China's Economy Off To Weakest Start Since 2009

Tyler Durden's picture

First it was a sudden bout of tightening following a series of record liquidity withdrawing repos, then it was two disappointing PMIs, then it was a warning that China's property market is (as usual) overheating and major curbs were being implemented, then it was China's "state of the union" address in which the country trimmed substantially its outlook for the remainder of the year, predicting well below trendline economic growth, inflation and credit expansion, then we got an absolute collapse in Chinese imports indicating the domestic economy had gone into a state of if not shock then outright stasis, and finally overnight we got an update on China's retail sales and industrial output which both had their weakest combined start to a year since the global recession in 2009, leading Bloomberg to title its summary article, "China’s Economic Data Show Weakest Start Since 2009", and further adding that the data is now "adding to signs of a moderating rebound in the world’s second-biggest economy." Luckily, in the new batshit normal, who needs the fastest growing marginal economy: the weight of the growing world can obviously be dumped on the shoulders of the savings-less, part-time working US consumer, accountable for 70% of US GDP, and thus about 20% of the global economy. What can possibly go wrong?

From Bloomberg:

Retail sales increased 12.3 percent in the first two months of 2013 from a year earlier and industrial production rose 9.9 percent, the National Bureau of Statistics said yesterday in Beijing. Both numbers trailed economists’ estimates. The gain in retail sales was below the lowest economist projection of 13.8 percent and was the smallest for a January- February period since 2004. The increase in factory output compared with the 10.6 percent median estimate in a Bloomberg survey and was the weakest for the first two months since 2009.


The moderation in sales follows a crackdown by new Communist Party chief Xi Jinping on lavish spending by government officials and state-owned companies, part of efforts to curb corruption and waste. Catering sales growth slowed to 8.4 percent from 13.3 percent in the same period last year, statistics bureau data show.

What's worse, and the true unspoken message here, is that the global liquidity tsunami is merely flooding China with hot money, which the local central bank and now Politburo are increasingly more vocally standing up against. At this rate we give China at most a few months before it makes it all too clear to the desperate G-7 central planners that the time for printing is over, and if they want China to play ball the printers will stop.

February inflation, distorted by a weeklong holiday, accelerated to 3.2 percent.

“The time is still way off for an explicit policy change” such as raising interest rates or banks’ reserve requirements, Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a note. The recovery is being led by “fast investment growth” and “could falter once monetary policy becomes tight on concerns of rising risks of inflation” and a property bubble.

The statistics bureau doesn’t break out figures for January and February retail sales and industrial output in an attempt to smooth distortions caused by the timing of the Lunar New Year holiday.

Only in China will 6% food inflation be considered "tame"

Food prices increased 6 percent in February from a year earlier, down from 10.5 percent in the holiday month in January 2012, government data show.

What about those soaring exports which surprised everyone and resulted in a trade surplus in a month which traditionally has seen a deficit? Well, as Sean Corrigan shows, exports to China's second most important trading partner, the US, are now the lowest they have ever been as a percentage of total.

This begs the question: just who is doing all the importing in a time when every economy is supposedly running up a trade surplus? Has Bernanke found a way to monetize all imports now?

And for some parting words on this deja 2011-vu conundrum when it was spiking Chinese inflation which once again derailed the global reflation party, here is, once again Diapason:

Much of the week has been an exercise in Google-translated rune?reading from China’s ongoing ‘Two Meetings’ at which the formal handover of power will be effected. L Largely monopolized so far by the outgoing crew, we have to wonder whether Wen Jibao’s effusiveness reflects policy as it will be or simply a wistful, legacy?minded expression of policy as it should have been.


For what it’s worth, there has been plenty of open criticism of the GDP?at?all?costs model and some frank recognition of the scale of the malinvestment already in place. For example, NDRC chairman Zhang Ping candidly admitted that ‘a rising number’ of heavy industries were making losses and ‘lamented’ the overcapacity in steel, aluminium, cement, glass making and coking coal.


Plants in these sectors, he said, were running at just 70?75% of capacity, while the once booming solar industry was at just 60%. To address their ‘huge difficulties’, Zhang said he was pushing to increase the pace of mergers in these sectors, but also confessed that such an approach has had ‘little success’ in recent years.


The financial flipside to this was made plain by Li Yining, professor at Beijing University, who warned a CPPCC press conference of nothing less than ‘a possible financial collapse caused by overinvestment amid the country’s new urbanization wave.’ ? you know, the same ’wave’ on which all the CCP’s hopes are being pinned for the coming years?


