Forget China's Goal-Seeked GDP Tonight; This Is The Chart That Keeps The PBOC Up At Night

Tyler Durden's picture




 

As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor's analysis of the record high prices paid just this week for Beijing property - by an SOE no less - and its massive 'microcosm' insight into the bubbliciousness of the PBOC's attempts to stave off the inevitable 'landing'); to the rather shocking insight that Diapason Commodities' Sean Corrigan offers that 'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”

 

 

Via Sean Corrigan of Diapason Commodities,

Indeed, there are clear signs that some of these dangers are beginning to be realised. Taking the difference between the reported size of China’s forex reserves and the sum of trade and FDI inflows (and making some best-guess reckoning of the effects of reval changes and interest gains), one gets an estimate of hot money movements being diffused across the porous barrier of capital controls - most famously via the metals L/C rehypothecation scam. Between March’09 and February of this year, such ‘unexplained’ flows amounted to no less than $560 billion - roughly two-fifths of China’s total reserve accumulation and a third of its coincident increase in M1.

 

The last four months of increasing angst about the state of the ‘landing’ have seen a dramatic reversal of these flows, to the point that the discrepancy in the books suggests that China may have lost no less than $128 billion – a flight which exceeds that suffered during the worst of the Lehman crisis.

 

Taken at face value, this implies further, self-reinforcing pressure for the renminbi to weaken, for the Dim Sum bond bubble to deflate, and for commodity loans to be unwound, either suddenly - by means of re?exporting some of the swelling inventories of copper, et al – or gradually – by cutting back on new imports until the excess has worn off and the bills settled.

 

Either way, a chilling prospect, even if this does not trigger a new financial crisis among China’s complex and shadowy interweaving of ‘loan guarantee’ companies and off?balance sheet ‘wealth management products’.

 

China has now begun to react, of course, cutting the effective bellwether, one-year lending rate from 5.9% (6.55% official less the permitted discount of 10%) to 4.2% (6.0% less the widened 30% rebate) in the space of a month. As Wang Shuo, Managing Editor of the influential and highly-regarded Caixin Magazine blogged at once on his Weibo page: “This is an admission that the hard landing is already here.” In this, he only anticipated his sovereign overlord, President Hu, by a few hours, for this latter worthy soon thereafter started bleating that the economy faces - severe downwards pressure?.

 

You bet it does! Take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”

 

The trick will now be to avoid re-inflating the property bubble – and information suggesting 125% of June’s overall loan total was comprised of household credit offers little reassurance on that score. It is also imperative that the regime acts to assuage the fears of a populace who were already, in the aftermath of the first rate reduction, responding to official survey questions in a high and increasing proportion that they feared an imminent ?surge? in consumer goods prices. Good luck with that, Comrades!

 

and just for good measure - here is Stratfor on that very same property bubble reinflating as record prices were paid (by an SOE no less) for property in Beijing this week - as she reminds us that property is more than a sector (accounting for 25% of GDP including its knock-on effects) it is a microcosm of China's model for growth:

 

 

Source: Diapason Commodities, Stratfor

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Thu, 07/12/2012 - 20:13 | 2611540 zero19451945
zero19451945's picture

I can't believe people pay attention to GDP numbers. Governments can make them say whatever they want!

 

How would you or I even know?

Thu, 07/12/2012 - 20:47 | 2611606 surf0766
surf0766's picture

Especially from a communist country.

Thu, 07/12/2012 - 22:10 | 2611752 icanhasbailout
icanhasbailout's picture

like the USA

Thu, 07/12/2012 - 22:36 | 2611782 fourchan
fourchan's picture

our bubble was their bubble our depression will be their depression.

Fri, 07/13/2012 - 01:01 | 2611960 Michael
Michael's picture

There's nothing in the known universe that can fix China.

Fri, 07/13/2012 - 06:50 | 2612120 falak pema
falak pema's picture

yes there is, its called reset. Fix is a word with many connotations. But the fix comes; it may not be the fix that was intended! 

Fri, 07/13/2012 - 09:28 | 2612542 ZeroSpread
ZeroSpread's picture

How about

- Aliens?

- Unicorns?

- War??

