This page has been archived and commenting is disabled.
"Chinese Economic Activity Has Probably Slowed To Less Than 3%"
In a world in which sell-side research (and even that of independent third-parties) is not only meaningless - because as we first said in 2010 the only thing that matters in the New Paranormal is 'the Fed's H.4.1 statement' - there are few sources of insightful, non-conflicted analysis. One place which stands out is Cornerstone Macro - yes, it costs a lot of money, but it's worth it.
Cornerstone is the one place which actually turned bearish a little over a month ago, purely on fundamental factors (FX, oil, global recession), and has been pointing out many of the discrepancies in the narrative (then again, as we showed before, in a world in which central banks are set to have the greatest amount of nominal "intervention" surpassing even the post-Lehman period...
... one doesn't have to be a rocket surgeon to realize that things are not only not good, but have rarely been worse even with the benefit of $13 trillion in central bank liquidity).
We bring it up because Cornerstone's analysis of recent developments in China bears keeping a very dose eye on. We won't spoil it, especially for those who are paying subscribers to the paid (and quite expensive) service, but we will present what they have chosen to broadcast publicly on their research section, which in light of last night's official news of yet another confirmation the slowdown in China is getting worse (not only on the unprecedented debt build up which we have covered extensively in the past, and where monetary 'austerity' is suddenly a very hot topic, but where capital outflows have become the number one focal issue) has released several key research reports.
Here are the key publicly-available excerpts from some of their salient recent reports (accessible here and here):
From Hello Beijing, We Have a Problem:
China is likely to continue to ease, for 3 reasons:
1. Chinese economic activity has probably slowed to less than 3%.
2. China is likely to experience broad-based deflation.
3. China is Nicely to continue to experience net capital outflows. That last bullet, net capital outflows, is the focus of the report today.
Bullets 1 and 2 are already widely discussed/debated. In the video and slide deck, we focus on this net capital outflows and how they are basically tightening financial conditions. That is what the PBoC is battling right now. Will growth reaccelerate?
From 3 Updates, China, Eurozone, And The U.S.
In China, based on the composite PMI (HSBC & CFLP), employment is weakening, helping explain the declining trend in consumer confidence. In addition, company earnings, as reported by IBES, declined 0.7% y/y in February. So, although the composite PMI ticked up slightly, it’s still at a sluggish 51.5%. That’s apparently weak enough to keep downward pressure on company earnings and therefore, employment
And finally from Another Dark Day For The CRaBs
Chinese govt has acknowledged growth is slowing, and is now forecasting 7% real GDP growth for 2015, the slowest pace in 25 years. We still believe underlying economic activity is growing closer to 2% – 3%.
There is much more in the actual notes, with extensive supporting documentation, which we leave to readers to uncover, but the bottom line is clear: on one hand we have China's premier warning China will slow to "only" 7%, on the other we have a reputable research boutique using fact-based research and evidence, to determine that actual China's growth is not even half this number!
What does this mean? Well, in a world in which the US is now very rapidly recoupling with what until recently was an ex-US global contraction (as Goldman confirmed), a China which is growing at a well below stall-speed pace, and in fact is at what even Deutsche Bank said is on pace for a mini hard landing, to think that the ECB's monetization (of bonds which nobody really knows who will sell) will make up for China's furious pace of credit creation (which is really what in a Keynesian world is what "growth" really is) is beyond naive.
If and when the reality of China's predicament (recall that it was China's creation of over $3 trillion in credit during the post-Lehman depression that was instrumental in the global rebound) spills over to the entire world, then all bets are off.
And just so readers have a sense of the Chinese credit/asset creation juggernaut, here is the chart of the day from our November 2013 post (update for the latest data below) showing "How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water."
If the blue line plateaus, or - inconceivably - starts declining, that will be the time to panic.
- 22181 reads
- Printer-friendly version
- Send to friend
- advertisements -




I always find it fascinating how the talking heads on CNBC seem to love and hate China at the same time.
They certainly are YinYangs
Two words:
Fuck em.
China is entering it's own manufacturing version of Moore's Law.
Just came back from my weekly trip to Dollar Tree. Bought a calculator with battery installed for a buck, Right next to it was a scientific calculator, same price. The place is full of kitchen utensils. knives, small tools, testing kits... If the stuff is free in Hong Kong, which must be about right, it's still hard to see how they ship it 12,000 miles and make a profit.
World War 3.
The implication of this for commodities prices and deflation generally is ENORMOUS.
For as little as $2k - $3k to ship a standard container from China that might contain tens of thousands of trinkets the Chinese use to buy Manhattan America with, the profit potential is still enormous even when selling them wholesale for fifty cents a unit.
