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Case For Yuan Devaluation Grows As Chinese Factory Prices Fall Most In Six Years
On Saturday, we got what we called a stark "reminder of just who is lying hunched over, comatose in the driver's seat of global commerce" when China reported that exports fell 8.3% in July, far more than consensus and the most in four months.
This, we argued, was further evidence that China will ultimately be forced to devalue, as collapsing global trade and weak domestic demand feed into each other, pinning the country’s export-led economy in slow gear.
On Sunday, we got still more evidence of China’s economic malaise as producer prices plunged 5.4%, the largest Y/Y decline since 2009.
Here’s more from Reuters:
Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years.
"Policy focus is definitely the (producer) deflation at this stage," said Zhou Hao, economist at Commerzbank AG in Singapore.
He said China's central bank would likely need to further cut interest rates again, having already cut four times since November in the most aggressive easing in nearly seven years.
The gloom may only deepen in the coming week with a raft of economic data forecast to show renewed weakness in factories, investment and domestic spending.
The producer price index fell 5.4 percent from a year earlier, the National Statistics Bureau said on Sunday, compared with an expected 5.0 percent drop. It was the worst reading since October 2009 and the 40th straight month of price decline.
Falling producer prices are worrying because they eat into the profits of miners and manufacturers and raise the burden of their debts. China's corporate debt stands at 160 percent of gross domestic product, twice that of the United States, according to a Thomson Reuters study of over 1,400 firms.
In other words, an outright deflationary disaster that will serve to further imperil the financial condition of the country's manufacturers, in turn driving up NPLs which, as we saw last week, soared 35% in H1 (and that's coming from China's Banking Regulatory Commission which means that although the figures were from an internal meeting, they still likely reflect the triple- and quadruple-adjusted, "managed" bad loans data, as opposed to the real NPL ratio which is nearly impossible to determine given everything we disccused back in May).
Meanwhile, soaring pork prices (+17% last month) added 48 bps to the CPI, which came in at +1.6%.
And although Goldman notes that this could "potentially limit the extent of further policy loosening, especially interest rate policy," we doubt it will be enough to keep the PBoC from cutting both policy rates again this year and besides, Beijing could always just "adjust" the weightings if necessary.
Ultimately, rate cuts have so far proven to be woefully inadequate when it comes to rescuing the flagging economy, which is why it will be QE/devaluation or nothing, as Beijing will no longer be able to take the pain that accrues from staying on the sidelines in the ongoing global currency wars.
On the bright side, China's "deficient" deflator tracks producer prices more closely than it should which means July's data might be a great excuse to overstate Q3 GDP.
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de-pegging time is near. goodbye US$
Excuse the naieve question, but how would Yuan devaluation cause the demise of the dollar?
One wonders how much worse the actual numbers are when one considers the bullshit numbers that come out of China 24/7 anyway... can anyone say pathological?
"One wonders how much worse the actual numbers are when one considers the bullshit numbers that come out of China 24/7 anyway... can anyone say pathological?"
As compared to the ever-so-reliable numbers that come out of the US 24/7? You want to talk pathological!
I hope they are not trying to "out lie" us?!
Copycats!
That would make them outliers.
Doh Tu Hai
Does seem rather odd. Depegging in this case would imply a weaker yuan and thus stronger dollar. I'm not sure how much of a stronger dollar the large US corps are willing to live with as its beginning to bite into earnings. Its certainly not helping the trade deficit.
You've hit the nail on the head.
Strong dollar -> weaker and more likely unemployed American middle class (you know, the one's holding up the ponzi...).
A strong $ is a boon to those who have large war chests of cash with which to go on a global shopping spree.
Especially those who received cash from the Fed. virtually free. Considering that some of the emerging mkt.
countries are strapped for US fiat with which to pay down debt denominated in dollars it may very well be
that they sell off distressed assets at fire sale prices. Good action if you can get it.
China can increase their sale of UST which will help devalue the USD and keep CNY and USD valuations in check.
Its just a game of chess who's going to move first FED or PBOC. Grab some popcorn the shows about to begin
good point
It is actually going to strengthen, at least short term, the dollar. It ultimately would give the fed the excuse they need to not raise rates, and potentially embolden them enough for more QE.
You only have to be faster than the slowest guy between you and the bear. ;)
Maybe because they will no longer need to buy US paper... and brace yourselves if they decide to put all their holdings into the move.
Time for some hedonistic adjustment. Long pig instead of pork.
I'm long "oh shits."
In big piles. There are two sides to every coin and China is about to discover what's on the other side, so devalue away.....
