The Chinese Economy

Here are three articles illustrating that the mainstream press is waking up to the coming China collapse.


Has the dreaded China crash finally arrived?

China's leaders are warning that the country, a reliable engine for the global economy in recent years, is facing "huge downward pressure"

Yahoo,

10 July, 2012

This week, Chinese Prime Minister Wen Jiabao warned that the Chinese economy is facing "huge downward pressure," the bluntest message to date from Beijing about the Asian powerhouse's economic problems. China's GDP growth is still expected to clock in at a relatively impressive 7 to 8 percent in 2012, but that is considerably slower than the jaw-dropping 10 percent rate it has recorded in recent years. With exports falling and the real estate market cratering, China's government has taken steps to boost economic growth by cutting interest rates and approving new infrastructure projects. However, some analysts worry that China's "stimulus lite" policies will do little to prevent a hard fall, which would have negative consequences for the U.S. and other countries that have come to rely on China to fuel the global economy. Is China on the verge of an economic crash?

Yes. And the fallout could be severe: China's economy is "weakening more rapidly than official statistics would suggest," which could lead to "a much sharper decline" than what many economists expect, says David Pierson at The Los Angeles Times. The ongoing debt crisis in Europe has stifled Chinese exports, while flatlining consumer demand within China has led to thousands of layoffs, stagnant sales of heavy machinery, and record amounts of coal and iron ore going to waste. Soon it will be obvious that China is in the midst of a "painful slowdown that could be felt around the globe." "China's growth is slowing, raising risks for world economy"

Maybe. But a slowdown wouldn't be all bad: The Chinese government "has lots of levers to pull and can avoid a crash," says Angus Walker at ITV News. And remember, China is in the midst of a historic transition from being a producer of cheap goods to a fully industrialized country. That means the government wants the economy to slow a little bit as the country reduces its dependency on exports. "The problem comes when the gear change is clumsily executed." If China botches the transition, it could find itself in real trouble. "Is China's slowing economy in crisis or transition?"

No. China's economy is about to bounce back: Of course China's economy is slowing down after its "super-high growth phrase," says Evan Osnos at The New Yorker. But even so, China's robust, resilient economy is "still on pace to overtake the United States as the world's largest economy by 2020." And there are already signs that the slowdown has bottomed out, meaning an economic rebound could soon be underway. "If China was a stock, it would be down now, but, viewed from another angle, that means it is cheap." "Is China running out of steam?"

Signs that China is Heading for a Crash

Oil Price,

11 July, 2012

There is something perversely satisfying in watching humans screw up on a massive scale, and especially so when you've seen it coming for years now. China's time has come. They're going down.  Late last week there was a "surprise" interest rate cut to spur borrowing and growth. And then today we found out that China’s Import Growth Misses Estimates for June.

China’s imports rose less than anticipated in June, pushing the trade surplus to a three-year high and adding pressure on the government to support demand as the global economy slows.

Inbound shipments increased 6.3 percent from a year earlier, the customs bureau said in a statement today in Beijing, compared with the 11 percent median estimate in a Bloomberg News survey of 32 economists. Export growth slowed to 11.3 percent and the trade surplus rose to $31.7 billion.

It is hard to believe official growth numbers emanating from China, but if we can believe their customs data, oil imports have slowed dramatically.

BEIJING, July 10 (Reuters) - China's crude imports plunged in June to their lowest daily rate since December, coming off a record high in May, customs data showed, as refiners cut imports amid slowing oil demand in the world's second-largest oil consumer and crude buyer.

Demand growth in China is one of the biggest drivers of global crude markets. However, in April, oil demand in China posted its first yearly fall in at least three years and edged up just 0.8 percent in May as economic growth slowed.

"The high crude imports in May didn't match the actual demand from refineries, resulting in high inventories. Refiners have to cut imports from June," said a Beijing-based oil analyst.

"Commercially, refiners have no motivation to import more crude as they are cutting crude runs. Strategically, we have not seen any new state storage put into operation recently. So I don't think crude imports will rebound quickly."

Crude imports in June were 5.29 million barrels per day (bpd), up 10.3 percent from a year earlier, customs data showed.

June imports were 12 percent, or around 710,000 bpd, lower than the record 6.0 million bpd imports in May.

For the first half of this year, crude imports rose 11 percent on the year to 5.62 million bpd, the data showed.


A brand new city in China. Nice! The only problem is that nobody lives there.

