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Chinese Growth Slows Most Since Lehman; Capex Worst Since 2001; Electric Output Tumbles To Negative
While China may have mastered the art of goalseeking GDP, always coming within 0.1% of the consensus estimate, usually to the upside, even if the bogey has seen dramatic declines in the past few years, dropping from double digit annualized growth to just 7.5% currently and the projections hockey stick long gone...
... it may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly - such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash.
What's worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here.
As JPM summarized earlier today, pretty much every economic data release was a disaster, missing consensus significantly, and suggesting GDP is now trending at an unprecedented sub-7%.
"Today China released major indicators of economic activity for August. Industrial production growth slowed to 6.9%oya (consensus: 8.8%), slowest pace since the global financial crisis period of late 2008/early 2009, suggesting that the economy has lost momentum again following the 2Q recovery. On the domestic front, both fixed investment and retail sales came in weaker than expected. Fixed investment growth decelerated notably to 16.5%oya ytd in August (J.P. Morgan: 16.8%, consensus: 16.9%), the slowest pace of growth since 2001, while retail sales increased 11.9%oya (J.P. Morgan: 12.4%; consensus: 12.1%). Recall that August merchandise exports (released on Monday) still showed solid growth pace at 9.4%oya, while imports disappointed, falling 2.4% y/y".
It wasn't just the economic indicators: there was pronounced weakness in the biggest Chinese asset, far more important to the local economy than stocks: the housing market: Home sale area fell 13.4% Y/Y in August, compared to the fall at 17.9% Y/Y in July. In value term, home sale fell 13.7% Y/Y in August, compared to the fall at 17.9% Y/Y in July. In other words, those predicting the bursting of the Chinese housing bubble better be paying attention as it is currently taking place.
Which also means that with organic cash flow plunging, real estate developers had to resort to the capital markets increasingly more, and raised 7.9 trillion yuan year-to-date by August (up 2.7% ytd), compared to 6.9 trillion yuan year-to-date by July (up 3.2% ytd). Basically, this means that in order to delay the hard landing, China is now pushing its banks into the all-in moment as everyone is mobilized to stop the one event that could result in a global depression: recall - Chinese banks have over $25 trillion in assets, the bulk of which is backed by housing.
Finally, and perhaps most disturbing, was that alongside a slowdown in cement and steel production, Chinese electrical output saw its first Y/Y decline since Lehman, dropping by a "shocking bad" 2.2% (in Bloomberg's words) by far the best economic indicator of what is going on in the middle kingdom.
Putting it all together, here is JPM: "Overall, the August activity points at some downside risks going ahead. Note that trade surplus is strong in recent months, but this is mainly because weaker-than-expected import growth, which is related to the story of weak domestic demand. The weakness in domestic demand is not only reflected in real estate activity, but also in manufacturing and other sectors. To some degree this is good news, as slowdown in manufacturing and real estate investment is a critical part of economic re-balancing. Nonetheless, it remains unclear what other sectors could arise and provide alternative source of growth in the near term."
Or, as Bloomberg's Tom Orlik shows, based on these real-time economic indicators, China's GDP has tumbled to a shocking 6.3% from 7.4%, and far below the 7.5% GDP target set by the premier.
And since it is unclear what can drive growth, JPM is happy to provide one solution: more easing of course. Then again, even JPM confirms that this will be an hard uphill climb: "Despite the weak data in August, there is no sign that the Chinese government will ease macro policies in the near term. In a speech earlier this week, Premier Li reiterated that China’s growth is within a reasonable range, and the government will rely more on structural reform, rather than stimulus, to support economic growth."
But recall that China has used big words before, such as last summer when it swore it would engage in a 1 trillion deleveraging, only to quickly forget all about it when its banking system nearly collapsed after overnight repo rates soared to 25%.
So what are the options? Here, again, is JPM:
What measures could be introduced to stabilize the growth momentum?
First, the central bank has adopted unconventional measures to ease the monetary policy since 2Q. These include a target for relatively low market interest rates (e.g. repo rates and SHIBOR); targeted credit easing, such as the PSL, re-lending, targeted RRR and target rate cut; tighter rules on shadow banking activity and improve the credit support to the real sector (via compositional shift from shadow banking to bank loans in total social financing). It is likely that the PBOC will expand the PSL operation in the coming months to support targeted sectors (e.g. environment, water conservation, small business).
