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Is China's Growth Rate Destined To Be Cut In Half?
A new report by MainFirst Bank provides more ammo to the China bears. In "Why China's Growth Rate May Halve" author Bijal Singh has a very gloomy forecast on the country's growth rate, concluding it may "struggle to grow faster than 6%, given that China is now fully employing the vast bulk of its available urban labour force, and given that the Chinese working age population has stopped growing and is on a declining path." Singh takes Rosenberg's earlier rhetorical question about why collapsing profit margins have not yet impacted prices and believes that increasingly more companies will be forced to rationalize their operations, driving a stake straight through the heart of all those pushing for the tech bubble part 2: "Demand growth of 4%-6% may cause Chinese firms to shift focus from growing capacity to better management of existing capacity. Rather than capex equipment providers, computer service firms may be the winners in China over the next five years." The main driver for the GDP growth is that, due to the GDP being a function of job growth and productivity growth, it is the latter of the two which casts the assumption of GDP growth of 8% in perpetuity in doubt. "Over the last decade, productivity growth in China may have been no different to that experienced in the developed world. But China has been able to throw capital at the economy to grow its workforce at a rapid rate without incurring inflationary pressures." Said inflationary pressures are precisely the reason why the country is so cautious to do anything material about either its exchange rate (and today we yet again got confirmation of just who wears the pants in the Sino-US relationship), as well as its interest rate. All in all, changing demographics and economic conditions will make it increasingly difficult for China to manipulate its way into the required growth curve, which may well be the biggest risk to not only the BRIC growth story, but to that of the developed world as well (because now, unlike before somehow, decoupling is expected to work).
More from the report:
Three separate factors were at work: the release of 50 million workers between 1998 and 2005 from the State owned enterprises (SoEs); the estimated 20 to 30 million per annum migration into the urban areas; and the rapid growth in the working age population. In addition, in the late 1990s, urban unemployment was high due to the collapse in Asian demand following the tiger crisis. But all of these factors that allowed the workforce to expand are either no longer positive or indeed are reversing.
Unemployment rates in urban areas are low as evidenced by sharply rising wages, and the fact that net exports are no longer in a secular uptrend. Indeed the current account surplus with the US has been going sideways since 2006. Chinese labour is no longer compellingly competitive. Can the labour pool increase?
The number employed in SoEs has stabilised, and the working age population that was growing at 1.5% pa has peaked and stopped growing. And migration to cities may now turn sluggish. Migrants tend to be young. According to the Ji’nan survey, 58% of migrants are under the age of 25 and 74% are under the age of 30. Not only is the 15-24 age group declining in size by 20% over the next 5 years to 180 million from the current 230 million, but given the number of migrants that have already moved to the cities, the stock of potential young migrants in rural areas has also dwindled. Overall, the urban labour pool may struggle to grow faster than by 2% to 4% (and all due to migration) - the range dependent upon the ability to coax older workers off the land.
So, China’s GDP growth is likely to range between 4% and 6%. It is of course possible for China to grow faster, but that would trigger inflation, and possibly political unrest. The Authorities mantra for the future may be “moderate, non-inflationary growth”.
For much more, read the full report below (pdf)
h/t Konrad
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Sorry, a bit off topic but this shit is to funny ...
Oct. 15 (Bloomberg) -- Bank of America Corp.’s head of home lending said outside estimates of costs stemming from delays in foreclosures are “grossly distorted.”
Reviews of foreclosures will delay fewer than 30,000 sales, said Barbara Desoer, president of Bank of America’s home lending and insurance unit, without specifying which estimates she believes are imprecise. The Charlotte, North Carolina-based lender will rework 102,000 pending foreclosures in 23 states and stands by the accuracy of its procedures, she said.
Bank of America shares declined about 9 percent this week ...
Just in time ...
Countrywide's Angelo Mozilo settles lawsuit for $67.5 million Mozilo and two other former executives of defunct mortgage firm Countrywide Financial Corp. make a deal to avoid trial on accusations of investor fraud and insider trading. Mozilo will pay $22.5 million in fines and turn over $45 million in ill-gotten gains to former shareholders who sued him....Justice served yet again
So let me get this straight, he uses ill gotten gains to pay a fine on his ill gotten gains, gulp, to avoid jail time ??
Tongue-in-cheek, Banzai? Surely a crime worthy of $67.5M in restitution and fines is worthy of a few years hard time? Shit, we'd end up doing 5 to 7 for a grab and run of a Happy Meal at Mickey D!
What a crock of bullshit.
This is a mockery of justice. There is no deterence in these "settlements."
In defense, a few tens of millions is lunch money in these circles. Hell the lawyers walked off with that much for a year's work on the negotiations. Until this crap gets into the 3-figure billions and knocking on trillions, ain't noth'n gonna change.
I'm with you on this one. It should be a mandatory loss of ALL compensation you 'earned' - plus 10% - during your tenure at the company you defrauded, mandatory jail time in a *real* jail, and a judgment that disallows you from ever working in a bank or trading firm ever again. At least, that's a good start ;)
Not sure, but I think that kind of thing while desirable would require actual legislation.
Not. Going. To happen.