 

 

Fri, 07/13/2012 - 17:13 | 2614554 The Navigator
The Navigator's picture

I'm hoping for Aliens......... maybe they can drop by D.C. and fix a coupla things there too.

Fri, 07/13/2012 - 06:45 | 2612114 goldenbuddha454
goldenbuddha454's picture

Yes, like the USA.  They've learned well how to control their population through us, or is that we've learned how to control our population through them?  In either case, we are moving quickly away from capitalist markets to the over-spent government top-down-heavy communist model.  Thanks to our premier from Kenya or Indonesia or Hawaii or wherever he's from.

Thu, 07/12/2012 - 20:51 | 2611620 FreedomGuy
FreedomGuy's picture

The GDP formula is crap because it treats government spending the same as private spending. It also pushes exports and creates the myth of trade deficits. Last, as you suggest, governments are free to exaggerate...lie.

China is also not very good at all this new capitalist stuff like accounting.

Last, they are doing the exact wrong thing we did times ten. By favoring one sector over others it moves massive amounts of people, materials and capital into unsustainable markets. Austrians properly call this the missallocation of resources. This will end badly like all central planning.

Fri, 07/13/2012 - 06:56 | 2612109 falak pema
falak pema's picture

your logic smells like the word you use. Spending is spending, whether its government or private, its part of nation state aggregate. Agreed, the motivation is not the same, but it affects the aggregate account of the nation just like the trade balance, which is generated by local import consumption/export production basically. WHat you want is an accounting mechanism without ANY government spending but with law and order to ensure that private sector doesn't get robbed. 

That is wanting the impossible unless the private sector runs the aggregate economy like the old feudal order did. In which case, "government" spending would apear as "feudal commonwealth spending" and balance of trade would always be there. You can change the wrapping you don't change the product, which is economic accounting of an aggregate we call "nation state". You could call it "private domain" or "oligarchy kingdom" or "big business shangrila" it would not change the content. Nor the accounting meme.

PS : I am assuming the accounting is sincere in all situations. And, as current reality shows the Chinese are NOT the only ones that manipulate economic statistics, which they probably do. They could learn a lot from western bankstas! Scions of private sector. 

Thu, 07/12/2012 - 22:59 | 2611807 dbomb12
dbomb12's picture

If they fudge the numbers the same as the BLS, CPI and housing market charts we may never know

Fri, 07/13/2012 - 01:46 | 2612014 Milton Waddams
Milton Waddams's picture

They pencil them in -- hence the estimate, revised, and final versions.  You're a conspiracy theorist if you think that there is political pressure applied throughout the process.  You've gone full retard if you can predict the changes based on the announcement date and the corresponding sunday talk show circuit guest list.

Mon, 07/16/2012 - 03:51 | 2612070 fx
fx's picture

I don't get it why people still pay attention to the bunch of incompetent suckers at stratfor.

Thu, 07/12/2012 - 20:25 | 2611561 ACP
ACP's picture

I thought the coke and hookers are what keeps them up at night?

Thu, 07/12/2012 - 20:48 | 2611611 goodrich4bk
goodrich4bk's picture

The number is not 60 billion "space" but 60 billion square feet, or 60 square feet for each Chinese.

Thu, 07/12/2012 - 20:58 | 2611629 FreedomGuy
FreedomGuy's picture

I was in China earlier this year in smaller northern cities. The amount of construction I have seen for the last decade is astounding. New cities are being built around and on top of the old. They eventually destroy the old but I suspect bad time lags. I know governors are required to hit GDP goals and they do it by building everything and anything. That is part of why you see empty cities on video.

Thu, 07/12/2012 - 23:21 | 2611853 earleflorida
earleflorida's picture

someone please help! how do you deleverage empty cities? perhaps the chinese will go back to the 'gang of four', vis-a-vis good ole Maoism...

Fri, 07/13/2012 - 00:17 | 2611918 FreedomGuy
FreedomGuy's picture

Good point. When they go bust maybe the homeless can move into the empty malls.

Fri, 07/13/2012 - 01:58 | 2612023 prodigious_idea
prodigious_idea's picture

I hear the Olympic Village has some vacancies.

