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Two Very Disturbing Forecasts By A Former Chinese Central Banker
Earlier today, Yu Yongding - currently a senior fellow at the Chinese Academy of Social Sciences in Beijing but most notably a member of the PBOC's Monetary Policy Committee from 2004 to 2006 as well as a member of China's central planning bureau itself, the Advisory Committee of National Planning - gave a speech before the Peterson Institute, together with a slideshow.
Since the topic was China's debt, economic growth, corporate profitability, and since, inexplicably, it wasn't pre-cleared by the Chinese department of truth, it was not cheerful. In fact it was downright scary. Among other things, the speech discussed:
- Capital efficiency – low and falling (capital-output ratio rising)
- Corporate profitability – has been falling steadily
- Share of finance via capital market – Very low
- Interest rate on loans – High
- Inflation rate – producer price Index is falling
A key observation was the troubling surge in China's capital coefficient, first noted here two weeks ago in a presentation by Daiwa which also had a downright apocalyptic outlook on China, and wasn't ashamed to admit that it expects a China-driven global meltdown, one which "would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."
The former central banker also discussed the bursting of China's market bubble. This, he said was created deliberately for two government purposes:
- To enable debt-ridden corporates to get funds from the equity market
- To boost share prices to stimulate demand via wealth effect
He admits this shortsighted approach failed and "to save the city, we bombed the city" adding that it brings "authorities’ ability of crisis managing into question."
He also observes that the devaluation that took place on August 11 was the government's explicit admission that its attempt to reflate an equity bubble has failed, and it was forced to find an alternative method of stimulating the economy. Of the CNY devaluaton Yu says quite clearly that it was simply to boost the economy: "In the first quarter of 2015 China’s capital account deficit is larger that than that of current account surplus" which is due to i) The Unwinding of Carry trade; ii) the diversification of financial assets by households; iii) Outbound foreign investment; and iv) capital flight.
And now that China has officially unleashed devaluation (which Yu believes should be taken to its logical end and the RMB should float) there are very material risks: "the implication of episode can be more serious than the stock market fiasco, with much large international consequences" and that "the failure will have serious consequences on China’s financial stability"
His ominous outlook: "Two bubbles have burst, what next?"
To answer this question we go back to Yongding's slidedeck, where two particular slides caught our attention: the former central banker's projections on Chinese debt/GDP and corporate profits. They need no further commentary.
Trajectory of corporate profitability (before interest payments) - slide 12
and Corporate debt-to-GDP simulation (baseline scenario) - slide 15
As a reminder, this is the base-case of a former central banker. One can only imagine how bad it really must be.
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Full presentation (pdf)
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Was he found buried in concrete after the presentation?
Kevin Spacey: Frank Underwood ‘would kill Donald Trump’
http://tinyurl.com/oal7xkn
no more yanky my wanky. The donger need food!
Manufacturing jobs will not come home but disappear, poor Apple. Russia may be hedging its bets with China.
The markets may crash, EM default may shake the plant, but a China crash will led us into a dangerous situation.
Don't think you will just have to survive the crash, that will be the least of our worries.
Yu Yongding
Really?!
That's not a name; it's an Insult!
He’s presently rooming with Edward Snowden.
No, he is allowed to speak because he is a diversion suggesting China is still following the Keynesian playbook. Their actual playbook is to drop the dollar altogether, and then let the rest sort itself out. That would be the (adjective of choice) Classical approach that is so out of style that to even suggest it would be considered lunacy in the West. The East likes that just fine, for now. IMO
There's no smoking everybody.
We are headin for a hard landing.
https://www.youtube.com/watch?v=6vOLnXUc21A
In my backyard.
This was in DC. He sure as hell can't go back now or will be greeted with an extended meditation period.
Because central planning.
But Bush....
"...PBOC's Monetary Policy Committee...China's central planning bureau, the Advisory Committee of National Planning "
Yep, that'll do it.
It can be argued the first into recession will be the first out....as long as the wounds are scrubbed clean and allowed to heal.
Oh...wait, what am I saying? Of course this won't happen and instead another bubble will be blown. Central bankers are united in their desire to kick the can and avoid responsibility for their actions.
<We do it for the children.................of the elite.>
"gave a speech before the Peterson Institute"
Stopped right there. Propaganda.
What part of LIARS don't you get?
Sorry....forgot the /sarc tag....again.
What part of sarcasm don't you understand?
'first out'...???
There will be no 'out' this time....the cycles have ended. There will be systemic destruction and a new monetary system.
'first out'...???
There will be no 'out' this time....the cycles have ended. There will be systemic destruction and a new monetary system.
and a 10+trillion balance sheet soon coming to a theatre near you
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/09/27/vix-predicts-pits-while-pundits-have-fits/
http://www.zerohedge.com/news/2015-07-27/when-will-we-ever-learn/
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is how to respond.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
Michael E. Kelley. Let me take a wild guess. You want us to read your blog?
We won't.
What, no free brochures? You should have at least 25 left
https://www.youtube.com/watch?v=ITeuaqcpckc
Yep, he's dead.
This is an awesome presentation. The debt to GDP issue is huge. Good article.
In the words of the late, great Jackie Gleason, "And away we go"!
Sum ting Wong?
Yu Dingdong!
Are we all still in middle school?
Read the presentation. It was great. Great questipons to ask.
What happens if and when China stops intervention? How does margin debt add up? Etc.
What is this guy nuts?
Technicals
Technicals tell you what the majority is going to do the majority of the time. You want to know when they are not, the hinge points. Quantum physics tells you that.
Take the oilCAD curve I gave you back in 2006/7/8 whenever to its return back to 45, which I told you was the contract price that mattered to the banksters.
Write an equation to maximize trading profit over that time. Now, go back and write an equation from the beginning as if you didn’t know what was going to happen on each successive day, to find the integral. Look at the difference, to identify the pattern, the second integral.
Labor doesn’t need a computer, to see what is going to happen, and prepare accordingly. All labor has to do is divide by zero, while watching the empire go derivative, back in time. America is devolving, in the absence of labor.
they have the factories and they have families that are intact .. the wealth of the nation is the productivity of its people. Less than 1% of children are born out of wedlock in China.
Yes, but they still need customers and they still need disposable wealth. Markets are constructed, built over time, and when destroyed, must be rebuilt again. Everything is based upon trust and when that is destroyed, it takes years to regain it. Meanwhile, China has a massive male population, a communist government that will have no compunction about redirecting blame of collapse and hardships onto others....Japan, America, Europe....and they have invested a great deal into their military, besides having all of these factories you mention, and incredible amounts of foreign investments that just might need "defending".
The world is wobbling on its axis and it won't take much now to send the whole thing reeling.
"Wedlock" - what an illuminating word!
Aptly describes a narrow minded institutional prison system for love.
Marriage is an institution.
Although a lot of inmates manage to escape eventually.
This presentation was given by an outsider, not a PBOC insider. Read the presentation.
I trust ZH but I'm not buying this as an actual - true and correct presentation made by a former Chinese PBOC insider - no way.
With all the major economies struggling and going downhill..looks like a setup for the next world war...yikes..
see, when ZH does some research they can dig up some semi-decent stuff, it's a pity Tylers always jump with the blanket doomporn first and only gives us small gems like this weeks later.
and next week Tylers will probably be back to calling for a Chinese revolution
CntrlP
"Yu Yongding"
Chinese for "Hey buddy, ring the doorbell".