11 Disturbing Charts About The Chinese Economy

Tyler Durden's picture

Day in, day out, China 'bulls' (which implies 'everything' bulls as China is the ultimate fall-back save of growth in the world) will use the government-provided PMIs (at 2014 highs) as an indication that everything is tip-top and all those concerns about China's shadow-banking system, CCFD unwinds, guarantor bankruptcies, money-market rate surges on liquidity demand, and tumbling house prices are storms in a teacup to be ignored. Well in the interests of 'beating' a dead horse (and remembering just how bad soft-survey-based PMI data is at predicting future growth), we show below 11 examples that suggest China is anything but healthy.


As we explained here - believing in PMIs is simply ignorant...

It's a miracle...

Destroying the 'myth' of the exuberant PMI data...

Via BofAML,

While a bit more than half of the recent data have been weaker than expected, the manufacturing and nonmanufacturing purchasing manager’s indexes have been very strong, jumping 4.8 and 5.8 points, respectively, since June. By some accounts, these data are better indicators than the hard numbers that come out of the government. After all, they are released very early, they are raw unfiltered data (other than seasonal adjustment), they are never revised and they are simple to interpret. We disagree. In our view, they are useful as a rough and ready early read on the economy. However, once the corresponding official data are released, we put very little weight on these surveys.

It is important to understand how crude these surveys are. Each month, a few hundred purchasing managers are asked if a variety of activity variables are up, down, or the same relative to the prior month. Their responses are then converted into diffusion indexes: the sum of the number managers reporting activity is “increasing” and half of those reporting “the same.” Note that there is some guesswork involved: the survey is taken before the month is over and some of the questions cover areas of the firm that are difficult for a purchasing manager to get a timely read on. For example, a purchasing manager may not have a very precise idea of what is happening to hiring in a large, diverse firm. Moreover, since they don’t gather specific numbers for each series, they may have to make a rough guess, particularly if the trend is slightly up or down.

Fans of the two indexes point out that they are relatively stable, easy to interpret and never revised. However, in our view, the simplicity of the data is a drawback, not an advantage. It means no attempt is made to correct misreporting or to include late respondents. Moreover, the sample they use is not representative of the overall economy. They represent a broad cross-section of industries, but they oversample big firms and they make no attempt to adjust for the birth and death of firms. The US is a dynamic economy and these surveys will miss these compositional shifts. Indeed, a lot of the revisions to official data come from attempts to fix all these problems rather than ignore them.

A comparison with payroll employment underscores these drawbacks. The preliminary payroll report is based on data from 145,000 establishments with 557,000 individual worksites. Thus if the BLS wanted to, it could turn its raw data into simple up or down answers and then create hundreds of diffusion indexes just like the employment component of the ISM index. However, that would mean throwing out information on both the size of employment changes at each company and turning a big sample into a bunch of tiny samples.

One way to show the information advantage of the employment report is to show how it correlates with manufacturing output. Using data from 1990 to present, the employment component of the manufacturing ISM index has a correlation of 0.39 with monthly industrial production growth. How does the official data compare? First, using the Labor Department’s own diffusion index—based on 84 industries—the correlation improves to 0.46. Second, using the actual job growth data, the correlation improves to 0.60. And, finally, if we also take into account the length of the work week, the correlation for aggregate hours worked and industrial production is 0.69. Clearly, more information is better.


How do we interpret the latest ISM numbers? Table 2 above shows the results when we regress GDP growth on its own lags and then add the composite ISM. The results underscore the difficulty in forecasting GDP. Using the average ISMs for July and August, the model with just GDP lags predicts growth of 2% in 3Q, while the model with the ISM points to 4.0%. However, the error band for these forecasts is very high - the “standard error” for the first model is 2.4pp and the second model 2.1pp. In other words, using a two standard error confidence band, we can be “95% confident” that growth is somewhere between zero and 8%. On the other hand, it is encouraging that the ISM is statistically significant.

To recapitulate:

The [world] data mills churn out a lot of surveys. Since the last FOMC meeting, there have been four new ISM readings and a bunch of regional releases. A popular view is that these surveys are better than hard data. In our view, however, these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.

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So having got that off our chest, here are 11 examples of the weakness in China...


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So - you decide - one government-provided, seaonally-adjusted soft-date survey (saying things are the best in 8 months) or 11 charts of actual hard data showing things are bad and gettiung worse in the real economy...