Thu, 07/12/2012 - 20:49 | 2611612 1000pips
1000pips's picture

correction:

Here is the quote from Chanos on your link-

"When we put our research team to work on it, by late summer and early fall, it was due to this massive property and infrastructure build up." China had 60 billion square feet in high rise construction going on, 30 billion of which was being used for for office and mixed use.

Read more: http://www.businessinsider.com/chanos-chinas-credit-situation-is-worse-than-greece-and-spain-and-the-micro-is-even-worse-2012-7#ixzz20SXDg9eY

Thu, 07/12/2012 - 23:01 | 2611789 earleflorida
earleflorida's picture

China is now a basket case -- non-performing lehman's as far as the eye can see -- Hu Jintao is a worried_       http://www.youtube.com/watch?v=PcjXRiIHmnw     _man! 

jmo

Fri, 07/13/2012 - 11:15 | 2612978 old naughty
old naughty's picture

hu? worried? not a chanos.

He's handing over the rein soon. Everything (price) is up !

Fri, 07/13/2012 - 14:09 | 2613692 earleflorida
earleflorida's picture

even a vapor trail leaves a fingerprint

Thu, 07/12/2012 - 22:15 | 2611757 Arnold Ziffel
Arnold Ziffel's picture

50% of the people of China live on less then $1 a day the BBC reported yesterday on TV. Hard to imagine them buying those 20,000 yuan per sq meter apartments with that level of income. Looks as if this may be yet another case of "too little too late." They should have stopped the Bubble two years ago---at least.

Thu, 07/12/2012 - 22:41 | 2611787 FreedomGuy
FreedomGuy's picture

My son, who lives in China and his wife bought one of the new high rises in his city. It was even more expensive as they advertised it was built to western standards. I cautioned him on a property bust but it was identical to the pre-2008 feverish belief here that property prices will only go up...forever. However, in China you put at least about 30% down and pay with a pile of cash at closing.

It is amazing how we seem unable to learn lessons from each other. But then, we are going to try democratic socialism in the United States despite the hard lessons of Europe. Go figure.

Thu, 07/12/2012 - 23:55 | 2611893 Manthong
Manthong's picture

Gee, for the last couple of years they have been saying China needs an 8% growth rate and 25 million new jobs per year.

How has that been working out for them?

http://www.globaltimes.cn/business/china-economy/2010-12/598403.html

Fri, 07/13/2012 - 01:05 | 2611965 jonjon831983
jonjon831983's picture

Ah youth... gotta learn the lesson one way or the other.

Fri, 07/13/2012 - 06:50 | 2612121 goldenbuddha454
goldenbuddha454's picture

You got that right!

Thu, 07/12/2012 - 20:28 | 2611572 nmewn
nmewn's picture

ROR!!!...ahhh so horny, you give me debt, I pwint you long time.

Its like watching two comically bad poker cheats when their hidden cards drop all over the floor.

Thu, 07/12/2012 - 20:29 | 2611574 Everybodys All ...
Everybodys All American's picture

empty skyscraper buildings for 1000 Alex. "What is China real estate?"

Thu, 07/12/2012 - 20:31 | 2611579 chump666
chump666's picture

The Chinese GDP number will be 'weak' so that they can sell the USD and try get their inflows via the Yuan.

Thu, 07/12/2012 - 20:32 | 2611581 chump666
chump666's picture

China is a mess

Thu, 07/12/2012 - 20:36 | 2611590 LetThemEatRand
LetThemEatRand's picture

Assuming a giant conspiracy (which I do), China will surprise substantially to the downside.  Romney won't start no stinkin' trade war.

Thu, 07/12/2012 - 20:40 | 2611597 chump666
chump666's picture

*WSJ-Deeper Slowdown Suspected in China
*China's biggest steelmaker Baosteel cuts prices for first time in 2012

Weak number coming.

Thu, 07/12/2012 - 20:50 | 2611613 adr
adr's picture

The only thing that can make the books of JP Morgan and BAC look good is the books of a Chinese company. But hey, they learned from the best.

China is a basket case right now. It has always been a ponzi for multinationals. Aslong as endless product flowed out of China, the multinationals could fake profit.

