miw

15 May 2012, 09:40 AM

Here is a more nuanced version of the story, from the FT.

Still not reassuring, but have a look at the very end. It may be related to efforts to shift from investment-related growth to consumption-led growth that has been surprisingly successful. The next few sets of data are going to be absolutely fascinating.

miw

15 May 2012, 06:23 AM

Money supply? who knows. I know people who can't get loans because the banks say they have none to lend, not because they have not qualified. Deposits have dropped a lot I have just read in a couple of places in the last day or two, which would mean they are faced with contraction in the money supply. But here they say "credit is available but business is not borrowing". Only a couple of weeks ago people were complaining that businesses couldn't get loans because the bank johnnies didn't understand how to evaluate business loans and gave everything to state-owned enterprises. I suspect we wlll find that both stories are true, but in different places. China is a big place and very decentralised. (For example, a bank transfer from a Beijing branch of any bank to a Shanghai branch of the same bank counts as an inter-bank transfer)

Andrew Judd

15 May 2012, 03:31 PM

The WSJ article i quoted earlier said that small banks are getting deposit withdrawals as people seek higher earning investments (presumably not offered by smaller banks) but the larger banks do not have this problem and have instead a shortage of people wanting loans

20% of loans are handled by small banks.

The WSJ article also said inflation was a problem still and some were saying rates would have to go up.

Quote:

 

ANZ to invest $300m more in China

May 15, 2012 - 5:15PM

ANZ, the country's fourth largest bank, said it would invest a further $300 million to support growth in its Chinese subsidiary as part of the bank's push into Asia.

The additional investment is the first since an initial investment of $395 million in 2010, the bank said in a statement.

ANZ is trying to model itself on HSBC by turning into an Asian lender and is seeking to get 25 to 30 per cent of its profit from Asia by 2017.

Read more: http://www.smh.com.au/business/anz-to-invest-300m-more-in-china-20120515-1yon5.html#ixzz1uwbugyLC

Quote:

 

Conclusion

With 1.3 billion well-educated citizens, it is clear that the Chinese economy will be one of the powerhouses of growth for the next few decades. However, growth of 9.2%, as experienced in 2011, will only continue if domestic consumption is stimulated. To date, the Chinese authorities have not introduced measures to increase social security benefits or to change policies to reduce the household savings rate. It would appear that they are talking the talk, but not walking the walk. Premier Wen Jiabao suggested recently that growth expectations should be reduced to 7.5%. If the official policy line is for growth of 7.5%, it is likely that "official" growth will come in slightly ahead of this figure. Reality suggests that with housing investment slowing and no policy action to stimulate spending, the real rate will be below 7.5%. If I were to take a stab at the real rate of growth (not the reported rate), I would go for a rate of 6%-6.5% for 2012.

Unfortunately, in my opinion, this is not enough to save the world's stock markets. There will undoubtedly be some further easing of monetary policy in China fairly soon (a required reserve ratio, or RRR, cut to 20% was reported on Saturday), and this will stimulate markets in the short term. The likelihood of fiscal stimulus is slim and without this, the growth rate of the Chinese economy is going to continue to slow. If that assumption is wrong and the new government stimulates the economy, at the end of 2012 the growth rate may remain in the 8%-9% area. Without it, look for continued growth, but at a much slower rate. Describing these types of growth rates as hard or soft landings seems somewhat irrelevant. However, it is clear that China is not going to save the world this time around. I would add China to the roll of economies with slower growth, and I expect the stock markets of the world to continue to soften throughout the remainder of 2012 in the absence of further central bank intervention. Looks like its QE3 and LTRO 3 to the rescue.

miw

16 May 2012, 10:50 AM

This guy seems well-informed.

I think his conclusions are a little pessimistic, simply because I believe that if Premier Wen says 7.5%, then they will do what it takes to achieve that number. If stimulus is required, then stimulus it will be. But his comments about the nature of Chinese economic statistics is spot on.

Quote:

 

China Growth Seen at 13-Year Low by Pimco

By Bloomberg News on May 15, 2012

China’s slowdown may deepen as policy makers unwind the excesses of a record credit boom while only gradually increasing stimulus, leaving 2012 growth at the weakest in 13 years, Pacific Investment Management Co. says.

