects for energy efficiency, alternative energies, clean and safe water, and of great importance to themselves, to focus on the growing resistance to antibiotics, a challenge that if a solution cannot be found will be very harmful for their futures. But if the BRICS leaders hadn’t made this breakthrough, I am sure the siren rising about the end of the BRIC economic phenomena would be even louder and it is important to try and objectively deal with this, separately from this announcement, important as that is. >> Read More


The PBOC has just signed a deal with the BRICS nations on a $100bn Contingent Reserve Arrangement. After finalising the deal they said it was in the best interests of China and the world to help other emerging economies. They also said that it’s is hard for China to be the exception if there is huge volatility in global financial markets.

China’s reach now goes further with this deal. It’s effectively an emergency swap agreement program like the Fed, BOJ, BOE and ECB have agreed for their respective currencies.

The breakdown is as follows;

  • China – USD 41 billion
  • Brazil – USD 18 billion
  • Russia – USD 18 billion
  • India – USD 18 billion
  • South Africa – USD 5 billion

It will be interesting to hear if Russia ever needs to access the swap lines if sanctions bite deeply.

  • Hard landing of Chinese economy will not happen
  • Will take China until middle of this century to become a fully modernised industrialised economy
  • Will rely on targeted measures to ensure growth
  • Believes Chinese economy will maintain medium to high growth rate in long run
  • Expects minimum growth rate of 7.5% and ceiling of CPI growth will not exceed 3.5%
  • Trade imbalance is not ideal, Chinese economy has to be deeply integrated with the world economy
  • Territorial expansion not in China’s DNA
  • Opposes use of force in other countries affairs
  • Pledges to deepen Chinese reform and level playing field
  • Will push for structural reform to attract foreign investment

Chinese premier Li speaking in London


Standard & Poor’s has affirmed China’s solid creditworthiness but warned against more debt-fuelled growth and urged the country to improve transparency and governance to reduce rent-seeking.

China’s AA- rating – the fourth highest possible – was confirmed by S&P today, based on its robust economic growth potential, strong sovereign balance sheet and generally healthy finances. The US rating agency predicted that China’s per capita economic growth rate would average 6.6 per cent in 2014-17, much faster than most countries at similar income levels.

However, the US rating agency noted a couple of blemishes – not least the importance of credit-financed infrastructure and real estate investments to the overall economy. At 45 per cent, China has the second-highest investment ratio of all 129 countries rated by S&P.

>> Read More


China’s services sector accelerated to its fastest pace of 2014 in May, raising hopes that the world’s second largest economy is on the mend after Beijing unleashed a round of pro-growth policies.

China’s state-sponsored non-manufacturing index came in at 55.5, the highest level since November. In April the reading was 54.8.

Any level above 50 indicates growth.

The positive result follows an upbeat report on manufacturing, released Sunday, which hit a five-month high of 50.8.

The non-manufacturing data is published by The National Bureau of Statistics and Federation of Logistics and Purchasing

china-non m pmi


Much has been said in the past year about China’s unprecedented pollution problem. So much, in fact, that both China and Goldman Sachs have noticed, because it goes without saying that it is not easy to conduct a healthy investment climate in a city in which one needs a mask just to go outside and enjoy the lack of sun. Which is why we were amused to see the latest gimmick conceived by the Goldman reality adjustment wizards who have come up with a new metric: pollution per unit of GDP.

This is how they explain it:

As part of the efforts to reduce China’s carbon footprint, the Chinese government announced in 2011 its goal to reduce carbon intensity (CO2 emission per unit GDP) by 17% in 2015 from 2010 levels. Based on IEA’s estimate of China’s CO2 emission in 2010, we estimate that China’s 2015 carbon intensity target could be around 149g/Rmb, compared to 179g/Rmb in 2010. If China is successful in reducing its carbon intensity not only would it be more comparable with the rest of the world, but it may also serve as a strong catalyst for other countries to taper their emissions

In other words, while you may be drowning in unbearable smog (don’t believe us? just check @BeijingAir), all those unknown toxic particles you are inhaling are actually not that bad when one divides them by the epic housing bubble and ghost cities you call GDP. Visullay this looks as follows:

Taken to its absurd extreme, should China build an infinite amount of empty cities in the Gobi desert, or break enough windows and thus push its GDP to somewhere just why of positive Keynesian infinity, China’s GDP problem should melt away.