Has to be, CD, but it's easy to see why competing with that is a fool's errand. They also have a sense of humor about patents/copyrights/all that jazz. The pace of change is impressive. I think Wally Mart fucked ist. They can't keep up.
Yes and no. How much of this stuff do you need? I just went to an auction and they had 2 pallet loads of hand caculators. They each sold for $8. No one wants them because everyone else is selling them everywhere. The market is satuated with caculators and caculator sellers. With shipping, you'd be sunk selling them on eBay or any other online format.
My android phone has calculator. Use for for the stuff I can't do in my head.
Here is what I don't get. I did a project in a shop with a huge metal brake. It had a lot of mass. 2" thick end sections, and rails, beams, etc. a lot of heavy metal, for structural integrity, and a not very sophisticated operating set up. It was Chinese. I coun not get my head around shipping that slug of metal halfway around the planet for a profit. A Heidleberg press, I understand. Shipping is that cheap?
Harbor Freight motorcycle lift table, big heavy piece of steel and hydraulics. 5 years ago $300 with a coupon. 5 yrs later, $300 w/coupon. The Chinese gov has to be subsidizing it. That works til you corner the market and then?
Interesting because whoever the manufatuers for Harbor Crap are; they also pound out much of the same for Craftsman, Home Depot, and Lowes various inhouse brands of tools too. Except for the plastics color, many items (like the wood planer) are completly identical.
All these economic forecasters are about as useful as CNBS and Cramer. Every central bank is printing, with the proceeds going into stocks and bonds. No analysis needs to be deeper than that.
When the music stops and there is a major correction, buy. Who gives a shit when that happens. Just be patient.
With mobile phones and computers doing everything, who uses calculators anymore? The only purpose they seem to serve in HK is communicating the price to foreigners in a market haggle.
The CEO of Maersk Line, the world’s largest shipping company, warned that global trade growth is slowing. Søren Skou told the Financial Times recently that the sluggish global economy is having a “huge impact for us as an industry.”
When global trade declines, global GDP can't be far behind.
http://www.globaldeflationnews.com/deflationary-forces-creating-global-s...
Take it with a mountain sized grain of salt. When cock suckers like him make a statement like that, he usually means growth will only be 2%.
Probably cost them less than a penny per calculator to ship them from Hong Kong to LA in a standard shipping container.
But they aren't even worth a penny. Who the fuck doesn't have a calc on their phone and multiple computers?
China needs 7% REAL GDP growth just to maintain its existing base of domestic jobs.
They need 8%+ (easily) REAL GDP growth to be able to match job seeker demand with CURRENT, OPEN available jobs (which have already begun to fade as of last Summer).
China is in a dark place and given (lack of) demand for their exports from the usual US-EU-BRI (BRIC - C) block, it's going to get a whole lot more grim in Beijing, Shanghai & parts elsewhere in the Middle Kingdom.
CHINA IS SWIMMING AGAINST AN UNFAVORABLE DEMOGRAPHICS PYRAMID, ALSO.
It was pretty cool while it lasted though, big banks helping to destroy the manufacturing bases in their own countries and helping to open up factories in China (Vietnam, Mexico, Bangladesh, ect) in order to show bigger profit to their share holders. The US was gutted and it only took a few decades. Now who can buy all the China goods? I buy something once in a while made in China if I have to, but I still keep an eye out for stuff made in the country formerly known as the USA.
Here is a classic, real example of the corporate/business mindset we're suffering under that's among my favorites, b/c of the reveal:
Rubbermaid & Wal-Mart fell out of sorts b/c Rubbermaid, based in Newell, Ohio, with production facilities there and in Akron, would not agree to supply certain goods at the price Wal-Mart was demanding (one such item was a 50 gallon trash barrel for less than $7 wholesale, retail at Wal-Mart for $19.99).
Eventually, Rubbermaid USA went tits up, and a Chinese company bid for and won all their manufacturing equipment, which they promptly shipped to their Chinese plant, which already had a supply contract with Wal-Mart to supply every rubber/plastic thing Wal-Mart used to purchase from Rubbermaid USA.
Global "capitalism" on the hoof.
Its almost like Wal-mart and the banks work in collusion? Walmart signs the supply contract so than the chinamen can borrow against it and bid on the plant. Every one wins except Americans.
@Truth: China needs 7% REAL GDP growth just to maintain its existing base of domestic jobs.
We've all heard that bullshit line and it's time we gave it up. China will/does print and create artificial demand for jobs, just like everyone else does. Vacant cities?
I'm speaking in terms of if they were really, organically growing (or not shrinking) their economy in REAL terms.
But yes, they will engage in all forms of economic, fiscal and monetary debauchery in order to put lipstick on their pig like any/every other nation.