Second, given the limitations in fiscal policy to support investment in 2H14, the government may introduce measures to encourage the participation of private investment. Such measures include removing government control, opening market access, or the public-private-partnership (PPP) model.
In addition, we expect housing policies will be further eased to slow down the adjustment process in the housing market. Many local governments have removed or eased the home restriction policies in recent months, and since July mortgage support for first-home buyers has improved (e.g. lower mortgage rates and improved mortgage availability). In recent weeks some real estate developers were allowed to raise funds from the bond and equity market. A next possible policy option could be the easing in loan-to-value restrictions for second-home buyers, which now is subject to a maximum LTV of 40%.
More importantly, this administration has announced some supply-side policy measures. It remains to be seen whether these measures will be implemented in practice. The areas that are worthy of special attention include: (1) administrative reform, i.e. removal of government control and private access to sectors used to be controlled by the state sector; (2) reduction of the tax and fee burden for the corporate sector; (3) reduction of funding cost for business borrowers especially for small business.
In other words, we are now in a world in which the biggest economy, Europe, is about to enter a triple-dip recession, and the third largest standalone economy, China, is undergoing an economic standstill, and all hopes and prayers are that China will join the ECB in activating monetary easing once again. But yes, the Fed will not only conclude QE but will supposedly begin rising rates in just over two quarters.
Good luck with that.
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Lehman will be fine...
Popping bubbles = game over
not to be a downer or anything but did I just hear that Obama lost his membership with several country clubs?
so when SHTF, will our President pull the clubs out of the trunk, or not?
this is serious folks. we are living in unprecendented times and things are about to get much worse. Obama's handicap rating is at risk of collapse if we don't act quick, he could get the shanks, or worse, the yips.
Putin knows this is the time to act. witnessing that our President may soon lose his mojo on the course will only weaken him politically, so it is our duty to hope, to have faith, and to pray that while our President kills all the "bad guys" in Syria, Iraq, Yemen, Libya, Pakistan, Afghanistan, et al. we should all be thankful that at least he is able to maintain strength and integrity by avoiding those three putts and hitting "bomb" drives down the middle.
he may be the worst President we ever had, but at least he's a good golfer
He sucks at golf too.
.... despite being the most expensive Golf-Trainee on the planet.
He REALLY sucks at golf. But he sucks a mean cock(s)
"No worries. It's contained."
Itz rall Brushez fraut. Pass MSG, preeze
off course he sucks at golf. he's not good at anything, well maybe rolling a doobie. the guy is a complete idiot. and given the fact that he's a half-breed and raised all over the world, that exposure to many cultures and languages and learning and the fact that his mom and grandparents were cia operatives, seriously, it would usually mean a VERY smart person.
and he is none of that. he is still dumb as a box of rocks.
and while the cia had him under manchurian candidate wraps as the free fried chicken guy in chicago, he never did sports and he never did golf.
so all of a sudden, he's the tiger woods wanna-be success? it take years, and generally, if you are not starting as a child, you will not be good.
so, that's our president. hope and change. thanks to the cia and decades of grooming.
he was so dumb and egotistical, he took the job!
and believe me. he does not want to be a boogie down. he wanted to be white.
i really suspect that when he's out, the mooch will dump him. first presidential divorce. do him a big favor.
let him get back in the bath house and away from cia wanting him to say and do this and that.
we all pick on the mooch, but people make mistakes. she is just a smart girl with confidence, she made a mistake.
all of us, old adults, how many of us saw smart girls marry a guy that was just the opposite of what she thought? happens all the time.
golf is the cia backed pretense for doing nothing. he doesn't care about golf. they told him to do it.
He did not have membership with any of those clubs, to my knowlege. He just has the Secret Service (the 'SS', as I like to call it), contact the club and request permission for him to play a round there with somebody who IS a member (a high dollar donor or a sports star, usually). He was rejected at two clubs over Labor Day weekend because that's the busiest weekend of the year for most clubs and the SS has to completely clear the course for a whole day for him to play. Out of an abundance of security concerns, ya see.
And he's nothing special on the links. His handicap is "officially" 16. It's said he usually turns in rounds in the "mid 90s".
http://www.washingtonpost.com/opinions/charles-lane-barack-obamas-golf-h...
Given everything else he lies about, I seriously doubt the guy gets out of triple digits.
It is time for China to divulge their gold reserves and bust the the Comex and LBMA wide open.
