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Even More Evidence of a China Hard Landing

ilene's picture




 

Even More Evidence of a China Hard Landing

Courtesy of Russ Winter of Winter Watch at Wall Street Examiner

The latest container shipments into the port of Los Angeles and Long Beach confirm that China (and Asia) is no longer nearly as much in the game. Inbound is down 10% from last year and 20% from the same month in 2007.  I do think a little marginal production has shifted to the US, but it isn’t really showing up in the data, as rail car traffic in the US is now down 1% YoY. Fed Ex says it will “reduce flight hours, and “park some planes” according to headlines on Bloomberg. It also sees weakness in tech, mobile phones, finance, insurance, and real estate, and it also anticipates below-trend growth.

 

 

Railfax:
 

 

Incredibly the “sistema” is being pulled out round the clock to circle the wagons explaining how China is just fine. The truth is that China has been in steady deterioration for over a year. The problem with China lies in its overcapacity, which so severe that a mere “slow down” is not possible.  Since fixed asset investment is far more than this economy needs, when this falls it falls big, which is exactly what is happening. Do the following charts look like a soft landing 7% GDP growth scenario to a thinking person?

 

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The myth is that the Chinese consumer can pick up the slack. Cement and steel production would be a function of housing construction activity and local vanity projects.

 

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For additional analysis on many topics, including trading ideas, subscribe to Russ Winter’s Actionable – risk free for 30 days.  Click here for more information.  

 

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Fri, 03/23/2012 - 16:33 | 2284903 schatzi
schatzi's picture

I hate graphs with undenoted axis.

 

What time frame, volume, absolute numbers, relative, what? You could be telling me a bullshit story. I'm investing real money, I want to see real numbers.

Fri, 03/23/2012 - 15:12 | 2284604 Schmuck Raker
Schmuck Raker's picture

TY for the article Russ.

I especially appreciate that you engage posters in the comments a bit.

Fri, 03/23/2012 - 14:31 | 2284468 thefedisscam
thefedisscam's picture

Sino-US trade counts ONLY 25% or so of China's total trade. So NO, just two ports in the U.S. of A CANNOT determine China's ecomony.

Get real, the U.S. economy has less influence on China's than many Americans would like to believe.

Fri, 03/23/2012 - 15:00 | 2284572 russwinter
russwinter's picture

China exports to Europe are running even worse than to the US

Fri, 03/23/2012 - 14:58 | 2284568 hardcleareye
hardcleareye's picture

Is that your opinion or do you have hard facts to back your statement?

Fri, 03/23/2012 - 14:32 | 2284467 russwinter
russwinter's picture

11:59 AM The risks to China's banks from local government loans aregreater than thought as the country's banking regulator finds about 20% of loans have been misclassified as fully covered by cash flows. Properly accounting for them will mean lenders have to set aside greater reserves as well as demand more collateral from strapped governments.

Fri, 03/23/2012 - 14:02 | 2284332 q99x2
q99x2's picture

Sad day when the people of the western world have to hope China will save them from GS and the Banksters. But that might work out well. Just like the Nazis they were attacked from all sides and finally defeated. And, then the Nuremberg like trials for any remaining banksters.

Fri, 03/23/2012 - 14:29 | 2284414 goforgin
goforgin's picture

I got news for you, China is the world's biggest bankster. Its economic model is nothing short of Banksterism 101. China is following US Southern Cotton Robber Barron economic model of 19th century.

Fri, 03/23/2012 - 13:49 | 2284280 russwinter
russwinter's picture

Gavekal has a theory that China wants the RMB to have reserve currency status and thus won't be so quick to stimulate, print money or reengage the merchantilist model.

Gavekal:

1- The internationalization of the RMB

China is now the centre of a growing percentage of both Asian, and emerging market trade (a decade ago China accounted for 2% of Brazil’s exports; today it is 18% and rising). As a result, China is increasingly asking its EM trade partners why their mutual trade should be settled in US dollars? After all, by trading in dollars, China and its EM trade partners are making themselves dependent on the willingness/ability of Western banks to finance their trade. And the realization has set in that this menage à trois does not make much sense. Indeed, for China, the fact that Western banks are not reliable partners was the major lesson of 2008 and again of 2011.

As a result, China is now turning to countries like Korea, Brazil, South Africa and others and saying: “Let’s move more of our trade into RMB from dollars” to which the typical answer is increasingly “Why not? This would diversify my earnings and make our business less reliant on Western banks. But if we are going to trade in RMB, we will need to keep some of our reserves in RMB. And for that to happen, you need to give us RMB assets that we can buy”. Hence the creation of the offshore RMB bond market in Hong Kong, a development which may go down as the most important financial event of 2011.

Of course, for China to even marginally dent the dollar’s predominance as a trading currency, the RMB will have to be seen as a credible currency—or at least as more credible than the alternatives. And here, the timing may be opportune for, today, outshining the euro, dollar, pound or even yen is increasingly a matter of being the tallest dwarf.