Looking like China is upping its gold imports! Price is about to skyrocket!
Buy Gold, Silver, Platinum and Palladium with USD, EUR, GBP and BTC.
http://www.eurgold.eu
Can't you pay for advertising like everyone else? How come every news article about China immediately means "Price is about to skyrocket"?
Yu Chi Po
OT!: Just came to say that I just finished paying off my mortgage. I am now debt free; no CC debt, no mortgage debt, no car payments...nothing. At last. Worked hard to be here. Going to start a business. I hope all of you can get here as well. Cheers and happy Sunday to all.
@Personal Respose: First and foremost, CONGRATULATIONS! That's fantastic and has to be a great feeling.
As far as starting a business...from a former successful business owner: Don't Do It. Unless you've got some creatively destructive or game-changing product or service, it ain't worth it. Not anymore.
Unless you truly enjoy endless regulations, government interference, ungrateful employees who will steal from you at every opportunity, and customers who will demand everything for free.
Thanks :) I have a technical service that will be useful to many. I'm still employed full time and making a good salary. This will be a slow process starting a business. Have to get a bunch of clients first using it and then quit and run it full time. Personal responsibility. Not quitting until I know it's working out.. I'm very cautious.
It'll all be in the cloud controlled by me. I'm a programmer/inventor. I'll eventually need sales people and a good corporate accountant and lawyer. Already have those two people lined up. Just have to setup the virtual machines, get the service online, and sell it myself. Then, it begins.
EDIT: It's the American dream in action. I'll report back in 5 years. I don't post much. Going to go rotate my car tires. Happy Sunday!
EDIT 2: Thanks ZH
EDIT 3: Change that, it actually has just begun on a Sunday. It's still sinking in that this is it. I'm as free as possible for now. It's time to go to the next level. Signing off.
Been there, still there.
"...ungrateful employees who will steal from you at every opportunity, and customers who will demand everything for free."
True dat - and now with zerocare and the full frontal by the leftist in government getting close to packing it in.
A big 'Hangover' 'Mutha-Fucka!'
So will you go to the bank to get a loan to start that business ?
nope :)
Well you should, I hear the rates are very good at the moment.
If china unpeg s from the dalla they will do it like the Swiss did , that is time it to create the most carnage
most carnage, for whom?
not PTB...
Our carnage is their carnage.
Like a pimp beating his only whore - no more 'make you hollar for $50 dollar.'
fyi http://finance.yahoo.com/blogs/breakout/look-below-major-crude-oil-crash...
Link is from 2012...Nice try.
uh what was the price of oil in 2012?
ok guys help me out here. "Case for yuan devaluation grows as Chinese factory prices fall" means China is supposed to buy more UST so that the 'consumer of last resort' can continue to buy Chinese stuff, thereby supporting factory prices. Right ? But why would China keep doing that ?
china needs to keep their peons busy building doodads. popular revolt is their biggest fear.
ok, interesting perspective. It is a potential motivation that they would never reveal, indeed.
On the other hand, it seems China specialitst have walked away from this notion that the CCP is doomed. CCP's grip on power seems to be very strong. I spoke with a sinologist and he mentioned two reasons their system is rather stable :
1)When you reach a certain age, you are out. They are disciplined in this regard. This leads to a continuous turnover of leaders. (not the well known pattern in parts of Africa for example where leaders often cling to power until they can't)
2)Governors of provinces can NOT serve in their province of birth.
they do lots of things to keep the sheep preoccupied. saber rattling against japan and the usa, endless propaganda, police state, heavy handed censorship of communication, the prosecution and execution of the occassional billionaire (always popular with the masses). if things go wrong they also have a two million man army as a last resort. many people get confused why the china ptb keep accumulating dollars and euros. while they are doing that they are also getting technology, economic & military strength, and sheeple distraction. it really isn't complicated or even a secret from anyone.
'police state' yeh? How so? What determines a 'police state'? Is it powers to search anyone and confiscate their shit, or shoot unarmed people and get away with it, or throw flash bangs into suspected drug dealers houses and kill their kids, or stir up trouble amongst protesters and pull out a gun, or choke unarmed black guys (Hell, ANY guys) to death on the street for selling cigarettes, or handcuffing four year old kids for being naughty, or raping women who are in custody, or beating people within inches of their lives for smoking weed...Which one is it that determines a 'Police state' ??
are you ranting about china or the usa because this thread is about china.
Sure, they are/were prepared to work for very little in order to build production capacity and have technology transferred from the West.