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One last thing... We keep hearing about the strength in copper as indicative of growth... or some kind of bullish indication - this is wrong! The strength is across all commodities that were involved in the CCFDs (as we explained in massive detail here)


And this is why... an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge)

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Yen Cross's picture

 You forgot the most important chart  Tyler.


DoChenRollingBearing's picture

Yen Cross my friend!  Hey, I am trying to get a better idea of how China is really doing, and I want to ask all my contacts that (as well as whomever I can find who knows anything about Russia).

I regularly get roundly trashed here at ZH when I claim that the BRICs are not doing well...  So, I want to get more input into the whole situation re BRICs and how they are doing.  If you feel like giving me your views, please comment here or gmail me at my name (ZH name above).  I will of course keep your name (etc.) confidential.  The whole point of this exercise re China and the rest of them is for a blog article that I would like to well-research. 

I already know how Japan is doing (uh, not great!).

If you cannot participate, hey, that's OK.  I really enjoy your remarks and your dialogs with fonz, etc.


Yen Cross's picture

Do Chen , You have a good "banking relationship".

Luckhasit's picture

The  BRICs that can actually do anything is umm.. Give me a few years hm? 

Cognitive Dissonance's picture

I reject your reality and substitute my own rosy worldview.

<Pssssst.......China is the global ticking time bomb.>

old naughty's picture

it is shaping up more and more likely, the reset trigger.

Well, it could have been agendized since the birth of ccp...

or a few years earlier, since 1913 when five guys reportedly all living in within a sq.m in Vienna.



monkeyboy's picture

The Miracle Economy!


So glad we've hitched our wagon to this horse said the Australian economy.

Rabbitnexus's picture

We have what choices exactly matey?  I suppose you think being tied to the Zombie US eCONomy is a better option?  FFS even Fraser just stated the obvious re our disastrous military alliance with the yanks and their economy is THE ticking time bomb no matter how many of the numpties who infest this site would like to believe the old US of A is right on track to sail blithely into the future.

Of course the BRICS economies aren't doing well, almost nobody is. The exceptions are places like Dubai which relies largely on Golden Crescent money laundering (The same bank but different town after Hong Kong did it with the Triangle for the same US spooks and their puppets of the day) and Iceland who decided that prison time for their cheating Bankers and politicans was a better option than giving themmore cash to blow.

The rest of the West is already hitched to the USA zombie economy and is going out hard and fast along with it. Obviously in the midst of a US created global depression (spare me the garbage debates about recessions/depressions and imaginary recoveries I laugh at such delusions) nobody is doing well. The question is which economies will still be standing when the smoke clears after the crash...or WWIII if the Banksters in their desperation manage to get anyone else to play that one.  FRankly it isn;t looking good for them, it appears the USA may have to fight WWIII on their own. No probs they have enough weapons, they can just divide up in two sides and let go at it. Then they get the usual benefits from their wars and they can for once be assured of winning.

Australia is just a resource rich sitting duck son and we might as well recognise the yanks won't be able to afford the fuel to help us if we get into a dispute with China. I suggest you tell your kids to learn Mandarin.

Yen Cross's picture

 And here we sit... In this conundrum o decisions...


  China in macro numbers might overcome the United States eCONomy. The per capata spending isn't even close.

 Has anyone looked at the "SLOW YUAN" unwind? Has anyone looked at the 20-30 figure PBoJ onwinds on 12-29 schedules?

  Look at bond experations dummies. China has ZERO interest in playing fair!

   FUCK CHINA Bitchez

DoChenRollingBearing's picture

Going to be clicking the greens for mi amigo YC until he screams "Uncle!"  I believe as well that China ain't all she's cracked up to be..., fishez!

Atomizer's picture

But uncle needs the petrodollar to borrow more debt.

It helps kicking the can down the road. I know, Atomizer is a dick fuck realist. 

We need 3.8 billion here and another trillion there.


Rabbitnexus's picture

Right and you're implying I suppose that the USA "plays fair"  Mwa ha ha ha. Mwa ha ha ha,  I love the comedians and their delusions. They actually write like they believe their BS.  Last I saw China tends to make deals in business which nobody is forced to accept. Take it or leave it. Compared to the US favorite, "We'll bomb you into the stone age unless you give us everything you've got" that's pretty fair in my books.  

