"There Won't Be A Wave Of Layoffs," "No Stimulus Is Needed": China Insists That No One Panic

Tyler Durden's picture

It would funny to watch as Chinese policymakers attempt to pull off the impossible if it weren’t so downright frightening.

Beijing, long the global engine for growth and trade, finds itself at a rather vexing crossroads. NBS protestations to the contrary, the Chinese economy is decelerating rapidly in the face of a massive rebalancing towards consumption and services-led growth. The country’s move away from a smokestack economy has for all intents and purposes reset assumptions regarding how we think about global trade.

When the perpetual commodities bid from China disappeared, it became quickly apparent that sluggish growth may simply be something the world has to live with for the foreseeable future - especially considering the malaise gripping Brazil and Russia and uncertainties around whether or not India will be able to carry the entirety of the BRICS’ burden.

The problem for the Chinese is that although they have far greater counter-cyclical policy room than does the US or Europe, they’re effectively hamstrung by a massive debt burden that amounts to more than 250% of GDP. You don’t necessarily want to go adding more leverage at a time when an acute overcapacity problem and the attendant slump in commodities has created a situation wherein entire swaths of the industrial sector aren’t able to service their existing debt.

But without more leverage, the economic deceleration becomes even more acute. Which leads us to the conclusion we drew long ago: China is attempting to deleverage and re-leverage at the same time - and that’s obviously impossible. You can see examples of this policy schizophrenia everywhere. For instance, in January, TSF grew by a massive $500 billion and yet meanwhile, Beijing is busy discussing how to kill off unprofitable, highly indebted “zombie companies.”

The proverbial cherry on top is the yuan devaluation debacle which makes it difficult for the PBoC to ease further if they want to avoid exacerbating expectations of a much weaker currency - expectations that led directly to massive capital outflows last year.

It’s with all of that in mind that we bring you comments from two prominent Chinese officials, People’s Bank of China Governor Zhou Xiaochuan and Xiao Yaqing, who oversees the government commission that looks after state assets.

Speaking on the state of the Chinese economy and whether the PBoC will ultimately be forced to do more if things continue on the trajectory they’re on, Zhou did his best to put on a brave face. “Excessive monetary policy stimulus isn’t necessary to achieve the target,” he said, referring to the country’s 6.5% growth goal over five years. “If there isn’t any big economic or financial turmoil, we’ll keep prudent monetary policy,” he added.

Someone apparently forgot to tell Zhou that there indeed is quite a bit of “big economic and financial” turmoil and it emanates from China in the form of the collapsing economy and the carnage wrought in global markets by the bank’s bungled attempt to devalue the RMB.

In any event, he had other soothing words for a market that increasingly looks at China more as a source of turmoil than as the bedrock of the global economy. “There’s no need,” he said, “for anyone to buy dollars in a rush” even though the PBoC is “unable to forecast if the yuan’s volatility will end.” Further, “China won’t rely on exports for GDP growth, [but will instead] depend on domestic demand.” Good luck with that. It’s going swimmingly so far.


If all of that doesn't make you feel better about China's prospects, then just ask the abovementioned Mr. Xiao how things are going with the effort to avoid bankruptcies and thus massive layoffs at SOEs.“The results have been quite good,” he told reporters on Saturday. "Over the past year, the government engineered the merging of 12 big state firms into six entities, mostly in energy and transportation," WSJ writes, adding that "Mr. Xiao said his agency would press ahead with 'more mergers and acquisitions' in the state sector while de-emphasizing bankruptcies."

China definitely "won’t experience a wave of layoffs," Xiao promised.

Over the past several weeks, China has been keen to play down the extent to which eliminating excess capacity would trigger sweeping job losses after Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute told Xinhua that solving the overcapacity problem would likely cost 400,000 jobs and could plunge the country into social unrest. 

As WSJ goes on to note, reforming and restructuring won't be easy: "In years past, Beijing has sought to improve state companies’ efficiency through consolidation, with little success. For example, the government of Hebei province, which rings Beijing, merged two major steelmakers to create Hebei Iron and Steel Group. That firm went on to scoop up more companies but is now mired in losses and debt."


"[There are] unprecedented difficulties and challenges,” Zhang Xiwu, one of Xiao's deputies admits.

Amusingly, an Op-Ed by Joe Zhang that appeared in FT this week argues that SOEs may be a better answer than QE, ZIRP, and NIRP when it comes to shoring up the economy. "But there are other ways of stimulating demand. Why, for instance, do western governments refuse to set up state-owned enterprises that will create jobs?," Zhang asks. "Are they really so much worse than QE and low or negative interest rates?" 

Well, maybe not - except when they become massively indebted, fail, and everyone gets fired. When that happens then yes, yes they probably are "so much worse" despite the many perils of unconventional monetary policy.

As we wrote when discussing Li Xinchuang's comments regarding employment in the steel industry, "just how disconnected from reality China's official unemployment rate is, both now and one year from today, will ultimately determine how violent the social upheaval will be when - as part of its hard-landing - China proceeds to lay off (tens of) millions of low-skilled workers leading to the inevitable violent response."