That or they get a false flag and blame for starting the next financial crisis.
Get to work China, and learn from Russia. You've gotten enough cheap metal from the west. Your time is running out.
They have >14000 tons of that shiney stuff laying around, wonder what they plan on doing with all those rocks....
http://www.goldmoney.com/research/analysis/renewed-estimates-of-chinese-...
http://www.ingoldwetrust.ch/sge-withdrawals-equal-chinese-gold-demand-pa...
In November china is going to run out of phis silver , they use about 2 million oz a month in manufacturing and so they will want the stuff America borrowed off them in 2003 back and we dont have it so just maybe the price fixing is coming to an end , but dont hold your breath
USA and Europe thought that chinese are stupid.
They would print money and chinese would provide goods and services for electrons on computer.
No, they are not going to, particularly with oil at $100+ for 3 years already.
China is at minus 8% GDP in 2014.
Nobody is that stupid for ever.
Chinese got factories and technology from the West.
Now they don't care. Goal is achieved. Being export economy is no longer a priority.
their biggest export will be
Deflation
Percentage year on year growth is not a good way of comparison because China's electricity production has grown 4 TIMES since 2001 and risen 2 TIMES since just 2006. http://www.indexmundi.com/g/g.aspx?c=ch&v=79
Could this be the reason, their power production growth is slowing down?
China Will Install More Solar This Year Than The U.S. Ever HasNo
Source?
AirInACan News Network.
lol.
Apparently just Tyler.
Sometimes thats how it is.
http://en.wikipedia.org/wiki/Electricity_sector_in_China
http://rogerpielkejr.blogspot.com/2010/09/china-power-generation-by-source.html
http://www.eia.gov/countries/cab.cfm?fips=CH
(links open in new window/tab)
Tyler,
Fair enough. That is what was shown in the indexmundi link of mine as well.
However, if China continues to bring more power production than any other country on the planet while becoming the country with the largest reserves as well as the strongest currency (which country doesn't manipulate?...) and the biggest banks (which country doesn't print endlessly?...) and has jumped in car units sold pa to above 18m which is more than the US and has more passengers travelling outside of China (of over 450m pa) or has 7 of Top 10 busiest ports in the world or the highest online users in the planet of over 560m with over 34% using online to buy which is the highest online user purchase penetration in the world and all this while helping dozens of countries around the world using their reserves prudently etc.......but has a slight dip in YoY growth in bringing more capacity online, isn't there some scope for them to produce a bit less and take a breather?
That was my point not that China is not slowing. They cannot be so insulated as to when the whole world is in dolddrums that they will be able to grow at 9% or 10% in GDP or endless double digit growth in electricity production/consumption.
In terms of GDP decline of China, I would like to compare the 1970's and 1980's of USA (their peak growth era) with 2000's and 2010's of China (China's peak growth era). It will be exactly the same and I can bet on it. Most likely, China is better as below.
USA peaked at 8% levels in their GDP growth in the late 1960's and early 1980's. then went to negative in 1975, 1983 and 1992. http://www.tradingeconomics.com/united-states/gdp-growth-annual
China has never been negative since 1990's. It peaked above 14% in 1994 and close to 12% in 2006 and 2010 for their GDP growth. And has been running at 7% plus in the last few years. http://www.tradingeconomics.com/china/gdp-growth-annual
Thanks, and keep up the great work!
Great as those numbers sound, when growth goes negative in debt-fueled economies there starts a cycle of major disruptions that take years or longer to heal. Japan "peaked" in 1989. What came afterward we all know.
You referring to USA or Eurozone?
There's a difference?!
I agree, debt based monetary systems can fuel huge amounts of real growth, but also instill massive imbalances. I actually think debt based monetary systems can be used to transition economies from nearly nothing to mature functioning economies but as Mises said:
"There is no means to avoiding the final collapse of a boom brought on by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
So when it looks like we’re about to enter that inevitable collapse the economy must transition to a new monetary system or face a severe crash. We have reached that point in most world economies, China US Japan EU all of us. Unfortunately that transition has never been done, and I’m not sure if they have a plan to complete this transition. They would not be able to tell us if they did have such a plan, and though they may have something in place I have my doubts.
My thoughts are debt based money should not be used in the first place, but there is no doubt it can cause great growth, albeit unhealthy. The trick is dealing with its inherent and progressively increasing unstable core, a daunting task that we are currently facing.