In the midst of this, we were treated to the release of the Chinese trade numbers for February which, for reasons of LNY calendar variability, are best combined with those for January when we attempt to gauge the state of play. Intriguingly, imports— not the least imports for number of key commodities, such as copper, iron ore, and oil—were relatively subdued and hence, in keeping with anaemic showing of neighbouring Korea and Taiwan. But, despite this, exports took a major jump, rising by almost a quarter on the same two months of 2012.


How did that happen? Has China suddenly and dramatically reduced the contribution of foreign inputs to its output? Was this a staggered liquidation ofproduct built up in QIV’s hot-housed burst of activity? Or was it perhaps an exercise in good, old fashioned, tax and subsidy arbitrage and/or chicanery aimed at evading the current account restrictions?


We ask this because, although they, too, rose in absolute terms, exports bound for the United States—after all, the fastest growing of all the large, net?deficit  economies—fell to a modern?era record low share while those to Hong Kong soared 60% to a new outright and relative share high. At the same time, the country saw record foreign exchange inflows of more than $100 billion— a marked contrast to last year’s hefty drain of hot money. Not coincidentally, this was a period in which the traditional speculative vehicles, the markets for stock and property, both, were on a violent upward tear.


Were exports—possibly overinvoiced—again being used to wash funds through the somewhat porous capital account barrier, picking up tax rebates, with notional ownership about to change to something ostensibly foreign?owned and based in a foreign tax haven when and if they are subsequently re?imported in the coming months?


Was this a means to exploit the yen’s twice?in?a-lifetime rate of decline by clandestinely borrowing some of that excess valuation in Abe?san’s fast depreciating currency?


We have no way of knowing, of course, but we remain duly suspicious.

With all that duly noted, and with the question pending of how the world will "grow" when the biggest marginal economy, China, is now openly using the T(ightening) word, we can't help but be thoroughly amused how the latest meme spreading among the lemmingeraty, aka Wall Street sellside propaganda, is one guaranteeing the return of the "strong-dollar" paradigm. You know: the currency of the central bank which is diluting its base money by a little under 3% every month! That strong dollar.

... But hey, look over there: it's a record Dow Jones! Are you not entertained yet?

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tawdzilla's picture towns

DoChenRollingBearing's picture

Hey!  We did our part for China down here in Peru.  On Mon/Tues we expect to receive our largest order ever from China (wheel bearings and wheel "hub and bearing assemblies").

Why nothing from America, my own country?  They are not interested in selling to us.  The Koreans, Japanese and Chinese treat us better, by far.

So, DoChen sheds no tears for crybaby US companies and unions...


Real men in Cajamarca, Peru prefer Toyota pickups...

Harbanger's picture

US companies (same in all western economies)  are finding it harder to compete in the global market.  Our economies are based on socially engineerd keynesian unicorn poop.  We've all been doing our part, shed no tears. Real Men are yet to be determined.

AmCockerSpaniel's picture

Just how many times do you need to hear this; "Its all about money". Now just say that ten times.

Harbanger's picture

It's all about power and control, nothing new.  Those same people won't even be able to control their own bowels when faced with change.

earleflorida's picture

"That Great 'Gigantic' Sucking Sound?"

'the glass eye fell off the diversion merry-go-round along with 'no country for old men?'     7/12/12

Mexico ranked #4 in world!?

DoChenRollingBearing's picture

Hola, earle!  Hey, the link did not work for me, and it looks interesting...


Atomizer's picture

In order to turn the US economy around, we need MSM to start selling the concept of TINKS. This concept is derived from DINKS.


Dual Income, No Kids – DINKS



disabledvet's picture

i've been trying to get around the idea that "the biggest...and only marginal buyer left" is the US consumer (maybe Brazilian as well?)...but i can't. since China is the "test bed" for revolutionary manufacturing techniques i'm having a hard time seeing how prices themselves don't correct this time. (2008 was NOT a "pricking of a bubble" but in fact a counter-cyclical "on steroids" fiscal and monetary reaction to a cyclical downturn...something i have consistently argued for four years now. i do agree "the names next to the numbers are kinda weird" (TRILLIONS)...but everything else fits the bill.) i've seen nothing that will forcibly change the Fed's 'QE trajectory (collapsing dollar, soaring commodities, double topping equity, hyperinflation, market calling out the Fed instead of front running it---the list (like me) just goes on...and on...and on...and on.......