It would be a small (actually scratch that, a "very large") miracle if Beijing is able to restructure the economy's collection of elephantine SOEs without creating an employment crisis. And if, as Zhou says, China intends to depend on domestic consumption rather than exports to fuel growth, then the PBoC had better get to explaining how exactly it is that hundreds of thousands of recently jobless factory workers are going to be able to be power the hoped-for but still nascent transformation.

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Francis Marx's picture

Soo... Time to panic..

cossack55's picture

No.  I, for one, am quite reassured.  But........almost all the assurances I have received over the last 30 years were bullshit.  Buying more ammo and PMs always helps.  I feel better already

Mr.Sono's picture

Confirmed, shtf. Time to panic.

knukles's picture

So here's a proper, no kidding about read on China's data.
China is slowing mightily.  We know this because Exports are slowing, which is the main base of their final production demand.  They export a lot more stuff than they consume. 
Now, what that says is that if China's Exports are weak, then that means the kind and gentle discerning folks about the globe who buy those masterfully produced imitation Rolex's and tainted milk aren't buying crap.  Meaning that China is the barometer of the rest of the world's economic conditions.

You worried about China?  They're a symptom of the rest of the world's ma;laise.
They're not the cause of world malaise.
Now, it they implode, well, it is after all, a global economy.

bigkahuna's picture

Theyve taken the class offered by Ebbers/Cramer/Skilling/Lay and friends.

ebworthen's picture

"Arr is fine, buy stawks!"

D Nyle's picture

ITs not true, until officially denied

TruthHunter's picture

Curious thing...we look down our noses at their

SOE's, but is it worse than our welfare system?

Going to work for your SNAP at some kind of SOE

would at least have a little dignity.

Antifaschistische's picture

China is slowing, because the rest of the world is running out of money, and their strategy over the past 30 years won't work any more.


If you don't want to ever explain why you will lay-off 20 million people, then don't make so many people .gov employees.  Once you become employer.in.chief then you accept the consequences.

GRDguy's picture

"China definitely "won’t experience a wave of layoffs," Xiao promised."

He should have added, "And we'll make sure nobody hears about it."

Raffie's picture

When a company goes under there is no layoffs because everyone is fired on the spot.

Ya, you do not put stimulus on a dead horse.....well.. at least I would not.

When any gooberment tells everyone to not panic, that is the prefect time to PANIC.



MFL8240's picture

Need to start looking carefully at the numbers in this country rather than waste our time on China.

Baron von Bud's picture

American GDP numbers are fake. China has said US gdp is 9-10T, not 14T.



roddy6667's picture

A lot of this China-bashing is to distract from America's failed economy. The government needs its citizens to think they are better off than the rest of the world. It's the job of the embedded press to highlight and exaggerate anything negative it can about Russia or China.

Shed Boy's picture

Exactly. "American imperialism" is not just a catchy name. It's whats preached by our press to avoid the truth that our shit stinks to high heaven. It's the oldest trick in the book to distract people from the truth.

Bash the other guy...but for Gods sake, don't look in the mirror.

holdbuysell's picture

The official denial confirms the coming layoffs.

Those that panic first, panic best.

new game's picture

all bullshit everywhere, all languages, just a bunch of lies. we are not to know, but then ask me i give a shit. fuckem all if they can't be honest. i ask you, who can you trust? very few people...

stant's picture

Xiao " hold my sinkiang black and watch this"

Shed Boy's picture

Change the words: "China" to "America" and the words "Beijing" to "Wall Street" and any reference to Chinese officials to Goldman Sucks, you will have a fairly accurate article.

In fact, I'm pretty sure thats what some body did already. This is an article about the USA, not China.

I'm sure not seeing here. On the street I live on, two stores are renovating and I see a new supermarket getting ready to open. I'm also seeing more lights on at night in the new apartment building next door. In the evening the streets are full of people out shopping. Yesterday was Sunday, the only day off people here have, and the Mall was a zoo. I saw a guy on the bus packing a 40" TV home. At the market where we buy vegetables it was so crowded I stayed outside and sent the wife in to shove her way around.

Quebecguy's picture

They must not have CNBC, check it out!


(Chinses Coal Workers Demand Unpaid Wages!!!)

JamaicaJim's picture

There.......might be executions...but no layoffs

just fucking sayin Mon

Mini-Me's picture

"Please do not worry!"  Must be an Asian thing.

Infield_Fly's picture

Sum ting wong???


Naaaa.  No prawbrem.

FreeShitter's picture

No prawbrem round eye, we no have exproding ecronome

Theonewhoknows's picture

With oil price so low not only the overtaxed American economy cannot even get back from its knees but even China is not the steamroller it had been previously – Banks preparing for another 2008 with NIRP and bail in’s directive in EU - we wait for China to either do what everyone else (bad decision) or actually do somehting different which will be a progress in itself. http://independenttrader.org/are-we-waiting-for-another-2008.html

holdbuysell's picture

“There’s no need,” he said, “for anyone to buy dollars in a rush”

Another official denial. Translation: buy dollars in a rush.

CHoward's picture

Too funny.  Reminds me of the old saying "The beatings will continue until morale improves".  So appropriate.