Let's see. How do you effect justice when all you have is this here tree and a rope? Darn, that ain't much to work with ... golly gee. Just don't know.
This is how it works in Batman movies, until Batman goes Batshit!
Spalding, nope. not at all. not sure if anything did come of this, but....
http://www.nytimes.com/2009/10/16/us/politics/16towns.html
the wheels of justice go 'round and 'round..'round and 'round..(now evrybody sing)
China growth numbers. Hmm. Do we even know their growth numbers for realz? have they ever even once reported a growth number that anyone had a chance of validating?
Their growth might have halved 6 months ago and you would not know it, because they wouldn't want you to know. And the US anymore is not in the least different.
Forget numbers. Look at the newspapers. What do you see in the page 3 headlines, in the obits, in the Help Wanteds, in the local scene section and the fashion pages. There's your answer. State-sponsored statistics are worse than useless -- they are propaganda.
I've got teenagers burning the schools down in my community, and standing on the tracks during the commute. Angst, much? It stops being abstract when people are taking themselves apart.
Spot on.
CNBC should show the PPT hit the buy button at 3:30 instead of the opening bell advertisements
They're trying to develop domestic market. But will it make up for lost sales to the West in time? That would be our only leverage.
They are trying to turn a battleship around with a kayak paddle ... They can not turn into a consumer society with no safety net for the people, that aging population is not ready to spend, not like us. Half the population can't read and write and they are going to pick up the slack of the u.s.a and parts of europe ....
Just like japan before, they have way to much manufacturing right now ... get out the popcorn
You have absolutely NO idea of what you're talking about!!
My read of the posted article is that there are GOOD signs for China in the years ahead: Decreasing pressure for new employment in the 15-24 age bracket; possible GDP replacement of job growth with productivity growth; capital available for technology and infrastructure upgrades; educated middle class;...............
Turn off your teevee and stop reading the MSM!!
relative to the US, this article is like complaining about profits because of the damned taxes...
if you believe anything the chinese gubmint says, half as much growth is still growth...
here, we use "negative growth" and crap to boost the market.
personally, i'm looking for some negative losses.
i wonder if the US will *really* grow again (not "below expectations") before our kids retire.
we need a war, or pandemic, or something - you know, just to kick-start things.
Good stuff.
It's tough reading street research when all of the banks are trying to stroke China's yarrow stick in order to sell banking product to the mythical billion man market, and it's all 8-10% growth from here to eternity.
For cougar : Electricity production seems to be a good indicator and is harder to fudge ...
"All in all, changing demographics and economic conditions will make it increasingly difficult for China to manipulate its way into the required growth curve"
- wait a minute Tyler, are you saying that presenting a grandiose GDP number then backing into it is not a good strategy? Isn't this a stone's throw to what US economic all-star team will go to next? I gotta get my elected official on the phone pronto.
Time to stop the growth of the monster before it starts to consume outside its nest.Forget the spin if we don,t do this now how many lives will it cost in the future.China,s human side is all it wants us to see,do you think the masses are benefiting,think again,this is a country which is run on human misery behind the scenes.To continually build up China,s (the worlds) industrial base is economic suicide.We should have more self-respect than this,the man in the street believes in his own its the elites that don,t.Get the elites on TV make them explain how and why they sold out their nation,show them them up for what they are which are largely parasites,get the soaps off and tell the people the truth if you dare.
It seems to me that China needed growth to accommodate new immigrants from the provinces. If they are out of immigrants, then they don't need this exponential growth they've been trying to maintain.
So, I fail to see the problem here. Once they stop growing, they can revalue their currency, and their people will suddenly have a huge amount of purchasing power. They can then use their savings to convert their economy into whatever the market calls for.
Actually I believe that the mass of "savings" is in the State Operated Enterprises as well as "privatized" corporations that still enjoy large state participation.
Your average Joe is more or less disenfranchised and in that case savings are not discretionary, they are there to protect in case of emergencies due to the poor social nets currently (not) in place.
If the State Operated Enterprises along with the CCP are feeding off of the average Joe, this becomes a dependancy which is difficult to unwind.
I'm curious to see how many zerohedgers think China can become "decoupled" from the U.S. in the near future. They're spending their dollar reserves like its goin' outta style - farmland, minerals, energy all over the world. They've led several conferences now with Russia, Japan, and the Gulf Arabs to make oil traded in a currency basket instead of the dollar. They've shifted they're Treasury holdings to short term notes. They have great technology vendors in the form of Japan (the largest foreign investor in China) and Germany (well over half their capital goods exports got to China.) This all adds up to one thing: lazy Yankee devils not needed anymore. Can we blame them?
Hugh Hendry seems to think that China can't and Japan will suffer right along.
Military Power - Not Gold or the USD or the Renminbi - is the Real Coin of the Global Realm
Without exception every financial writer has completely missed the point in the ongoing speculation as to whether or not the US dollar will be replaced or not as the worlds reserve currency and whether OR NOT China will "decouple" from the USA.
It will. Here’s why.
China and Russia must work together to topple the American dollar as the world’s reserve currency. They simply don’t have any other option. It’s declare financial war on the US dollar or accept military conquest and slavery.