Atomizer's picture

In three words..  Rare Earth Metals

DoChenRollingBearing's picture

Yes to those three words.  Poor AnAnonymous otherwise would not have enough funds to blob-up "citizenism" because no money...

fudge's picture

Malaysian Rare Earth Metals ;))


4 words

DoChenRollingBearing's picture

Lynas of Australia has their processing plant in Malaysia.  If Malaysia has ITS OWN deposits of REEs, that would explain something I have been curious about...  Like why didn´t they (Lynas) build their plant somewhere in Australia´s vast deserts?

Lots of words, sorry!

fudge's picture


Malaysia does have limited reserves according to available data , maybe there's something that mere mortals do not yet know. Why not India,China ? ..( or Oz ),all countries with greater known reserves.

If I had the answer I'd probally be in a position to make $ or $$$$

Orly's picture

Refining rare earth metals is highly toxic.  You don't want to go poisoning beautiful Austrailian children when a peffectly good Maylaysian will suffer in his stead, do you?


jonjon831983's picture

ZZZz REE's are a way past-expiry investment bubble.  They blew up a couple years ago.


REE's are common materials, it is just a matter of who is willing to mine them at a margin and process them without worrying about the waste.  China since 1970's has been willing to do this and crashed the REE industry overseas, thereby taking over the market.

If China decided to stop REE exports and prices went up production and processing will move elsewhere.

If you recall China temporarily capped REE exports and there was this whole hubaloo about it... and then they just went back to start exports.

Mark123's picture

You mean to say that an economy cannot grow by 10% forever???  I am shocked...especially given they are selling their shiny new unneeded products on credit to bankrupt nations in the west. 

max2205's picture

Guess they stopped buying Tres for good

walcott's picture

build robot consumers.

Winston Churchill's picture

Damn Martians better start ordering soon.

Solarman's picture

China is trapped, like America was trapped for the Great Depression.  They either accept the inflation and raise their wages, thus eroding their artificial advantage, or they peg to a hard asset and watch their currency strengthen, thus losing their artificial wage advantage.

At the same time America, who is in reach of energy independence or close enough, and is food independent can decide to limit imports; trapping the Chinese again.  This is what Britain did to us.

The Chinese retailiate and flood the market with our treasuries or dollars, and we counter with no problem, Ben is printing all we need, and the money goes flowing right back into China, or we declare a jubilee, keep your IOU's.

And the notion that the world does not want our products is laughable, like Germany and Israel, we produce the stuff people really need to have, true high value products in technology, software, medicine, energy and mine extraction, etc.  We are also the largest manufacturer in the world, despite breathless reporting otherwise.

The notion that the world's best and brightest will produce elswhere is a political decision for us, as we can simply allow anyone with the skills we want to become a citizen, and we will have all of the talent we need.

The BRICS+ China will be shitting them.

Fish Gone Bad's picture

As dramatic as that graph looks, it has been presented without the zero line, so it is appears to be much worse than it actually is. 

miker's picture

All of this is the direct result of massive global imbalances that couldn't continue.  Lot's of people saw it coming but no one did (or could do) anything about it.  Massive inflation, massive debt creation, massive trade imbalances. 

Genius, genius, genius. 

Atomizer's picture

Back in 2005, we were called conspiracy nutjobs. Today, we have breached MSM authenticity.



jonjon831983's picture

Good distraction been building up recently: "North Korea Fuels Region’s Tensions by Quitting Armistice"

Since DPRK and the South are technically still at war.

Edward Fiatski's picture

Uh-oh the AUD is going to be in free-fall on Monday.

"What you mean they're not buying our copper? Give me Cheng Dong on the line... "GET FUCKED, CHICOM!"

Golden_Rule's picture

Shit, US food inflation at least feels like its over 6%.  $700+ last month for 3 people and a dog...  and I eat a shitty frozen chimichanga for at least one meal a day.  I humbly ask for a detailed story on US food inflation and how fucking cooked the government numbers are.  CPI is gonna rape some oldies no matter what, it is the nature of CPI, but with cooked #'s it will be even more.....  interesting?  Fucking old people will be GG'n all over the place.

Edward Fiatski's picture

"BEIJING--Chinese financial institutions issued 620 billion yuan ($99.76 billion) of new yuan loans in February, below economists' expectations and down from CNY1.07 trillion in January, data from the People's Bank of China showed Sunday.

The median forecast of 13 economists polled by Dow Jones Newswires was for CNY700 billion of new yuan loans.

Total social financing--a broader measurement of credit in the economy--was CNY1.07 trillion in February, compared with CNY2.54 trillion in January.

Read more:"