Archives of “china” Tag

Never Ever Follow The Villager Into Equities

It’s a moot point: Is the Buffalo leading the Villager or is the Villager Following The Buffalo? The Chinese are contemplating the same.

Nobody has seen the village chief.

Just months ago, his courtyard home at the edge of the orchard was a makeshift trading floor where local farmers gathered to share tips and track the Shanghai Composite. Now, the gates are closed, a security camera stands watch, and nobody wants to talk about the stock-trading local party secretary.

“Out for the whole day,” ventured a neighbor.

“Who?” said another.

“Maybe he flew away in a plane,” joked a third. The country was gripped by stock fever, a frenzy of borrowing and buying that saw Chinese markets soar to historic heights, drawing in tens of millions of first-time investors, including dozens of people in this northern Chinese village.

The rally was bolstered by rah-rah editorials in the state-controlled press. Invoking President Xi Jinping’s vision for a powerful and prosperous China, the People’s Daily called rising stock prices “carriers of the China dream.” When the benchmark index hit 4000 points, an editorial in the same party flagship promised it was “just the beginning” of the bull run.

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Macau Gross domestic product: Worst quarter yet under China rule

Gross domestic product in Macau, China’s semi-autonomous gambling haven, fell by more than a quarter in the three months to June as the junket-fuelled growth model comes under attack from Beijing.

The economy contracted by a whopping 26.4 per cent in the second quarter, following declines of 24.5 per cent in the first quarter and 17.2 per cent in the last quarter of 2014.

Stunning as the figure is, it’s not surprising, nor does it signal a collapse for the economy. Macau’s unemployment rate is just 1.8 per cent as construction booms and millions of Chinese visitors cross the border to shop, play some baccarat and attend an increasingly diverse array of Las Vegas style entertainment shows.

The decline in GDP reflects a Beijing-led clampdown on corruption, which has scared off high-rollers. In February, gaming revenue fell by nearly half, the most on record. Since then every month has seen a year-on-year decline of 34 per cent or more.

Gaming represents half the economy and about 85 per cent of government revenue. But revenue from VIP rooms, which typically account for around two-thirds of gaming on the peninsula, have been shrinking dramatically.

Macau was a Portuguese colony until 1999, when it was handed over to China. In 2002 the gaming sector was liberalised, allowing Chinese and foreign tycoons to set up lavish casinos. Since then growth has been spectacular: in 1999 gambling revenue was $1.6bn; in 2013 it peaked at $45bn — seven times that of Vegas.

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Christine Lagarde: “China’s Slowdown Was Predictable, Predicted”… Yes, By Everyone Except The IMF

In what may be the funniest bit of economic humor uttered today, funnier even than the deep pontifications at Jackson Hole (where moments ago Stanley Fischer admitted that “research is needed for a better inflation indicator” which means that just months after double seasonally adjusted GDP, here comes double seasonally adjusted inflation), in an interview with Swiss newspaper Le Temps (in which among other things the fake-bronzed IMF head finally folded and said a mere debt maturity extension for Greece should suffice, ending its calls for a major debt haircut), took some time to discuss China.

This is what she said. 

Turning to China, Lagarde said she expected the country’s economic growth rate to remain close to previous estimates even if some sort of slowdown was inevitable after its rapid expansion.

China devalued its yuan currency this month after exports tumbled in July, spooking global markets worried that a main driver of growth was running out of steam.

“We expect that China will have a growth rate of 6.8 percent. It may be a little less.” The IMF did not believe growth would fall to 4 or 4.5 percent, as some foresaw.

Actually, some – such as Evercore ISI – currently foresee China’s GDP to be negative, at about -1.1%.

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China’s Commerce Ministry defends yuan devaluation, sees ‘limited’ impact

Xinhua, China’s state news agency, reports a Commerce Ministry spokesman (unnamed) as saying the recent yuan devaluation will have a limited impact on China’s foreign trade.

  • Said a country’s exchange rate hinges on its competitiveness
  • China’s economic reforms will help ensure the yuan can remain “basically stable” within a “reasonable” and “balanced” level

More at Reuters

-Earlier, China said the new rate setting regime (where the PBOC pays more attention to market currency movements) which resulted in the devaluation was a reform move toward freer markets.

FWIW, I’ll give them that. They are taking steps that way. Next on the agenda, IMO, is a move to a 3% plus or minus daily band limit. I’ve no idea on when that might happen, though. Given the desire for reform in China, it can’t be too far off.

Citigroup braces for world recession, calls for Corbynomics QE in China

China has bungled its attempt to slow the economy gently and is sliding into “imminent recession”, threatening to take the world with it over coming months, Citigroup has warned.

Willem Buiter, the bank’s chief economist, said the country needs a major blast of fiscal spending financed by outright “helicopter” money from the bank to avert a deepening crisis.

Speaking on a panel at the Council of Foreign Relations in New York, Mr Buiter said the dollar will “go through the roof” if the US Federal Reserve lifts interest rates this year, compounding the crisis for emerging markets.

Professor Zhiwu Chen from Yale University told the same event that China will be doing well if it can contain its slow-motion crisis to mere stagnation for the next 10 years, given the dangerous levels of debt in the system.

“If the Chinese government is able to manage a Lost Decade with very low growth – or no growth – without an economic crisis, it will be a policy achievement,” he said.

Prof Chen said a Western-style financial collapse in China is “highly unlikely” since the banks are largely government-owned and losses will be absorbed by the state.