Suppose Russia had built up dozens of military bases in Canada and that China had built up dozens of military bases in Mexico and suppose that the US Government was making it all possible by loaning those two governments endless billions and rolling over their debt on an ongoing basis even though both were defaulting by cranking ever more IOUs like Bernie Madeoff on crystal meth. If that were the case every last American talking head would be foaming at the mouth and demanding that this lunacy be stopped at once. “Why are we feeding divisions of Chinese infantry just south of the Rio and why are we buying the gasoline for the thousands of Russian tanks just on the other side of the Great lakes?”
Do you understand what I’m driving at now? What I’ve just described above is exactly the quandary the Russians and Chinese find themselves in right now because we have surrounded them with an ever expanding super cluster of military bases while we foment subversion within their countries and prop up hostile puppet regimes on their borders.
How did we arrive at this horrid state of affairs? Let’s take a quick trip back to the end of World War Two in 1945. Every major nation except the USA had been bombed nearly back to the stone age and/or bled white. The only money accepted for trade between nations was the Almighty US Dollar. Not only that, but the USA was the only nation that at that time could offer vast quantities of capital goods of all sorts and they were usually the finest on the entire planet to boot. We lived in the best of all possible economic worlds. All the money we sent overseas was either returned to us to buy capital goods necessary for these shattered nations to rebuild themselves or it just circulated overseas to finance trade among foreign nations in which case we had a sort of credit card with no limit and no requirement to pay down either the principal or the interest.
No lets fast forward and take a cold, sober look at how things changed. Starting in the Seventies we increasingly stopped making things while the foreigners were increasingly making capital goods and consumer goods that were comparable to ours in both quantity and quality. American factory workers started to loose their good paying jobs but the Wall Street financial types were still on a roll because the dollar was still the coin of the global realm.
Then about the late Nineties things started to change. In late December 1999 one Euro was worth about one USD. Now, ten years later, one Euro is worth $1.40. In 1999 Putin clawed his way to the top of the heap in Russia after their bond default in 1998. Since then he has run the worst of the looting buzzards clean out of the country. Most flapped their greasy wings and found new roosts in London or America where the pickings are still easy. And of course by that time China was the supplier of cheap consumer goods to America putting and end to all the light manufacturing jobs in America. In 1996 Russia and China decided they had had a belly full of American Imperium and founded a political/economic/military alliance which is now known as the Shanghai Cooperation Organization, the SCO.
Name one (non-military) capital good or valuable commodity that can only be purchased in America and not elsewhere. There isn’t a single one. Whether you’re talking machine tools or computers or bulldozers or medical equipment or locomotives or chemicals - all of these can be had from sources outside the USA and of at least equal quality. In 1945 the picture of the USA was huge eagle perched on the top of the globe. Today were more like Wiley Coyote who has just run himself off a cliff and is momentarily suspended in mid air just before the inevitable fall.
About the sole potential foreign exchange earner of consequence we have left is our agriculture production and if we export that (which we will) we’ll have famine here and non-stop food riots that will morph into a civil war that will depopulate the entire North American continent by at least 50%.
Don’t believe me? Suit yourself. Two years ago who would have believed that we’d be in a depression two years down the road. That was Black Swan Number One. His big brother is Black Swan Number Two and he makes his kid brother look like a tweety bird because he brings a famine that will culminate in a 3,000 mile long cannibal civil war. Black Swan Number Three is WWIII war with Russia and China to distract the remaining peasants so they won’t storm the Wall Street castle and march all the Lords off to the Guillotine.
May the Cyclops eat you next to Last
Attila the Wimp
capital goods? Well, top end medical diagnostic equipment for one. Top shelf weapons. At the bleeding edge of technology, we are still #1, though the shit is expensive and not terrifically relevant to the average 2nd world man on the street.
I would also spend those dollars while they still have some value!
GO BEN
123 print, 123 print, 123 print, and on
China is a feudal nation. Always will be. Everything is regional and local and stirred with a stick. The bigger the number or the higher the source, the less real meaning it has. The quasi central planners will target 9 percent growth and the statisticians will report 9.5%. High Five! Everyone gets their red envelope. Not much different that the BLS.
Chinese made "stuff" is starting to fade in quality... Says something...
... changing demographics and economic conditions will make it increasingly difficult for China to manipulate its way into the required growth curve,
It's China. The government demands the right numbers, the bereucrat delivers them or his organs are sold off on Ebay!
China actually has it's demographics with it: An industrialised society does not need an ever expanding "labour pool" - especially not while the fossil fuels and fertilisers (Phosforus) needed to boost food production are running out! Industrilisation is all about replacing manual labour with machine labour (and pushing the real price of goods & services to literally Zero in the process. This would have happened all over, not only in IT and electronics, had the Government and Finace not set out to absorb all gains made in productivity less the populace get their grubby mitts one them)!
It is only economists and tax-eager politicians who thinks that popping babies like they do in Pakistan and India will somehow NOT result in the same living standards everywhere else that has been tried.
China is in for a lot of pain.
GOLD updated chart showing parabolic move.
http://stockmarket618.wordpress.com
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