It's not a debt fueled economy; it's what we used to be; an industry and export fueld economy; they have a positive cash flow, they don't owe anybody anything.
Spot on!
In fact, all of us owe them everything becuase we buy all goods in one way or another from them or through them.
Increasingly, they are buying companies from Volvo to US movie theatres and Peugeot, oil companies, ports, Heathrow airport, Thames Water, parts of IBM, Motorola etc and lending money to every single city around the world to build infra or support failing companies or buy real estate in some of them in majority like in Detroit or Vancouver or Singapore/HK or Australia etc.
Henceforth, whenever we spend any money, the profit will end up going to China instead of going to UK, Germany or USA and add further to the reserves in China!
This information is from a US think tank: "China’s external assets grew from $5.21 trillion in 2012 to $5.93 trillion at the end of 2013" http://rhg.com/notes/chinas-international-investment-position-2014-updat...
Think about it, what will happen in a decade from now, when almost everything around the world is owned by cash rich Chinese just because they worked hard and saved enough in the last 3 decades to buy the entire world!
And you will be exporting exactly how much to debt-laden economies the world over?
LOL, that 800 must be out of the total 2400 points possible.
No wonder they have such a huge pollution problem.
People around Pittsburgh used to love the smoke; "where there's smoke there's jobs". Think about it; unless you've been brainwashed to think smoke is going to kill the planet; in that case, never mind.
good for you; facts are facts; and bullshitters need to be shown up.
I don't buy it.
I know they are using a lot of fossil fuel , but no one can really know what is going on in china based on graphs.
Dubaibanker; you want to get in a contest to see who can waste the most money on Goddamn stupid Solar Panels? I don't.
SAT 800,
If solar panels were so goddamn stupid WTF are the utilities screaming for guaranteed penalty/tax rates for those still connected? Could it be because their slicing, dicing & monetizing of your power usage, ass raped on time of day is challenged by just that, when solar whacks them in the nads?
"According to new numbers released by the Chinese government, China added 3.3 gigawatts of solar capacity in the first six months of the year ending June 30, marking a 100 percent increase over the same period last year. That brings China’s total solar supply to 23 gigawatts — 13 shy of the country’s goal of installing 35 by the end of 2015."
SAT 800,
I never said anything about solar panels.
And if Chinese want to waste 'their' money on solar panels, why should we interfere?
But I doubt they are stupid and I doubt they are spending on a lost cause.
And this trainwreck in making will buy unlimited amounts of russian gas. Yeah right...
USA is buying russian gas?
Soon no one will cause no one will be able to afford it. Goes for China as well.
It will take a decade just to build the pipeline. And then you have a pressurized pipeline built in inimitable Chinese fashion. The explosions should be spectacular.
Leveraged financial assets are either going down in deflationary flames or up in hyper inflationary smoke.
Likely first the former, then the latter.
At the rate they are going China will be the reserve currency in no time... /s
T hey're not interested in being the reserve currency; and neither is anyone else; it ended up as the dollar by default, after WW!!. No particular advantage acrues to it.
Hmmm, let's see.
Which financial crap game do I want to play in-- the one where I can print all the money I need or the one where someone else gets to print all the money they need?
Nope, no possible benefit in that.
Also, upon further review, why is China suddenly so interested in cutting USD out of their trade transactions great and small?
Nope, no possible benefit to them either.
Apparently, nobody wants to be "King (insert currency name here)" because they all prefer being the mark rather than the house in the great global casino.
If there is an argument being advanced for universal governmental stupidity, this would have to be it-- but I don't believe it for a minute.
Takes a while for the beast to collapse - did I say beast? I meant beasts.
Might people consider that it serves Premier Li's purpose to have an economic slowdown, and so bring more power to the central authorities (Beijing).
Managing that massive country is problematic (didn't Mao write that he only ruled Beijing and a few outside villages). A reduction of credit to many provinces, agencies, and SOE's would force those organizations to look more to Beijing for credit, guidance, and orders.
slow down will bring riots
back in 2009 when fiscal stimulus all the rage across the globe, China launched a $600 billion stimpack that was geared toward infrastructure build (rather than boosting consumption like ARRA) ... they didn't build roads/airports/rail for nothing.