I should add at this point that I'm an Aussie manufacturer whose business is struggling against massive Chinese dumping of their crap on our market so anybody so inclined can shove the idea I might be some sort of Chinese apologist where the sun don't shine.

Colonel Klink's picture

Hey their lies look similar to our lies.

Yen Cross's picture

 Klink , I like ya. China won't EVER,NEVER.EVER be a reserve currency. The yuan is levered 3x the fed balance sheet.

  Listen to the gold and silver kooks. Get a program of trade locally.

Colonel Klink's picture

Likewise Yen.  I'm not worried about the yuan becoming the next reserve currency.  I AM a gold and silver kook.  I also already trade locally.  However I do appreciate the advice and kind words.

At some point, something's gotta give.

Yen Cross's picture

  Agree Klink. Going over charts. (back-up)

Rabbitnexus's picture

What makes you think the anybody particularly wants to own a reserve currency? The problem with you lot is you're thinking like Americans, which means not thinking at all, just projecting your own crap onto others. This isn't about who gets to be the next reserve currency printer, it's about how we divest from the former one. Everyone elsejust wants to get on with business, trade, produce, value add and have holidays overseas wihtout having to cross off half the countries because we're waging war in their backyards.  Hard concepts for the American mindset to grasp I know but frankly I don't think we'll be paying much attention to you for much longer.

The US dollar status as reserve currency was oonly sort of anyway since it was really just the medium of exchange for energy and the flow on effect took over. The mistake in that has become obvious and the obvious answer is to either do business in direct currency swaps (which I've been doing for a decade anyway in international trade) or for a basket of relatively stable currencies which comes of large economies. Thus the Yuan and Ruble stand out as obvious choices to be included but neither economy is likely to use their reserve status to rape the world economy like the yanks have so I'd not get too worried about it. Unless you're an American then sure, you might as well face it, you're fucked.

Dollarmedes's picture

The article was straightforward, except for the last chart. I don't know too much about futures, so do I have this right?

CCFDs are unwinding, meaning that commodities are no longer being used as collateral for loans. This frees the commodities for physical selling (or, I suppose, use...depending on what the company does with it). At the same time, futures for the commodities are being bought/sold to lock in the price. But the physical markets aren't able to absorb the extra supply as well as the futures markets are able to absorb the demand.

Does this lead to an increase in futures prices, and the chance for arbitrage between the spot and future prices are what are driving up spot prices too?

(I'm trying to figure out how increasing the supply of a commodity can result in rising prices in the chart)

P-Mack's picture

Horrible anaylsis.

Limited samples, minimal basis for comparison (with the exception of price Vs inventory charts) and frequently spurious about correlations.



Yen Cross's picture


  You're a supply guy though.  " you just hand out shit?"

  It's important that people understand this song, "barff.barf <> barf..Barf.."

  I love this song Bitchez

  For Buzz >
They're Everywhere - Video Clips - South Park Studios

Yen Cross's picture

  Those Cement and Coal charts look YOKED?

 Mexican engineering?

luckylongshot's picture

The big problem with articles about China is the articles all assume that China has a Rothschild controlled central bank that owns the right to create money, the same as the western world has. This is not true and because China owns its central bank it changes everything. The Chinese government can simply write off bad debts without causing a crisis, while in the west this is not possible because of the private ownership of the right to create money. What all this means is that conventional financial thinking about China does not work and that China is much less likely to be the ticking time bomb than many believe.

Rodders75's picture

Interesting and original point. Have you got any articles discussing this? 

tired_of_manipulation's picture

So China writes off every bad debt, it's the old Keynesian trope that we 'owe it to ourselves so it doesn't matter'. The problem is the mal-investment. There is a finite supply of resources at any given price. If you wipe out the debts with a stroke of a pen you have still consumed expensive resources needlessly. 

Driving interest rates to zero here is effectively the same thing as wiping out the debt. How has that worked out for Japan? Communist countries didn't have to worry about internal debts either, but the mal-investment destroyed their economies. We are all steadily getting poorer the longer this goes on.  

Rodders75's picture

Too right...the S will HTF big time in 3Q14. 

AdvancingTime's picture

 Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.

Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.



Dubaibanker's picture

Volume matters!! And the speed of growth of that voluminous size is what is driving the story of the rise of China.

Isn't cheaper prices of all commodities for a country who is buying the maximum amount of all those commodities a positive catalyst for any such buyer?