I agree. I do not understand the 7% objective. There is no way Chinese workforce is increasing by 7% right now. I employ quite a few people in China and I still have more than 50 open positions for which I can not find staff. This is an issue for most of the owners of companies I know. In fact slower growth hopefully will be good for finding staff.
YinYangs
Oh, I have to write that one down.
You just did. LOL
Rocket surgeon?
combination of brain surgeon and rocket scientist
Thank you for the clarification.
I'm not exactly a brain scientist.
Isn't that the same way here on ZH too?
On the one hand everything in China is a total disaster and they're gonna implode any second now (so for sure before the US implodes),
on the other hand log jams at the West Coast container ports are going to really badly damage the US economy.
"on the other we have a reputable research boutique using fact-based research and evidence, to determine that actual China's growth is not even half this number!"
Fact based research? Get the hell outta here with that shit.
You are right! The sheeple do much better when smoke is blown up their asses!
China just increased its defense spending target. Warz!
on a more topical subject, how many of those "private" hitlery emails does edward snowden have in his possession or access to?
Don't know about Snowden, but Guccifer probably has a stash somewhere.
The FSB probably got the entire contents as well.
I'm sure lots got deleted soon after Benghazi.
Great time to be a defense contractor looks like. Billions of OPM to be handed out [and embezzled].
Why hasn't the entire global economy exploded yet? What's holding it up?
Consensus.
By the way "Greedspank"...
Your avatar is fucking awesome !
Thanks. I prefer this exercise to viagra.
Nothing is marked to market..., yet.
It's a game of musical chairs except for one snag: There's only 1 chair and the players don't know where it is.
Social mood still holds out hope the Fed can save the day. Once the public realizes the Fed has no clothes the house of cards will come tumbling down. The largest debt bubble in the history of the world is about to collapse and there is nothing anyone can do about it now.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
WAR PROFITEERS?
I always use the thumb rule: Half the official GDP growth number of China and you get close.
Same with the West Inflation number in reverse: Double them and you get closer to the actual inflation number.
China wants to be the new reserve currency but they have a problem with the numbers and how they interface with the world. The problem they are going to have is they have set a world record in over-leveraging their economy and need to fix the whole shadow banking system before they go full Pinky and the Brain.
2 words: Triffin dilemma
http://en.wikipedia.org/wiki/Triffin_dilemma
Paul Craig Roberts said that China made the epic fail of depending mainly on their exports and not on their huge domestic consumer market. That way you make your economy depending on the health of other countries.
Paul Craig Roberts: "Who does the globalization benefits? It benefits the biggest corporations who can offshore the jobs and explore labour in countries were there is a surplus of labour. That’s the only reason for globalization. No one else benefits." http://youtu.be/K8dzfNUB17Q?t=15m20sThey don't have the bond market that it takes to be a reserve currency. And who says they want that? Did they? I doubt they do, they just want us to quit dicking with the world financial system.
Activity " probably slowed"? Sounds a little nebulous and unsure. Maybe hard numbers and reality are just too uncomfortable today. Back to the Land of Dreams.
Miffed
Just pass the opium pipe, and dream on.
Good catch, Micro. "Probably maybe" from the super expensive, but oh so worth it, newsletter.
It's like with kittens. Life is hard, then you nap;)
So probably 0% if they always add a fictitious 3% on top of any GDP number they produce.
I keep staring at it, like it's going to break off.
Just build some more ghost cities, and remember that they're "new" and maintain themselves.
I can't find the answer to this question;
Do those " ghost" cities have electric, water and wastewater infrastructure that would support them if they were occupied? And if they do, they are no good not working at optimum capacity.
I find it absolutely impossible to believe the infrastructure to support this build out exists. Impossible. The infrastructure would be a bigger waste than the vacant buildings. By orders of magnitude.
That alone makes me call bullshit on China.
On one hand, fallow water, wastewater and electric generation and distribution.
On the other hand, no infrastructure to support the buildout, which makes them more useless than a movie set.
Good point. Vacant buildings AND INFRASTRUCTURE rot out pretty quickly if not used. Humidity goes up, bugs, critters and mold move in. If you haven't seen it, it's hard to believe how fast man made improvements go back to Hell's half acre.
Don't watch CNBC it just pollutes your brain.
To this layman, what I think I understand about this post is that:
1. The world is broke
2. The world is buying less crap from China
3. The world will continue to buy less crap from China
4. China has played the same financial shell games as the rest of the world
5. China has been able to hide its shell game behind strong exports
6. China is just as fucked as the rest of us
7. There's a good reason why Chinese hate the year of the Goat
Awesome, now I can stop being jealous of China's growth.
How do you say "unambiguously good" in Mandarin ?
It translates as "crooked accounting works wonders".