They're not gonna take a slow down with out a fight (lowering value of yuan, ie: export deflation)
buh,but its an economic-miracle-behemoth-perpetual-energy engine ...what about the 100 million engineers yearning to show the West how its done...what about the new and improved chinese version of every thing ever invented....what about all that goddamn GOLD.....goddamn party poopers
I wouldn't worry about China's numbers. They have never been real.
Here is something that is real:
http://www.youtube.com/watch?v=gcYYjkbOReQ
You can't hide quality.
The worlds GDP should look very interesting by the end of the year when compared to easing. The smell of collapse and fear is getting stronger every week
"The ability of the Fed to arrest a downside irrational move in risk assets may be limited. Non-risk assets such as long dated U.S. treasuries should benefit from this shift in perception."
Hoisington Investment Management
First Quarter 2013 Review and Outlook
Best damn free advice around. Not everyone percieves tbonds to be "non-risk", but relatively plenty do.
Hoisington first rate
Just remember Putin is going to sell gas to China at break even and priced in Yuan, thats going to end well.
Why wouldn't it end well? It's called trade. Russian stuff for Chinese stuff; Chinese stuff for Russian stuff. Resulting in manufacturing profits and better selection of products in both countries; see-"gt. Britain"--for example.
The party is over. Now they can sit back and enjoy the evironmental hell they have unleashed on themselves by being the wolds factory floor.
But now they have the production + money to be the World's #1 superpower.
The smog goes along with empire; Britain 1800's, the U.S. post WWII, and now China.
Don't try to tell an environmentalist that; their brains will explode. The currently beginning ice age should finally shut them up.
I'll trade clean air and water for being the superpower, it's all theirs.
You mean they can enjoy the power and privelege that comes from spending all your money? Yes, I'm sure they will.
I trade them my fiat for their stuff it's great while it lasts. Someday they will be holding a bag of toilet paper and I'll still have my stuff.
Another great ZH article.
Yellen is going to shit in her hat and pull it over her ears.
I'd pay admission to see that; and yes; she's going to have buyer's remorse over taking that job.
6.9% !!! OMG it's the apocalypse.
I disagree that the figure MUST BE 8% to keep riots down. The population of China is static, not growing, and the recent graduates just go home and live with their parents.
You're right, of course, but you have to do something to get page clicks.
Inflation is a bitch but deflation can be a real cunt!
I prefer a cunt to a bitch ..
How many more headlines have to read "Most since Lehman", or "Biggest miss since financial crisis", or "Worst since 2007/2008", before the SHTF???
How much longer can money printing paper over all of this??
Biflation will come to China from the West. It's our export.
Perhaps their BFF Russia can help.
Well duh! The stupid f---ing Americans are buried in debt once again and can buy no more Chinese-made crap. Their MasterCards are maxed, and without the brain-dead U.S. consumers China can only dump goods on the markets to keep factories running and prevent riots. This is why the Fed Bank can NEVER raise rates; Americans need access to more and more credit just to stay afloat. EBT cards aren't enough to make up for the income gap caused by low-paying jobs. Banks won't risk big loans to the losers unless the Fed guarantees more bailouts. The wealthy aren't buying 15 cars each like the Fed bankers predicted, so there is no 'trickle-down'. But in spite of all the evidence that rearranging the deck chairs is useless, the lemmings see no option but to keep buying stocks. Faith-in-Fed trumps all reason. This has to end ugly.
now you know why there will be black helicopters dumping pallets of cash onto the american consumer as soon as they can end the the current qeternity scheme.
But ekm1 says lower prices means more demand /sarc.
Remind me
Hu's on first?
Have just spent a week in china with the guys who make 20% of the world's denim, amongst other activities. The port of Qingdao has gone from 20 million to 13 million containers a year. Nuff said? There are abandoned apartment tower complexes and mom and dad housing developments everywhere at Qingdoa and Guangzhou.
Great info. Thanks
The debate continues as to how stable china really is. 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.
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.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
How can China possibly be growing with most of the world, to which China exports, slowing?
Fact of the matter is that central banks cannot control micro-economic matters. If mama doesn't want to buy bananas because they're 47 cents today versus 42 cents last week, mama ain't buyin' and there's not a goddamn thing the Fed or the PBOC or the ECB or any of Goldman's former water boys can do about it.
It's just "fun with numbers" for the folks at the top of the food chain. Lies and prevarication are foisted upon the rest of us, for our benefit, of course.
We will all be much better off when the governments are reduced to entities which no longer matter, and we're getting closer to that.