Nothing is selling in Europe and nothing is selling in America. Retail will be dumping staff by the thousands every day in August, mall stores have cut staff to the bone and are giving out 20 hours max to part time employees. To get any product to move off the shelf, it needs to be priced 50% off or more. Old Navy couldn't even sell out of their $1 flip flops before July 4th.

Thu, 07/12/2012 - 21:03 | 2611634 chump666
chump666's picture

look at those HFTs go (before the China 7.00% GDP number) on the ASX200.  f*cking pathetic.

*China Securities Journal says Q2 GDP may be close to 7.0%

Shanghai will be bid sans the rest of the world.

 

Thu, 07/12/2012 - 22:03 | 2611742 fonzannoon
fonzannoon's picture

7.6%

Thu, 07/12/2012 - 21:06 | 2611643 Dr. Engali
Dr. Engali's picture

"China may have to fall back on real estate to kick start growth".

That's all they need is more empty cities and over priced housing. I have news for you China... All bubbles will deflate. That includes your real estate bubble as well as the U.S. dollar bubble.

Thu, 07/12/2012 - 21:10 | 2611646 HardAssets
HardAssets's picture

The world's a freakin' Ponzi. 

I'm amused at posts about the suspect 'communist' GDP numbers & accounting - - as though the so-called 'capitalist' coutries are more honest.

The globe is run by various crooked criminal gangs it seems.

Thu, 07/12/2012 - 21:13 | 2611650 ghenny
ghenny's picture

Have to agree on this one.  The Chinese numbers have been bogus for years.  Somehow the financial press corporate shills that sell China have this notion that we all believe the Chinese are superhuman.  No chance.  Like the Japanese and everyone else they are going to screw up, overshoot, steal, lie and cover up.  They will have huge booms and busts.  Contrary to popular belief the Chinese have not suspended the laws of economics or human nature.  They are long overdue for the mother of all depressions and its coming.

Thu, 07/12/2012 - 21:55 | 2611731 nmewn
nmewn's picture

"Contrary to popular belief the Chinese have not suspended the laws of economics or human nature."

Yes in doodly diddly...with a over a billion mouths to feed and two billion hands to keep away from their leaders throats the lies coming out of there are always...shall I say, interesting ;-)

Thu, 07/12/2012 - 21:13 | 2611653 meatball
meatball's picture

I just wish I had an uncle in the Chinese government to mooch off from. Even the low level official is worth a few million USD.

Thu, 07/12/2012 - 21:16 | 2611657 q99x2
q99x2's picture

The US could rebuild its infrastructure and increase its demand for Chinese junk.

On second thought better brace yourself.

Thu, 07/12/2012 - 21:29 | 2611686 Spitzer
Spitzer's picture

'Hot Money Flows' have left China at a rates exceeding that during the worst of the Lehman crisis;

And this hot money went from the frying pan to the fire. Treasuries...

Thu, 07/12/2012 - 21:33 | 2611690 JackT
JackT's picture

MSM may want to talk it way down for the big surprise GDP reveal that isn't so bad, albeit made of unicorn tears and butterfly smiles but a MSM headline number

Thu, 07/12/2012 - 21:50 | 2611700 Paul Atreides
Paul Atreides's picture

Say you have billions maybe trillions of US Dollars and pretty much know it's days are numbered what are you going to do with them before they become worthless and you take major losses?

Use those US Dollars to impoort commodities (potash, iron ore, lumber etc...)and build housing and infrastructure, it doesn't matter if its empty or unsold they have converted a potentially huge loss of worthless FRNs into hard assets which will retain value to be sold at a later date. It's the same as what the US banks are doing here with housing, they don't want to sell all those foreclosed homes/land they have for soon to be worthless US Dollars, Bernankes practically giving them away anyways, better to keep the hard assets on the books until after the collapse.

Fri, 07/13/2012 - 00:39 | 2611942 Dapper Dan
Dapper Dan's picture

the truth is strong with you Paul,

watch your back!

better yet, don't leave the house and don't answer the door.

Fri, 07/13/2012 - 02:07 | 2612027 prodigious_idea
prodigious_idea's picture

Great idea, but the timing doesn't work out.  Commodity prices will drop faster than USD exchange rates for the foreseeable future.  If they really wanted to convert USD to something with lasting value they'd buy PMs.

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