Bu hanhude is a start.
here is keanu reeves to show us that its all going to be okay -
http://klipd.com/watch/speed/bus-freeway-jump-scene
This is just the beginning of what happens when there are no sunspots. When there no sunspots as in 1650 everyone around the globe including China enter into turbulance, stable governments fail, rescources grow scarce and a global crisis ensues. Check out today's sunspot activity. 42 seconds into the video. https://www.youtube.com/watch?v=Bz7X-Evu_4s
Sunspot activity has been very low this winter.
We should send a probe to the sun's surface.
Have it land at night, when it's dark.
We have precious little time, but if there's ever been an administration capable of achieving this, it is the current one.
Sun spot activity is normal, if you look at space weather dot com. But you go right ahead and believe the religious doomsters. Since forever they've said the world will end in 2-3 years. In a few billion they will be right.
"In a few billion they will be right."
Sounds like you have a belief system too. What'll they think of next?
(the solar wind) reaches L1 about an hour before reaching Earth."
Deep Space Climate Observatory now half way to L1, launched by SPACEX 11FEB2015
http://www.nesdis.noaa.gov/DSCOVR/
I guess we slowed down on buyin chinese crap..
But hey...3% is still better than the US.
Ho Lee Fuk Sum Ting Wong
-1 for the over use of this joke.
Yoo Noe Phun
Here is another angle. I used to have an auto repair shop. Cars NEEDED regular under the hood work to run.
Today, it's my opinion, you can damn near ignore a car, and just gas it up, and 100,000 is a break in.
I don't mean to imply maintenance is not good. Just that 10-15-20 years ago, it wasn't an option.
My daily driver is a 2001 Subaru, with 165000 miles. Bought it for $250, it had been crashed in the front end. $1500, and my skill set, valve job and all underhood maintenance, body and paint, new tires. 23 miles per gallon, $100 every six months insurance, and she's fully loaded for 2001. It asks for nothing, but a sip of oil now and again.
Why buy new?
Sir, "why buy new"? is a subversive statement. Prepare for audit.
I found out the place that changes my oil was lying about topping off radiator coolant. My 20 year old accord was probably running on a bone dry radiator for at least a year. No issues at all. Temperature gauge never went above normal in in the summer with the a/c running. Damn car is idiot proof.
New is for people who do not have any wrenching skills. Or, those fortunates who make more money working than they can save repairing their own.
My kid is stuck out in West By God TX with his low miles '03 Silverado with a fucked transfer case/tranny. Apparently this is a common problem with GM trucks. He is an experienced wrench and found a shop who is putting him up at the owners, feeding him and adjusting the repair bill by his wrenching on a 06 DTS Caddie. A GM product you really want to avoid.
I too own a Subaru for a daily driver (2008 Legacy GT M/T w/123000 mi.). I concur with your statement. I've my hands under the hood a bit. I cannot for the life of me find anything that states "Made in China" under the hood. Most everything reads "Made in Japan" (Denso, Fuji Heavy Ind, Koyo, Sakamoto, NGK). But I'm sure the radio came from China or SE Asia.
I realize buying a new Subaru costs a bit more, but the owner will make up for it on repairs and resale.
In my experience I found the car with the most parts made in China is the circa 2000 Ford Taurus. The radiator, the washer resevoir, the intake manifold (plastic) were all made in China. The sales ledger read "parts-source nationality" was "70% foreign-sourced".
3% of 1.3 billion! Shit!
Good lord, has Krugman seen that thumbnail? When he sees that toppled building and all of those broken windows, he'll need a towel. He'll be like: BULLISH!
well...duh...just need more central bank intervention...SOLVED
The fastest "growing" market for the world's largest company. What could possibly go wrong?
Buying US goods builds the US manufacturing sector.
Go and kick the tires in China. Non state owned enterprises are hanging on as most cannot produce without subsidies. (No world beating tech to improve productivity here just cheap labor).
Subsidies as part of targeted stimulus is to keep employment as the unemployment shall explode into social unrest at a time when the legitimacy of Party is at a low point. (Hence the corresponding anti corruption drive to appease the millions who have been marginalized by rent seeking cronies aka princelings).
They know that the future is to turn the economy around to be a consumption one. This involves raising wages that they cannot bear. Unlocking household savings is also off as household debt/GDP is high with whatever savings tricked into real estate. This is exacerbated by a gneration lack of trust in the Govt protecting their domestic investments (sound familiar ?)
The RMB/$ rate is under pressure from the current global currency war. The smart money in China know and is moving out not to chase yields but to protect value (remember a high trust deficit).
There is only the smoke of the emergence of a great consumer base that is packaged into snake oils by financial predators for CONSUMPTION from their muppets.
Want to move in where angels fear to tread ? Long term investments also mean that you only move after the debacle. NOT NOW.