Import volume of most commodities has doubled in China since just 2008. http://www.mining.com/copper-iron-ore-imports-defy-china-weakness-78229/

Just watch this to project the China's economic power over the coming decades: http://www.dailykos.com/story/2014/06/13/1306854/-China-has-consumed-mor...

Secondly, the volume of cars sold in China is as follows: http://www.gbm.scotiabank.com/English/bns_econ/bns_auto.pdf

Until 1999: 0.43m

Average 2000- 2010: 4.51m

By 2011: 12.16m

By 2012: 13.18m

By 2013: Beaten America's total volume of 15.53m...China now at 16.30m

By end 2014: forecast of car sales 16.00m in US while China will keep rising to 18.36m

US was 14.55m in 1999 and today is 16m. Growth of 9.96% in 15 years.

China was 0.43m in 1999 and is 18.36m cars sold now in 2014. GROWTH OF 4,169.77% in 15 years!

I rest my case.

The rise of China is underpinned by their rising currency demand, both for trade as well as deposits/investments, again at a massive speed. https://www.dbs.com/id/treasures/aics/GenericArticle.page?dcrPath=templa...

From zero in 2009, today more than CNH 700bn / USD 113bn of bonds are held by foreigners. Trade settlement is rising at a speed of 1,000% since 2013, admittedly from a very small base but has reached from No 13 last year to No 7 in 2014. This shows demand regardless of what Bank of America may be projecting.

Just in HK, the deposits held by foreigners has gone from zero in 2009 to near CNH 1 trillion which is over USD 161bn. Now many more cities such as Singapore, Taiwan, London, Frankfurt, Luxembourg are also added in 2014 to hold deposits, have bonds and do renminbi settlement. More financial cities such as Dubai, Toronto etc will be added soon.

The demand of Chinese renminbi has just begun. 

How can Bank of America 'prove' or claim that the Chinese economy is in trouble? Just because of falling comoodity prices? That should impact everyone, why just pick on China? Actually, the commodity exporting countries will be under stress, not the importers.

Very poor assessment by million dollar pay check unnecessarily overpaid no value creating analysts.

No wonder they could not anticipate the demise of their own company Merrill Lynch or their fellows at Lehman or Bear Stearns, neither could they see Espirito Santo or the ongoing epic slowdown of most of Europe, India etc.

If India and Europe are going down further in 2014 and 2015, it is only because of one main reason, they import a lot of oil / gas whose price is not only volatile and unpredictable but has been on the rise over the last decade and they import one of the highest amount of gas and oil (just because they don't have any) which is a necessity in today's world and in many cases they also import a lot of food. 

The future of our planet is not in decline because prices are volatile or we have a debt based system or due to import or export but just one big thing called population, we have grown from about a billion people until the 19th century to over 7.2bn today and shall be clocking 8bn by 2024.

We took anywhere from 5,000 years or couple of thousand years to reach a billion and now we multiply at a speed of 1 billion every decade. Last billion from 6bn to 7bn took about 12 years. Next one will take just a decade.

Once we reach a level of 8bn on a planet meant to sustain equality and sustainable growth for a billion or two or perhaps 3bn but we reach 8bn, then we do not have sufficient food or land or jobs for everyone and we end up polarizing and we shall face extreme consequences.

So, dont expect China's demise soon. If they fall apart, we all will fall apart decades before they do.

Another important thing that keeps China glued together unlike most other nations is that they are insulated form the rest of the world. Foreign banks are not allowed to expand their reach, nor are insurance companies nor are food companies (KFC is a big exception), nor are any other major oil corporations who love to exploit resources of any country in the name of providing technology. Hence, if any of these US or European giants go bust, the impact on China will be zilch, zero, nada...Imagine if Apple or IBM or Hilton hotels or Starbucks or any oil drilling co shuts down, China will be that much more happy to expand their outreach globally.

China shows the world how to not only survive but also grow based on domestic grown companies. Where Baidu beats Google hands down, where Alibaba gives a run for their money to US companies, where Apple is undersold by domestic companies or where Haier is thriving while IBM, Oracle and Dell decline. Not only in tech, but if you look at banking or defence sector or anything else, Chinese companies are rising in the Top 2,000 companies globally where they actually dominate or in the Global 500 where they are rising at the cost of American, European and Japanese corporations.