847328_3527's picture

"It's contained."

Better run for the exit fast. The first rats off a sinking ship swim the farthest.

Nobody For President's picture

There will be no layoffs.

Executions on a large scale,maybe.

cheech_wizard's picture

and no bodies will be found... and they won't be missed either.

Aussiekiwi's picture

There Won't Be A Wave Of Layoffs," "No Stimulus Is Needed": China Insists That No One Panic

I Read, Massive layoffs on the way followed by massive stimulus and currency devaluation, now would be a good time to Panic.

TheAntiProgressive's picture

Isn't this the same country proposing buying all the bad debt with even more "good debt" created out of thin air from the zombie owned state banks, to buy the zombie owned state corporations. 


No problem? 


You simply can't make this stuff up.  Thank God they are now a psuedo "reserve currency".

Midnight Hour's picture

Is it now time to buy a Ticket on the good Ship Titanic?

chairman mao's picture

fuck SOE workers, entitled mother fuckers.

Dr. Bonzo's picture

Never gonna happen. The day a commie cadre decides he'll pay a shlub a fair wage is the day the commie partie implodes.

Bazza McKenzie's picture

You can't proactively rebalance towards consumption in a stagnant or declining economy because in that situation consumers increase their saving because of the threat of reduced income.

However, rebalance can occur because investment falls even faster than a reduction in consumption.  Note that net that means rebalancing through shrinking the economy.

hedgiex's picture

They have a whole slew of new reforms that focused on productivity. Too late as global markets are not interested in propping long soft landing dreams. They will have to throw the whole kitchen sink at rising unemployment that leads to social unrest. Only then that the lies from growth through further debts and the shift of the huge debt burden to be borne by the workers and savers can be sustained. Any difference here with the US/EC economies. 

They will tell their sheep that the global markets are inherently Western hegemonic powers bent on destroying the Middle Kingdom. (You see all these in the tired recycles of Opium War, Japan Bashes, etc daily in their local media). Yes, they still have a formidable $3T reserve (arsenal) that they have to keep liquid (unavailable for massive productivity fiscal investments) to fend off currency attacks. 

Every bravado spewed from Beijing is an indication of desperation to maintain credibilities. Credibilities diminishing in global markets. Entertaining to watch the weeds sold and smoked internally. Nothing fundamentally different than the same gymnastics to avoid the bitter truth of a crippling debt overhang. In their case, perhaps less noises as more levers are with Center directing a financial economy. Their past financial reforms have spawned the same dark alley casinos, ponzis, etc 

An unfolding drama of a Dragon huffing and puffing. Keep warm within its fires yet not get incacerated and that is tradiing today China.



Yen Cross's picture

 Shooting Star Definition

 This concept also applies to other time frames.

 Tomorrow we'll discuss inside & outside closes,

 Same shit different month/ before the fed.

Global Observer's picture

China's exports are slowing. In order to keep those being laid off from the export oriented industries employed and/or create internal demand for hitherto exported goods, China can create new state-owned companies or increase employment in existing state-owned companies. Unlike the West, the Chinese are not hung up on what mechanisms to employ to stimulate growth. Anything that works is fine. When the global economy recovers and demand for Chinese exports increases, those people absorbed into the state-owned enterprises can be relieved to join the private sector again.

Dr. Dooms-a-lot's picture

Stimulus in 5.... 4..... 3....

EMSA04's picture

Lucky me - I've got a front-row seat to this circus!

css1971's picture

PANIC TIME!!!!!!!!!!!!!!

Element's picture

Ah ... the Sunday-night Euro finance minister's emergency meeting disease has mutated and spread to China.

Batman11's picture

Today's nonsense economics does not allow China to make the necessary reforms.

Western savings rates have approached zero due to the welfare state safety net.

Western consumers can spend nearly everything they earn.

China has high savings rates because there is almost no welfare state and they need to save for a rainy day.

Chinese consumption is impacted by high inequality, low wages and no welfare state.

The wealthy Chinese are out blowing top end property bubbles in major cities around the world.

This does nothing for China.

Using the old economics .......

High taxes on the wealthy to provide a welfare state for those lower down the scale would have boosted China's economy.

Re-distribution would have kept the wealth within China and boosted consumption.

Those that would now be on unemployment benefits would still carry on consuming at a lower level.

With the new economics, the prosperity of China’s boom has been passed onto the global elite outside China.

It has further inflated global asset bubbles in top end property, fine art and classic cars.

As the boom fades the Chinese workers return to their farms and the world has some more oligarchs.

Adios China.


Batman11's picture

Someone had better do something quickly.

Look at the way things are going .......

2014 – “85 richest people as wealthy as poorest half of the world”
2016– “Richest 62 people as wealthy as half of world's population”

Doing the maths and assuming a straight line .......
5.4 years until one person is as wealthy as poorest half of the world.

Soon one person will own everything.

Then it will be down to Runneymede to get them to sign the Magna Carta and we can start again at 1215 AD.

Last of the Middle Class's picture

How long would the past leaders of China allow empty cities the peasants could occupy except for the wall of financial privilege. Just a thought