“The economy is unlikely to bottom until the third quarter,” Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management in Singapore, said in e-mailed comments May 13. “Policy makers will progressively turn the dial toward more stimulus, but not in the aggressive manner of 2009,” restrained by the goal of tempering the credit-fueled property market, he said.

Pimco, which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7 percent range,” a pace unseen since 1999. Its call is still lower than that of banks from Citigroup Inc. and JPMorgan Chase & Co. to Bank of America Corp. and UBS AG, which all pared their forecasts after April economic data were released last week.

A more measured pace of stimulus now than the record fiscal package and lending boom of 2009 may help reduce the risk of an eventual credit bust. China’s central bank has so far held off on lowering interest rates, opting May 12 to execute the third reduction in banks’ reserve requirements since November.

Controlling Risk

The reserve-ratio cuts are “meant to control the risk of a hard landing, not to avoid a soft landing,” said Stephen Jen, managing partner at SLJ Macro Partners LLP in London and former head of currency research at Morgan Stanley. “These monetary policies are reactive, very different from what some analysts had been expecting -- something much more aggressive and pre- emptive.”

Citigroup projects second-quarter expansion of 7.5 percent, down from a prior forecast of 7.9 percent, and full-year growth of 8.1 percent, compared with 8.4 percent, according to a research note yesterday. Mizuho Securities Asia Ltd. predicts growth of 8.3 percent this year, down from a prior forecast of 8.6 percent.

China’s growth rate slowed to 8.1 percent in the first quarter from 11.9 percent two years ago. During the global financial crisis, the weakest quarterly expansion was 6.2 percent in the first quarter of 2009, compared with a full-year rate of 9.2 percent. Justin Lin, chief economist at the World Bank, sees the nation’s growth averaging 8 percent over the next 20 years, Xinhua news agency reported.

Debt Strategy

Pimco’s Bill Gross, who runs the Total Return Fund, cut his holdings of emerging-market debt to a two-year low last month. The Shanghai Composite Index (SHCOMP) of stocks fell for a third day after reports on May 11 showed China’s industrial production and retail sales grew less than forecast. The gauge was down 0.8 percent as of 12:04 p.m. local time.

The data “highlight unequivocally the weakening growth momentum” in China, Citigroup said.

Chances of an interest-rate reduction are still “small at the moment,” Lu Ting, a Hong Kong-based economist at Bank of America, said in a May 12 research note. The government has left benchmark rates unchanged since an increase in July.

The People’s Bank of China said it will cut banks’ reserve requirement ratio by 50 basis points effective May 18. The reduction will inject about 400 billion yuan ($63 billion) of liquidity into the banking system, Australia & New Zealand Banking Group Ltd. estimates.

Bubble Risk

The pause of almost three months between the two reserve- ratio cuts this year, longer than investors expected, “shows the central government’s deep concern on bubble risks,” Yao Wei, a Hong Kong-based economist at Societe Generale SA, said in a research note yesterday. “Any easing measures will still be implemented in a much more cautious manner” than in 2008-2009, she said.

JPMorgan reduced its second-quarter expansion forecast to 7.8 percent from 8 percent and full-year projection to 8 percent from 8.2 percent. Monetary and fiscal policy have “so far been behind the curve,” economists led by Zhu Haibin said in a May 11 research note.

Standard Chartered Plc is forecasting another three cuts in the reserve ratio this year for a total of 150 basis points, from the current level of 20 percent for the biggest banks. The government will probably also relax loan-to-deposit ratio regulations to boost credit growth, Li Wei, a Shanghai-based economist with the bank, said in a May 12 note.

‘Plenty of Scope’

Stephen Roach, former non-executive chairman for Morgan Stanley in Asia, said China has “plenty of scope for easing” to boost growth, with an interest-rate cut likely to happen “sooner rather than later.”

“Chinese authorities have plenty of counter-cyclical ammunition to deploy,” said Roach, who now teaches at Yale University in New Haven, Connecticut.

51job Inc., a Shanghai-based recruiting service provider, and 7 Days Group Holdings Ltd., a hotel operator based in Guangzhou, last week pared sales forecasts. Shares of 51job fell the most since September on May 10, while 7 Days Group sank to the lowest since July 2010.

China’s policy makers are attempting to guide the economy and financial sector to a “dual soft landing” by moderating credit growth and unwinding the excesses of an investment boom during the global financial crisis without triggering a collapse, Toloui said.

