The real state of the world economy

This is what John Key or any of the world "leaders" who are trying to keep Infinite Growth and the ponzi scehme going, don't want you to know.

China Export Shipping Declines by Two-thirds

Written by Bob Adelmann

New American,

8 May, 2015

Two weeks ago the Shanghai Containerized Freight Index (SCFI), which tracks shipping rates from Shanghai to the world, fell off a cliff: down a breath-taking 67 percent from a year ago. Wolf Richter thought it was a statistical fluke.

It was no fluke. In the next two weeks the SCFI for Northern Europe fell another 14 percent, an all-time low. Wrote Richter: “Something big is going on in the China-Europe trade.”

The collapse is being echoed by other indexes reflecting the breathtaking decline in China’s exports. For example the much-broader China Containerized Freight Index (CCFI), despite being manipulated by the Chinese Ministry, has dropped from 1070 in February to 899 in April

And the Baltic Dry Index, which tracks shipping rates for raw materials worldwide, shows a similar decline, from 1,484 in December to 575 on May 6.

Observers have come up with a long list of reasons why consumers aren’t buying: a weak and weakening euro, a topping out of demand from American companies building up their inventories anticipating a return of the American consumer to their stores, and weakness in China. Especially China whose purchasing managers’ report (PMI) released on May 1 was the worst reading since April 2005, a decade ago.

Bloomberg noted that China’s economy grew at the slowest rate in the first quarter of 2015 since the start of the Great Recession, despite claims by the Chinese government that its economy is still growing at seven percent annually. But most of that growth is phony and fraudulent, relying as it has for years on the Keynesian economic remedies to alleviate slow growth: expand the money supply, make borrowing easier, cut interest rates to goose the housing market, and “build for the future” such vanity investments as airports without planes, highways to nowhere, cities with no people, stadiums with no teams, and so on.

Now the chickens are coming home. Small business owners such as Zhu Zhangjin, the manager of a furniture factory which employs about 5,000 people and exports sofas and car seats to the United States, is having to borrow just to pay interest on previous loans he made to fund the business. But banks have been stiffed by so many other small businesses that they are reluctant to loan new money to people such as Zhu. If he can’t finance his debts, he won’t be shipping sofas to America. Multiply his company’s situation by millions and no one is surprised that shipping rates have dropped so precipitously.

China Merchants Bank Company has seen its bad debts more than double in the past year, while China Mensheng Banking Corporation, the country’s first private lender, saw its bad loans bloom by 140 percent in 2014 from a year earlier.

Chen Xingdong, chief economist at BNP Paribas, put it well:

[These] practices are simply not sustainable: you can’t tell banks to make risky loans with just political motivations [read: threats and pressure], banks won’t lend if returns can’t cover risks.

Fearful over the possible loss of purchasing power of the yuan, Chinese citizens with investable capital have been buying up fractional shares in apartment buildings erected in anticipation of massive migrations from the country into the city. Those apartments have remained empty, however.

Others with surplus capital have been bidding up the stock market, pushing the Shanghai index from 2,500 to 4,500 just since December. So much money has been pouring into stocks that it is starving the real economy, according to Xu Gao with Everbright Securities in Peking:

The stock market rally is actually an obstacle to an economic recovery. All the funds jostling into the stock market are diverting much-needed money from real economic activities.

The trouble is, those “real economic activities” have been stimulated to excessively high levels so that all that investors see are risks, not returns. Massive overcapacity in petrochemicals, construction machinery and equipment, steel, cement, and aluminum reflects the Keynesian solution: build something — anything! — and consumers and investors will follow.

Overcapacity in real estate in China is legendary: There are more than 50 million vacant units. But it’s even worse: Another 70 million units are currently being built, far exceeding even the most generous estimates of future demand. By comparison homebuilders in the United States in a good year build about 1.2 million homes.

As Anne Stevenson-Yang, for years an observer of China’s bubble and imminent collapse and now a research director for J Capital, noted in an interview with Barron’s:

China, for all its talk about economic reform, is in big trouble.… The country is now submerged by the tsunami of bad debt that begets further unhealthy credit growth to service this debt.

The perfect storm of excessive capacity in China funded with government debt combined with a weak euro is leading to the sharp falloff in exports as measured by the shipping indexes. There is nothing on the horizon to suggest that the end is anywhere in sight

The Hard Landing Continues: China Trade Date Disappoints Amid Weak Demand

Zero Hedge,

8 May, 2015

On Thursday, Goldman suggested that the combination of soft commodity markets and the Chinese transition from investment to consumption will weigh on dry bulk trade — and by extension, on shipping rates — until at least 2020. This assessment served to validate a theme we’ve been pushing for quite some time. Namely, that although a global supply glut caused by overly optimistic assumptions about both China’s economy and about central banks’ collective ability to engineer a robust post-crisis recovery has without question weighed on shipping rates, the more fundamental problem lies on the demand side and you can’t mention sluggish demand without discussing China. Here is how we summarized the situation:

Meanwhile, we’ve exhaustively documented the laundry list of signs that point to dramtically decelerating economic growth in China, including falling metals demand, collapsing rail freight volume, slumping exports, a war on pollution that may cost the country 40% in industrial production terms, and, most recently, a demographic shift that’s set to trigger a wholesale reversal of the factors which contributed to the country’s meteoric rise. All of this means that the world’s once-reliable engine of demand is set to stall in the years ahead. 

Overnight, we got still more evidence of China’s hard landing when trade data for April missed estimates across the board as exports slumped more than 6% on the heels of March’s abysmal 15% decline and imports fell 16%. The data seems to point to lackluster demand both domestically and abroad, and as BNP notes, it’s not the yuan’s dollar link that’s weighing on trade — it’s demand.

Via BNP:

The April external trade data disappointed market again. Exports growth remains in negative territory, despite the decline has to some extent narrowed. The market consensus had expected a moderate recovery of export in April, mainly due to the favourable base effect. The decline in imports growth has further deteriorated in April, which has mirrored the lacklustre domestic aggregate demand.

The export weakness was still broad based for almost all trading partners. Export to US increased by 3.1% y/y, compared to 8% decline in March. It might reflect the demand from US has slightly recovered after a soft growth Q1 momentum. The decline in export to EU narrowed to -10.4% y/y from -19% y/y in March; Exports to Japan and ASEAN countries decreased by -13.3% y/y and -6.6% y/y, respectively, from -24.8% and -9.3% in last months.

The decline in imports growth expanded to 16.1% y/y, from 12.3% drop in March. The soft international commodity prices continue to drag the import growth. In the first four months, crude oil import plunged by 43.1% y/y at value, despite the imported volume has increased by 7.8% y/y. Imports in iron ore and coal also plunged by 44.8% and 49.7%, respectively.

In first four months, the total external trade declined by -7.3% y/y, which has been significantly lower than the official external trade target for 2015 at 6%.

Net exports rose to USD 34.1bn, from an average of USD 21.1bn in the three months before.

It is clear that the correction in external trade cannot be easily explained by the CNY distortion factor. The exports would be more struggling from the soft demands from the major trade partners and deteriorating international competitiveness in the low end manufacturing sector. 

And as we discussed in detail in “How Beijing Is Responding To A Soaring Dollar, And Why QE In China Is Now Inevitable”, it’s not as simple as devaluing the yuan to boost exports when you’ve witnessed $300 billion in capital outflows over the past four quarters alone and so we’ll leave you with the following which can be summed up as simply as “between a rock and a hard place.”

The government should already clearly realize the further downward pressure of the foreign trade. But we still maintain the view that the governments would be reluctant to allow an aggressive RMB depreciation to stimulate the export.