So now we can add crude oil imports to the data which indicates that coal is piling up at Chinese import terminals. Energy consumption always provides a good proxy for real (inflation-adjusted) economic growth. (That rule applies to the United States, too.) The clincher is that China is cutting fuel prices to spur demand.


BEIJING, July 10 (Reuters) - China, the world's second-largest user of fuel, will cut retail prices by around 5 percent from Wednesday, its third reduction in just over two months and a move that leaves refiners in the red but may lure consumers back to the pumps.

Oil demand in China, which still makes up nearly half of the incremental global total, posted its first yearly fall in at least three years in April and edged up just 0.8 percent in May as economic growth slowed.

With effect from Wednesday, the ceiling for gasoline retail prices will be lowered by 420 yuan ($65.9) a tonne and diesel price by 400 yuan, the National Development and Reform Commission said.

The latest cut would bring the reductions to a combined 13 to 14 percent since early May, which came off record highs of about $1.22 per litre for diesel and $1.17 for gasoline.

"Let's hope for the demand to come back after this cut, so that our tanks won't be that full," said an official with a state refiner.

But industry officials were reluctant to predict that the cheaper fuel would spur an immediate rebound in consumption.
"There are few signs yet of a real power shortage this summer, the logistics sector is lackluster...It could mean the real economy is weaker than we thought?" said a fuel marketing official with top refiner Sinopec Corp.

Could this mean China's real economy is weaker than we thought? I don't know. Does a bear shit in the woods? Is the Pope Catholic?

Fortune's Gordon Chang has been predicting China's crash for over a decade now, so he is particularly pleased to see his prediction finally borne out.

For global crash watchers, China is the last piece of the puzzle. Once the biggest Asian Tiger goes down, that's all she wrote. It looks like that time has come.

By. Dave Cohen

China’s ‘5 apocalypses’ signal global recession

Commentary: China’s problems could be bad news for U.S. Stocks

Brian Farrell

MarketWatch,

12 July, 2012

America’s facing not one but four “fiscal cliffs”: Bush-era tax cuts, Pentagon budget cuts, social-program cuts and the continuing battle over “Obamacare.” China, though, has even bigger problems.

Five months ago, we quoted World Bank President Robert Zoellick’s warning of “a spreading crisis” in China that could consume the $75 trillion global economy. Back then we bluntly asked: “China? Or America? Who will crash the global economy first?” Think: China. See First Take: China headed for a landing .

China’s economy of 1.3 billion people continues slowing, according to the latest GDP-forecast downgrade from Premier Wen Jiabao, reported Keith Bradsher of the New York Times.

Earlier this week, MarketWatch’s Carla Mozee reported that China’s slowdown is already impacting stocks in Brazil, one of China’s leading trading partners. Full story: Brazil stocks drop on China slowdown worries .

So let’s shift our attention away from election-year bickering and ask: “Will China push America into a recession and new bear market?”

“China might already be in recession,” warns Trefor Moss in his brilliant “5 Signs of the Chinese Economic Apocalypse” in the journal Foreign Policy. Actually, five huge apocalypses. “The numbers show that the country’s storied growth engine has slipped out of gear. Businesses are taking fewer loans. Manufacturing output has tanked. Interest rates have unexpectedly been cut. Imports are flat. GDP growth projections are down.” Wen Jiabao’s 2012 growth target at 7.5%, if it happens, “would be China’s lowest annual growth rate since 1990.”

That led Moss to dig deeper, where he uncovered those five signs. You don’t have to be playing poker at a Vegas casino to wonder if maybe, just maybe, China’s five-card catastrophe might trump America’s four-card “fiscal cliffs” hand.

We know China’s downturn is already is impacting Brazil’s stock markets. So America’s next in line.

Warning: China’s local governments drowning in debt

Remember the hundreds of billions of dollars that went to U.S. banks? Well, the China central government gave a $586 billion stimulus package to local governments.

That eased the pain during 2009’s global economic downturn. But the stimulus only deferred the pain. “Now they’re being asked to repay their debts,” Moss writes in Foreign Policy, “and that means some serious belt-tightening at City Hall.” Sound familiar? Like euro land? Maybe your local city hall?

Back in the boom days, many of China’s local governments went wild, like pension funds in America, and bought fleets of “flashy cars.” But now, for example, “the city of Wenzhou is planning to auction off 80% of its vehicles this year,” reports Moss. “That’s 1,300 cars, with similar fire sales occurring nationwide.”