Policy makers also probably want to keep some stimulus firepower in reserve for next year, the new leadership’s first full year in office, Toloui said. The Communist Party is scheduled to hold a once-in-a-decade power handover to a new generation of officials later this year in the aftermath of the ouster of Chongqing party boss Bo Xilai, which triggered the deepest political tensions since 1989.

“The policy response this time around is likely to be deliberate, incremental and reactive to incoming data on the economy and financial conditions,” Toloui said.

--Kevin Hamlin. With assistance from Zheng Lifei in Beijing. Editors: Scott Lanman, Nerys Avery

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

Read more: http://www.businessweek.com/news/2012-05-14/china-growth-seen-at-13-year-low-by-pimco#p2

peter fraser

16 May 2012, 11:06 AM

The chinese are driven to save because they don't have an aged benefit scheme. Certainly an aged pension would stimulate spending as people slow their rate of savings without the imperitive of having to accumulate enough savings to pay for their unemployment in latter years. We can't work productively forever.

That might take a few years to alter the general habits of the population, but it would work.

the question is can they afford it. Greater consumption would add stimulous to the economy, but would those benefits be enough to pay the cost of the aged benefits. Undoubtedly once you introduce one benefit, others will raise there hand as well - what could the total cost be, and can the nation bear it. Perhaps b_b will have some thoughts on that as well.

newjez

16 May 2012, 03:20 PM

peter fraser

16 May 2012, 11:06 AM

The chinese are driven to save because they don't have an aged benefit scheme. Certainly an aged pension would stimulate spending as people slow their rate of savings without the imperitive of having to accumulate enough savings to pay for their unemployment in latter years. We can't work productively forever.

That might take a few years to alter the general habits of the population, but it would work.

the question is can they afford it. Greater consumption would add stimulous to the economy, but would those benefits be enough to pay the cost of the aged benefits. Undoubtedly once you introduce one benefit, others will raise there hand as well - what could the total cost be, and can the nation bear it. Perhaps b_b will have some thoughts on that as well.

I would have thought the effect of this would neutral Peter. Nice try though. But I don't even think the rose coloured glasses will work this time.

What I don't understand is why the Chinese are lying about their growth, and their PMI's especially. For us, there are so many indicators of growth that the picture is becoming very clear. We in the west know they are lying. Is it possible that their own people don't? I know they control information, but surely they would only be able to fool the peasants? Is this some strategy to stop political unrest?

newjez

16 May 2012, 03:20 PM

I would have thought the effect of this would neutral Peter. Nice try though. But I don't even think the rose coloured glasses will work this time.

What I don't understand is why the Chinese are lying about their growth, and their PMI's especially. For us, there are so many indicators of growth that the picture is becoming very clear. We in the west know they are lying. Is it possible that their own people don't? I know they control information, but surely they would only be able to fool the peasants? Is this some strategy to stop political unrest?

peter fraser

16 May 2012, 04:46 PM

newjez

16 May 2012, 03:20 PM

peter fraser

16 May 2012, 11:06 AM

The chinese are driven to save because they don't have an aged benefit scheme. Certainly an aged pension would stimulate spending as people slow their rate of savings without the imperitive of having to accumulate enough savings to pay for their unemployment in latter years. We can't work productively forever.

That might take a few years to alter the general habits of the population, but it would work.

the question is can they afford it. Greater consumption would add stimulous to the economy, but would those benefits be enough to pay the cost of the aged benefits. Undoubtedly once you introduce one benefit, others will raise there hand as well - what could the total cost be, and can the nation bear it. Perhaps b_b will have some thoughts on that as well.

I would have thought the effect of this would neutral Peter. Nice try though. But I don't even think the rose coloured glasses will work this time.

What I don't understand is why the Chinese are lying about their growth, and their PMI's especially. For us, there are so many indicators of growth that the picture is becoming very clear. We in the west know they are lying. Is it possible that their own people don't? I know they control information, but surely they would only be able to fool the peasants? Is this some strategy to stop political unrest?

seriously - you don't think that if you secure someones future and put less reliance on them accumulating their own retirement savings that they won't be more inclined to spend.

newjez

17 May 2012, 05:23 AM

No not really. First question is - where does the money come from for the pension scheme? Taxes or enforced superannuation probably. So the excess money you are talking about will go there. It's just the formalization of a currently voluntary scheme. The net result will be neutral. There is no magic money. The money that is freed up by having a secure future will be used to pay for that secure future.