There is a loose parallel with Japan, where the economy slid into a deflationary quagmire and lost its economic dynamism but never suffered a full-blown financial crash. In Japan’s case the denouement was averted by keeping “zombie banks” on life-support.

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Rumour From China

First Rumour of the day from China …

  • That’s China’s state agency for margin finance is raising 1.4 tln RMB in interbank loans
  • In order to prepare for a new round of stock market rescue

China Stunner: Real GDP Is Now A Negative -1.1%, Evercore ISI Calculates

With Chinese data now an official farce even among Wall Street economists, tenured academics, and all others whose job obligation it is to accept and never question the lies they are fed, the biggest question over the past year has been just what is China’s real, and rapidly slowing, GDP – which alongside the Fed, is the primary catalyst of the global risk shakeout experienced in recent weeks.

One thing that everyone knows and can agree on, is that it is not the official 7% number, or whatever goalseeked fabrication the communist party tries to push to a world that has realized China can’t even manipulate its stock market higher, let alone its economy.

But what is it? Over the past few months we have shown various unpleasant estimates, the lowest of which was 1.6% back in April.

Today we got the worst one yet, courtesy of Evercore ISI, which using its own GDP equivalent index – the Synthetic Growth Index (SGI) – gets a vastly different result from the official one, namely Chinese growth of -1.1% annually. Or rather, contraction.

To wit, from Evercore: 

Our proprietary Synthetic Growth Index (SG!) fell 1.1% mim in July, and was also down 1.1% y/y. No wonderglobal commodities are so weak. The most recent 18 months have been much weakerthan the 2011-13 period. Even if we adjust our SG I upward (for too-little representation of Services — lack of data), we believe actual economic growth in China is far below the official 7.0% yly. And, it is not improving, Most worrisome to us; the ‘equipment’ portion of Plant & Equipment spending is very weak, a bad sign for any company or country. Expect more monetary and fiscal steps to lift growth.

And here is why the world is in big trouble.

PBOC sets yuan mid-point reference rate at 6.4085

People’s Bank of China (PBOC) sets the USD/CNY mid-point reference rate at 6.4085

  • The bank sets the mid-point each day (Monday to Friday) and then allows the rate to fluctuate +/-2% either side of this central point.
  • USD/CNY moves outside the band are not permitted; the PBOC will intervene at the extremes to stop the rate moving any more than +/-2% on a day
  • The USD/CNY is not a free floating exchange rate

Yesterday the rate was set at a (then) 4-year central point low (for the yuan) of 6.4043. Yuan set weaker again today. Devaluations (albeit teeny tiny) continue

  • Yesterday’s close was 6.4105

A few moments before …

  • PBOC injects 150 bln yuan through 7 day reverse repos
  • Injects a net 60 bln yuan via open market operations this week, versus a net 150 bln injection last week

 

Fitch: Pessimism on China’s Short-Term Macro Outlook Overdone- Full Text

Market pessimism about the short-term macroeconomic outlook on China is likely to be overdone, says Fitch Ratings.

That said, the consequences of China’s rapid build-up in debt from 2008-2014 still need to be addressed, and market expectations for the economy’s medium-term growth potential may get revised lower. Spillover effects from a more protracted China slowdown could have significant regional and global credit implications.

The 25 August move by the People’s Bank of China (PBOC) to cut interest rates and banks’ reserve requirement ratios (RRR) by 25bp and 50bp, respectively, highlights the authorities’ policy flexibility to support the economy. Monetary easing has been relatively modest despite the marked slowdown in growth thus far in 2015 and persistently weak inflation indicators. The impact on domestic liquidity of easing has been mitigated by capital outflows.

The authorities still retain significant room to loosen policy further, with the one-year benchmark lending rate at 4.6% and RRR for large banks at 18%. Even after yesterday’s cut, the RRR is still only 3.5pp off of its peak. The 4.7% devaluation of the yuan against the US dollar since 10 August has been modest – considering that the yuan had appreciated by almost 20% in trade-weighted terms since 2012.

The government also retains substantial ammunition on the fiscal side. It is important to note that fiscal policy was most probably tightening through the first half of the year, on account of restrictions on local-government financing as part of the broader structural reform process. This is now being partly reversed, and the effects on domestic demand should begin to be felt in the next few months.

Furthermore, demand and output indicators do not point to an exceptionally rapid, disorderly or broad-based deceleration. Consumption and labour market indicators have remained robust, though data have been weaker for exports, investment and manufacturing. August flash PMI data fell to 47.1, according to data released on 20 August, signaling contraction in the industrial sector.

But it is important to highlight that China’s structural economic policy has been to deliberately transition away from investment and exports towards domestic consumption. As such, areas such as manufacturing and construction have been driving the slowdown broadly in keeping with central government objectives.

Over the medium term, however, Fitch continues to highlight the potential for a prolonged period of lower growth, with real GDP expansion settling into a ‘new normal’ likely to be well below 7%. The enormous accumulation of debt following the 2008 global financial crisis, and over-investment in the residential real estate market, still need to be addressed, and will exert a drag on the economy over several years. Fitch’s base case is that there could be about three to four years of excess investment in residential housing that will need to be worked through.

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Nikkei 225 closes up +3.2% at 18,376.83 ( +570 points )

Enjoying the China rally but closing off its highs

  • +570.13
  • open 17894.29
  • high 18442.84
  • low 17714.30
  • USDJPY 119.65 also retreating from highs of 119.84

Shanghai Comp Index currently also falling back to +1.99%