Joking aside, if one were to measure pollution in its conventional way, in terms of PM2.5 concentration per volume of air, China is really not all that bad. According to the WHO there are at least 6 countries that will need to take some pointers from Goldman on how best to fudge their GDP so their Pollution/GDP ratio also gradually drifts away to zero.

Presenting: the most polluted countries in the world.


Western strategists and talking heads, we are sure, will know better and continue to pitch China as the renewed engine of growth in the world and that everything will be fine… but when the country’s largest property developer says, the “golden era” for China’s property market has passed, adding that “The period in which everybody makes money out of property is gone,” perhaps it is time to listen? Of course, we are sure there will be an orderly exit (just as there was in CNY last night which crumbled to 19-month lows) but as China Vanke Co’s Yu Liang warns, “the phase where ‘whoever buys makes money’ is gone.

 China’s largest property developer warns that China’s property bubble is bursting… (via Bloomberg)


The “golden era” for China’s property market has passed, according to China Vanke Co., the nation’s biggest developer, which is shifting its focus to homes for owner occupiers rather than investors. >> Read More


CHINA-HOUSING DATAThe Chinese central bank has issued instructions to major banks in a bid to avoid a credit crunch amid growing concerns that a slump in the housing market will increase downward pressure on the Chinese economy.

     On May 12, the deputy governor of the People’s Bank of China, Liu Shiyu, directly told officials in charge of 15 major Chinese banks that mortgage loans should be extended to first-time buyers on a preferential basis and that loan applications from clients meeting certain terms should be facilitated.

Real estate myths

Key economic data for April released by the government the following day justified concerns about the economy. The growth of investment, production and consumption slowed from the previous month across the board especially due to declines in housing investment and home sales. >> Read More


Changyong Rhee, director of the International Monetary Fund’s Asia and Pacific Department, believes the odds of China suffering a full-blown financial crisis remain low:

1. China’s owes most of its debt to itself

  • Says China is bound to see a rising number of credit defaults
  • But unlike Thailand or South Korea before the Asian financial crisis erupted in 1997, China hasn’t borrowed heavily abroad in foreign currencies
  • China’s total foreign debt amounts to only about 9% of its GDP, according to the country’s foreign-exchange regulator (compared to South Korea’s roughly one-third of GDP back in 1997)
  • That means that if China’s currency falls further (it has dropped roughly 3% so far this year), it won’t necessarily cause a dramatic increase in borrowers’ debts in local-currency terms that then causes bankruptcies to snowball

2. China’s government debt is low. >> Read More


China Q1 GDP: 7.4% y/y (vs. expected +7.3%) 

  • Slowest rate since the third quarter of 2012
  • Second straight quarterly slowdown
  • But a beat of expectations
  • +1.4% from the previous quarter on a seasonally adjusted basis
  • Annualized q/q growth has slowed to 5.7% (yuck)
  • China revises Q4 q/q growth rate to 1.7% from 1.8%
  • Revises Q3 to 2.3% from 2.2%

From the Chinese statistics bureau, the National Bureau of Statistics of China, comments:

  • Says the economy is in a reasonable range, but under pressure
  • Q1 GDP growth rate within target zone of about 7.5%
  • Q1 employment, income data showed that growth is ‘not bad’
  • Internal survey shows stable employment

China March Industrial Production: 8.8% y/y (expected +9.0%)

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Technically Yours,
Team ASR,
Baroda, India.