And China’s central government decided to cool the overheated real-estate market. Property sales and revenue then dropped, creating a shortage of cash and confidence among potential buyers. Sounds familiar? Like here in America, where government revenues declined with taxpayers’ and investors’ income and spending? Yes, China’s economy is slowing. China, in fact, is most likely in a recession. And exporting it to America.

Warning: China’s economic crisis triggering unrest

Chinese communists have been expecting more trouble since the 1989 Tiananmen Square revolt that led to military suppression, deaths and angry global reactions. The quest for freedom triggers that. As we read in Foreign Policy, Chinese experts have warned “that economic slowdown could spell social unrest.” But to date, according to the Hong Kong–based writer Moss, “China’s modern growth rate has been impressive enough to keep most people happy.”

But as China’s economy shifts from “developing” to “superpower,” the growth rate is slowing predictably. The transition is already happening, warns Moss: “As GDP growth dips below 8% for the first time in years, China’s social fabric could come under strain, especially as thousands, if not millions, of migrant workers find their jobs under threat.”

Export growth is also slowing — to Europe and the U.S., as well as Brazil. In fact, “exporters are going bust, and some factories that remain open have switched from three shifts to just one.” Meanwhile, migrant workers are creating “mass incidents” that could explode into an inland version of Tiananmen Square as China, as a developed nation, finds its growth rate gradually slowing. Think: Arab Spring, Occupy Wall Street, Greek riots.

Warning: China’s ‘super rich’ now ‘exporting’ capital

While America’s billionaires simply believe “more is never enough” and are doing everything possible to run American government like the central communist party, China’s “super rich” see the writing on the wall: “When the going gets tough, the rich head to the airport,” says Moss.

Luxury goods are going great in China, but “late last year, it became apparent that many wealthy Chinese were losing confidence in the domestic market, as they began investing in convertible assets, like foreign currency, rather than in fixed assets, such as [China] real estate.”

Yes, Chinese billionaires don’t trust their government, so they’re “looking overseas to invest in high-end property,” creating a wave of wealthy Chinese seeking foreign residences. Why? Great deals. Versus too many local restrictions. And, notes Moss, as “a hedge against political and economic uncertainty at home.”

Moss reports that Chinese prosecutors have gone after 19,000 dirty officials since 2000: “China’s wealthy and politically powerful are often members of the same family, and if China really does go into recession, a lot of rich people may decide to cut and run.”

Warning: China’s environmental crisis

China’s population is growing astronomically: 1.3 billion now, with the UN predicting the addition of another 300,000.000 people in the next generation, by 2050. Nobel Prize–winning economist Robert Fogel projects China’s economy will soon dwarf America’s, reaching a staggering $123 trillion. That’s 40% of the global economy in 2040 versus 14% for America.

But that kind of growth brings megachallenges for China’s central planners and the environment. For example, China started importing to satisfy increasing energy demands. But now “China’s ports are piled high with coal that should be roaring in the country’s power plants.” Why? “Lower manufacturing output,” answers Moss. Last year planners were stockpiling emergency coal. Now demand is dropping as “hard-pressed citizens, businesses, and factories cut their electricity consumption in order to reduce their bills.”

Obviously the Chinese are having real problems blending central planning with free-market capitalism in a global marketplace with everybody competing for the same scarce resources. China’s learning these lessons the hard way. The price of coal has dropped 10% in the past year. “This drop could further dent the global economy,” cooling demand for exports. Moss hits the nail on the head: “That’s globalization for you: A Chinese person turns off the air-conditioning, and the world economy catches a cold.”

Warning: Life-style demands triggering inflation

As China’s standard of living explodes, as economic growth (broadly speaking) roars ahead, as the demand of luxury goods rises, China’s ripples add pressure on prices throughout a competitive world.

“China consumes ever larger quantities of meat, [and] the prices of pork and beef have risen, fueled by the relentless demand,” Moss writes, making inflation “a preoccupation” of Chinese policy makers. But the market is also trying to self-correct: Prices go up, then demand drops, and there’s an oversupply, forcing Beijing “to step in and buy up pork to stabilize prices.” But by then, Moss adds, “the price of eggs has shot up.”

Bottom line: China’s “faltering economy” has been wreaking havoc on the confidence of Chinese consumers in recent years. Add in the bailing-out billionaires; the prosecution of crooked officials; food-safety scandals; the inflation, debt, energy and environmental problems, and it’s natural to ask: Maybe, just maybe, could China’s five catastrophes reach critical mass, igniting at any moment and being exported quickly, intensifying the effects of America’s fiscal-crisis foursome, plunging the U.S. economy into another recession and a bear market?