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Artificial Growth Exhibit A: China's Inventory Stockpiling Hits All Time High

Tyler Durden's picture




 

Need a quick GDP boost in a world in which the uber levered consumer is tapped out and has no more savings or purchasing power, in which the government is facing an existential socialism or bust crisis even as global sovereign debt levels are at unseens before levels, and in which global trade has collapsed (so there go the C, G and (X-M) components of GDP)?

No problem, just add some I for Inventory.

Better yet, add a whole lot of I, especially if you are that global growth dynamo, China, which over the years many have accused of having taken the term "overcapacity" and put it through the Barry Bonds juicer yet where courtesy of a central-planning regime that has made sure nothing appears to be unused, except for the occasional ghost city or empty mall, proof of such overcapacity has been scarce in official, government data.

Well, today we have definitive evidence - once again courtesy of the private sector where fudging and manipulating data is that much more difficult - that Chinese Inventory is now at absolutely all time record highs.

Below, courtesy of CLSA's Chris Wood, is a chart of rising inventories as a percentage of revenue. What is visible is that the inventory-to-revenue ratio of A share companies, excluding financials and energy, increased to a historical high of 1.37x in 1Q13, while the receivable-to-revenue ratio also rose to a 10-year high of 0.52x.

And that's were the bulk of Chinese "growth" has come from, which in turn is supposed to be the global growth buffer because without China growing at a comfortable 7.5%-8%, the rest of the world is lost.

But don't worry, "if you stock up on enough inventory, they will come."... Unless they don't.

In which case the resultant massive wholesale inventory dump will be an epic sight to behold.

 

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Mon, 05/20/2013 - 15:54 | 3581490 SheepDog-One
SheepDog-One's picture

Just think of all the goodies showering down on us when this giant over-stuffed with treats pinata explodes!

Oh, wait...that stuffing doesn't smell at all like candy.

Mon, 05/20/2013 - 16:03 | 3581531 alphamentalist
alphamentalist's picture

Buy WMT once it starts?

Mon, 05/20/2013 - 16:11 | 3581566 negative rates
negative rates's picture

Gees I think I'll live off chocolate for a while just for a change of pace and keeping up with the Chinaman.

Mon, 05/20/2013 - 16:21 | 3581595 Herd Redirectio...
Herd Redirection Committee's picture

So they dump... Prices for toys, shoes, clothes, electronics, imitation crab, processed cheese  all plummet.  The Fed has to step in, and they are forced to buy everything?

On another note, I read this today: http://www.thestreet.com/story/11925256/1/silver-wheaton-corporation-sto...

Amateurish garbage!  Says nothing about the price of silver, but tells you "Don't buy, hold".  Really?  When prices are low, you should hold?

Mon, 05/20/2013 - 22:21 | 3582780 markmotive
markmotive's picture

Confusious say: "Country with overcapacity cannot bury head in sand for long"

Mon, 05/20/2013 - 16:04 | 3581541 sampo
sampo's picture

Actually, they will be exporting their shit in one way or another to our backyards, and we will be willing to swallow it. Not because we want to, but because we have to.

Mon, 05/20/2013 - 15:57 | 3581509 Steve Brown
Steve Brown's picture

Looks like the ChiComs are going to blast the world, not with bombs but with all sorts of inventory at give-away prices so as to halt almost all uncompetitive production in the West.

End of story for most of the West, including the good old US of A.

We, in the once United Kingdom are already totally screwed, but that is by the EU, not China. When China jumps in we will be doubly screwed.

Mon, 05/20/2013 - 16:37 | 3581646 Rustysilver
Rustysilver's picture

Steve Brown,

UK is screwed by that swivel eye loony you call PM. We have a copy of that here in US.

Mon, 05/20/2013 - 16:03 | 3581536 DeadFred
DeadFred's picture

I've long questioned the explanation of stockpiles as due to bad central planning and instead ask the question of how to distinguish this from building up supplies for a war that disrupts world trade. If this data were detailed enough I could test the hypothesis. The war prep scenario would predict more buildup of bars of copper, train parts and tires versus less buildup in cheap laminate flooring destined for export. Is the detailed data available?

Mon, 05/20/2013 - 16:18 | 3581583 hardcleareye
hardcleareye's picture

Wow, Dead Fred that is putting a "different view" on this issue, one I had not considered..........

What do Russia's inventories numbers look like?

Mon, 05/20/2013 - 17:49 | 3581852 Herd Redirectio...
Herd Redirection Committee's picture

Well, there certainly is intelligent stockpiling to some extent.  Auto manufacturers were stockpiling silver last year, IIRC, and probably will look to do replenish (or increase inventories) again in the medium term. 

Also remember there are lots of kinds of war these days.  Trade wars, cold wars, wars on terror, currency wars...  So it doesn't always mean hot war.  And using proxies is the preferred 21st century method.  Watch "Confessions of an Economic Hitman" to get an idea of what happens when you are elected leader of a resource-rich nation.  (hint: an offer you can't refuse is made)

Mon, 05/20/2013 - 16:05 | 3581546 DoChenRollingBearing
DoChenRollingBearing's picture

We should check w/ our Chinese supplier to see if bearings are backed up in stock...

Mon, 05/20/2013 - 16:06 | 3581549 SheepDog-One
SheepDog-One's picture

TWO days in a row 1,666 close? LOOK OUT!

Mon, 05/20/2013 - 16:10 | 3581563 jowenchrist
jowenchrist's picture

The Force is strong SD1

Mon, 05/20/2013 - 16:13 | 3581574 negative rates
negative rates's picture

So it's death by the S&P.

Mon, 05/20/2013 - 16:21 | 3581598 centerline
centerline's picture

(puts on tin foil hat)

Mon, 05/20/2013 - 16:23 | 3581570 silver surfer
silver surfer's picture

Credit booms in manufacturing always lead to overcapacity and overproduction, its one of the major problems with the debt finance business model.

Eventually you can not afford to follow demand when it goes down and you go bust.

Mon, 05/20/2013 - 16:15 | 3581576 russwinter
russwinter's picture

Looks like a war economy. 

http://www.youtube.com/watch?v=_dLzgPa28Ds

Mon, 05/20/2013 - 17:11 | 3581754 Bam_Man
Bam_Man's picture

Chronic malinvestment masquerading as GDP growth.

And it's not just in China.

Mon, 05/20/2013 - 17:57 | 3581845 NipponMarketBlog
NipponMarketBlog's picture

 

 

At some point these companies are going to have a serious cash flow issue, since they are effectively just financing their input material suppliers.

In addition, you'd think that as inventories rise and rise for years on end, eventually they'll have to write off some of them as 'un-sellable'. I guess this is when the Chinese NPL ratio goes from the current 1%-2% to X%?

Chinese bank CDS's anyone?

 

http://nipponmarketblog.wordpress.com/

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