Still, China’s attempt to internationalize the RMB also means that Beijing cannot embark on fiscal and monetary stimulus at the first sign of a slowdown in the Chinese economy. Instead, the PBoC and Politburo have to be seen as keeping their nerve in the face of slowing Chinese growth. In short, for the RMB to internationalize successfully, the PBoC has to be seen as being more like the Bundesbank than like the Fed.

Following this Buba comparison, China has a genuine opportunity to establish the RMB as the dominant trade currency for its region, just as the deutsche mark did in the 1970s and 1980s. But interestingly, China seems to consider that its “region” is not just limited to Asia (where China now accounts for most of the marginal increase in growth—see chart) but encompasses the wider emerging markets. How else can we explain China’s new enthusiasm in granting PBoC swap lines to the likes of the Brazilian, Argentine, Turkish and Belorussian central banks?

Fri, 03/23/2012 - 14:42 | 2284501 goforgin
goforgin's picture

Russ with due respect, in order for China to establish RMB as any sort of trading(reserve) currency, it must consume more than it exports. The baggage that comes with any reserve currency is consumption versus production. I don't think that China is anywhere near ready(if ever) to accept this role.

Fri, 03/23/2012 - 15:09 | 2284593 Schmuck Raker
Schmuck Raker's picture

Even if you're right about China's lack of readiness(and I think you are), it probably has no bearing on China's desire for the RMB to become the reserve currency.

IMHO, their desire is what will drive policy going forward, making -"Gavekal['s] theory that China......won't be so quick to stimulate, print money or reengage the merchantilist model."- an appropriate backdrop to thoughts on China's future.

Fri, 03/23/2012 - 14:03 | 2284343 Michael
Michael's picture

I'm laughing my ass off at the epic Chinese housing bubble bust. 65 million empty vacant properties in China. Once a massive housing bubble begins to bursts, there's nothing in the known universe that can stop it.

Fri, 03/23/2012 - 14:08 | 2284369 Straw Dog
Straw Dog's picture

Are there really 65 million vacant properties in China, links please.

Fri, 03/23/2012 - 14:16 | 2284403 russwinter
russwinter's picture

Do a google "vacant housing in China" and you will see dozens of articles. Most use the 64 million number. 

Fri, 03/23/2012 - 15:00 | 2284574 hardcleareye
hardcleareye's picture

So where did it come from? Or is this a case that if someone repeats something enough times is must be true?

Fri, 03/23/2012 - 15:06 | 2284583 russwinter
russwinter's picture

The story was derived from satellite imagine analysis of China in 2010. Many analysts now think the 2011 build out created even more vacants. 

http://www.dailymail.co.uk/news/article-2005231/Chinas-ghost-towns-New-satellite-pictures-massive-skyscraper-cities-STILL-completely-empty.html

Fri, 03/23/2012 - 15:10 | 2284599 hardcleareye
hardcleareye's picture

Thanks for link you saved me some time looking for it.

Fri, 03/23/2012 - 13:49 | 2284278 Clowns on Acid
Clowns on Acid's picture

Wait a minute...the Western world 's ecdonomies (and Equity Indices) are dependent upon a communist, centrally planned country / economy?

Of course one looks askew at the US Gov't statistics, but everyone seems to believe the Chinese Gov't stats?

"When it all comes down it will come without warning,

When it all comes down it will be for keeps."

- Bob Musial and the JD's

Fri, 03/23/2012 - 15:28 | 2284656 walküre
walküre's picture

Of course one looks askew at the US Gov't statistics, but everyone seems to believe the Chinese Gov't stats?

Thank you. Now I know I'm not the only one who keeps pointing that out.

Fri, 03/23/2012 - 13:44 | 2284261 walküre
walküre's picture

When China slows down, what does that say about the US and European economies?

Incredibly the “sistema” is being pulled out round the clock to circle the wagons explaining how China is just fine.

"They" cannot admit that China is slowing down. The rest of the world has bought into the market philosophy that ever greater financial expansion and debt is leveraged with the unstoppable future growth in the Chinese economy.

"They" have TRILLIONS OF FIAT WEALTH riding on the China MYTH.

America slowed down before 9/11. "They" pulled a terror attack to start a war effort, cheap credit expansion and growth in the American economy until 2007. Truth is that America's economy was hurting badly. But the China MYTH miracle economy wasn't established enough yet. Sure, China has grown and has built, produced and exported like few other countries before it. Considering the short amount of time, it was surely fantastic.

But that's in the past. Chinese exports are stalling. The Chinese consumer is not interested to fill their house with loads of kitsch like the US and European consumer. Also, how many more empty ghost-malls and ghost-towns can they afford to build? Is their currency any better or less diluted than the US currency? At least the US currency still has a reserve status. Why would anyone invest in Yuan denominated assets when they can print the paper without any controls or audits?

It's safe to say that the China MYTH is now coming to an end. The US is unable to come back from the near-dead and Europe is a zombie, unable to comprehend how unsustainable and unaffordable their quality of life is.