But that argument does not hold indefinitely. They are the factory of the world now. Not sure about the level of their technology, but will for sure be at a much higher level than since the beginning of the opening up.
Some say China should shift to domestic demand. Maybe now is the time to sell off them Treasuries.
Maybe some decent island building and Silk road construction are good Keynesian stimuli ?
How to get the US on board ?
No one seems to appreciate the fact the Chinese don't have any debt. Even if the USA repudiated Treasury debt the Chinese consumer would not be affected.
$1,000 billion/4 billion Chinese $250usd/Chinaman. Not the end of the world, certainly!
4 billion Chinese ? more like 1.5
the chinese consumer? yeah, well, if china has to rely soley on them (all 4 billion, lulz) they are up shit creek.
If this means that the new ultra-high def 60" LCD's will start pouring in at $399, heck, I'm all for it.
Devalue baby...devalue....
How much more can you devalue your currency then to buy American bonds and actually invest in America??!!
The next best thing is to just burn your money I guess...
That's what they're doing buying USTs. WIth the interest rate below inflation, they're buring money.
but why ? Is CCP bribed by Washington ?
Bullish for Wallmart stock.
We jump and sell Jew Lew treasury hodeings. Yo sood bod dobt to us. Fuck you Jew Lew and Woll Straet. We hack yoor CIA. Yoo bood bad peepoole.
There you have it.
Peoples' Bank of China should slash interest rates to zero, embark on a program to purchase a bazillion yuan of mortgage backed securities and government bonds, and bankroll a ten gazillion yuan stimulus program for shovel-ready municipal infrastructure projects. That would spur investment in productive capacity and increase the economy's money velocity, creating a virtuous cycle of employment and prosperity for all.
Additionally, The Central Committee should authorize Zhou Xiaochuan at Peoples' Bank of China to deploy one hundred thousand gigayuan in any way he sees fit should the financial system face distress. That would sooth peoples' nerves. If you have a bazooka like that in your pants you probably won't have to pull it out.
So you want China to follow 0bama and the FED; only problem is they do not have the historical confidence of the world to pull it off. The first tremor and you will see the Chinese market liquefaction like an earthquake in sand.
historical confidence ? What about the ECB then ? Or is that a Fed subsidiary in reality ?
I think the Chinese already do that ,from what I have seen!
China moves at light speed compared to the West.
When are they going to start pricing AU in reminbi?
I am thinking lower yuan means 1 billion chinese see gold going up and freak out, and realize gold is a store of value.. and pile in.... COMEX finally breaks... phys market wins out on price.
Certainly the bad Chinese markets had some help from US... again they shoot themselves in the foot.
People need to ask themselves what will they devalue the yuan against? The dollar? And have the commander in Chief rev up the navy on a currency war? Okay for the US to devalue at whim but nobody else should dare....
Meanwhile Fed has there own problems in the amount of US treasuries that are being dumped on their doorstep to soak up or rates go higher....with currency swaps it is doubtful that China is still holding anywhere near $1 T in treasuries...more like $500 b...check out the Brix accounts which is disguised US QE.....
China will call attention to the lack of meaningful supply in physical gold and simply devalue against gold thus taking control of the pricing mechanism from the corrupt western banks....it will provide stimulus to the bedrock chinese gold investors that value physical far more than the West or any moronic American....
"...simply devalue against gold" - funny but it doesn't work that way.
How much debt has been borrowed in US dollars by Chinese corporations, municipalities etc. Given the peg has been in existence for many years, and US borrowings offered lower interest rates I believe the US dollar borrowings are massive. Thus, a devaluation, is going to be problematic as it will create an explosion in bad debt. However, according to JPM and Goldman Chinese FX reserves are pouring out of the country in the hundreds of billions. Even China's 4.0t in reserves can't be bled at this rate.Market forces may force a devaluation, so pain either way as I see it for China and the global economy. China is also sitting on over 1.0t in US Treasuries, will they be forced to sell along with other countries like Saudi Arabia?
China is letting US Treasury debt, the $1.0+ trillion, mature and they buy gold and hard assets.
It won't be long before someone notices.
The moneychangers are screwed!
Oh! And there is this:
http://www.bloomberg.com/news/articles/2015-08-09/china-slashes-u-s-debt...
So the FRBNY tripled the money supply?
We're screwed!
Exports fall by 8%, prices fall by 5%, and GDP continues to expand by the targeted 7%. Funny how that works!
Recently on Charlie Rose show somebody (Ratner ?) said in reality China is growing at 3 to 4 percent.
Time to link yuan with gold.
otherwise
west will always connive to crash yuan