Fri, 03/23/2012 - 13:38 | 2284239 bugs_
bugs_'s picture

they need more than one central bank.  maybe five.

Fri, 03/23/2012 - 13:36 | 2284229 JW n FL
JW n FL's picture

 

 

But, But! BUT! America has shipped 50,000 Jobs a Month to China for the 11 years!

America has Shipped its Manufacturing Base and thusly Americas Tax Base to China!

China builds 10 - 12 or maybe more?? Empty Cities a Year!

The savers in China.. buying Gold and Silver.. are not using the Money Gained.. Thusly the money is NOT! moving! the World Economy has NOT! Stalled!

The World Economy is Going Backwards.

The Jobelss Recovery in America is NOT! going to pull the World Economy out of the Dark into the Light.

Europe is going backwards!

Japan is Screwed!

China is going bacwards!

Russia is worse off than China except for Ambrahoff!

 

When will people look around and say! HEY!! the WHOLE WORLD IS GOING BACKWARDS?? LULZ!

Fri, 03/23/2012 - 15:07 | 2284471 Stax Edwards
Stax Edwards's picture

.

Fri, 03/23/2012 - 13:14 | 2284135 adr
adr's picture

But I thought US corporations were selling record amounts of product???

They can't all be faking sales like Lulu Lemon right?

The answer is yes then can and yes they are.

Fri, 03/23/2012 - 13:13 | 2284131 Winston Churchill
Winston Churchill's picture

The BLS needs to get onto this now.

Fri, 03/23/2012 - 13:03 | 2284095 rosiescenario
rosiescenario's picture

"The problem with China lies in its overcapacity, which so severe that a mere “slow down” is not possible."

 

As we all know, when you have a very capital intensive business such as steel or Portland cement production, these plants must run at near 90% operating capacity to be profitable.The fixed costs are extremely high plus they need to run 24/7 to show any sort of energy efficiency. These processes do not scale back...the plants are either running or not running.

 

One result is going to be increased "dumping" of steel and cement into world markets by China and therefore, increased chatter about protective tariffs and trade wars.

 

I would either short or avoid any company in the steel or cement business. This certainly does not bode well for US Steel as one example. Heidelberg Cement will also fel the impact along with Cemex and many others.

Fri, 03/23/2012 - 15:07 | 2284592 hardcleareye
hardcleareye's picture

Producing steel and cement is a energy intensive process, given the cost of importing energy resources (coal or oil) they will not be dumping for long.

As John Wayne would say “Life is tough, but it's tougher when you're stupid.”

Fri, 03/23/2012 - 14:21 | 2284429 Straw Dog
Straw Dog's picture

Hugh Hendry, hedge fund manager in London, has an excellent piece on shorting Japanese steel manufacturers in Barrons article is titled:

Keeping an Eye on Wealth Creation

http://online.barrons.com/article/SB500014240527487037860045772215900933...

Here's a clip:

"One of my partners told me about Japanese steel: Here is a country with no energy, no iron ore or coal, yet it's the largest exporter of steel in the world, exports half its output. To put that in context, China manufactures 700 million tons of steel and exports perhaps 30 million. Japan produces 110 million tons and exports 40 million. As long as Asia is strong, they are fine. But if Asia hiccups or reverses, plant-utilization rates go from very high to very, very low very quickly"

Fri, 03/23/2012 - 13:13 | 2284132 rosiescenario
rosiescenario's picture

....latest data I found shows China produced almost 50% of the worldwide production of cement in 2008.

Fri, 03/23/2012 - 12:59 | 2284072 LawsofPhysics
LawsofPhysics's picture

Ilene, the only chart you are missing to be consistent with a recession is rapidly rising interest rates.  How does that fit into all this?

Fri, 03/23/2012 - 13:18 | 2284144 rosiescenario
rosiescenario's picture

....that is going to exacerbate the problem for capital intensive businesses such as steel and cement and will force them to dump incremental production (that last 10% to 15% of capacity needed to break even) onto world markets.

 

....and that added 10 to 15 percent will kill world prices and lead to the demand for protection and trade wars.

Fri, 03/23/2012 - 13:33 | 2284221 LawsofPhysics
LawsofPhysics's picture

There is a very real cost for creating capital and not adding any real value. My point is that ZIRP is bullshit and only encourages more capital misallocation, which is what got us here in the first place.

Fri, 03/23/2012 - 16:09 | 2284774 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

That's the real conclusion. If this were a regular business cycle recession, with a regular housing market, lower rates would have worked. All they succeded in doing this time was stealing from retirees and pension funds, and encouraging more mis-allocations. Bernanke's hammer made everything look like a nail. Keep in mind who he reports to: the gummint, that desperately needs low rates to finance debt, and the banksters, who need to repair their balance sheets by borrowing at 0.0002% and redepositing at the Fed for 4%.

(I used to be falun gong...but wanted this avatar instead)

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