By David Mann of Standard Chartered
Much of the negativity about world growth prospects at the moment seems to stem from the absence of a credit boom in any major market and worries over the consequences of higher US interest rates for the first time since 2006.
The lack of a credit boom means that growth is more subdued than it was in the run-up to the global financial crisis.
In particular, there are fears about China’s growth prospects, given the recent bad news concerning weak credit demand, high real interest rates and tight liquidity. However, we see three reasons for at least some optimism. Read more
By Dominic Jephcott, Vendigital
The Chinese Government’s decision to embark on a fresh round of industry consolidation as part of a move to strengthen state-owned enterprises (SoEs) and increase their global competitiveness has been a long time coming. It is an understandable response to the slowdown in economic growth, over-capacity in many sectors and poor returns on huge capital investments over the last ten years.
The Made in China 2025 initiative, which was outlined last week at the National People’s Congress, is a 10-year plan for transforming the country’s disparate manufacturing sector in order to create a smaller number of large-scale businesses capable of competing internationally in the higher added-value and strategic industries. Calls to address the endemic inefficiencies of China’s SoEs and increase their global competitiveness are nothing new, of course, but this time it seems there is a clear commitment to make sure it happens. Read more
The International Monetary Fund will hold discussions in May and make a decision in November on whether to add the Chinese renminbi to the four currencies it uses to value its Special Drawing Right (SDR), the international reserve asset created by the Fund.
China is keen for this to happen, as the deputy governor of its central bank, the People’s Bank of China (PBoC), reiterated at a press conference in Beijing on Thursday. There is a snag: the renminbi is not and may never be a convertible currency, which is a standard pre-requisite of a reserve currency. But as David Lubin of Citi Research argues in a note also published on Thursday, that consideration is likely to be put aside. Read more
By Andrew Collier, Orient Capital Research
Chinese investors have discovered a new way to spirit money out of the country behind the backs of the country’s regulators.
In recent years, savvy investors have used false invoicing as a way to disguise their capital flight. A Chinese company pays $1m to a foreign company for a machine tool that is actually worth $500,000; the rest is invested in property or stocks in London or Sydney or New York. Read more
China is no stranger to internet sensations, but a documentary highlighting the scale of the country’s chronic air pollution seems to have shaken the trees all the way to Beijing’s highest branches.
Under the Dome, the 104-minute film made by journalist Chai Jing, has already been seen by 160m people on Tencent’s video page, and garnered praise from government ministers and state media. Investors are also taking note. Read more
The second cut in China’s interest rates in three months reveals key elements in Beijing’s thinking as it tries to reconcile an economic policy agenda beset with conflicting priorities, analysts said on Monday.
The task before China requires some delicate manoeuvres. It aims to wean the country off an extraordinary debt binge (see Martin Wolf ) while keeping GDP growth fairly robust. It hopes to combat disinflationary pressures while preventing the renminbi from sliding too sharply against the US dollar. It wants to curb a dangerous slump in industrial profits without resorting to another round of investment pump-priming. It needs to keep domestic liquidity levels buoyant in spite of a surge in capital flight. Read more
By Guonan Ma, Bruegel
The Chinese economy is simply too big to remain tied to the once useful monetary anchor of the renminbi-US dollar peg. It is time to let it go.
The Chinese renminbi depreciated 2.5 per cent against the US dollar in 2014, the largest annual fall since 2005 when Beijing timidly started loosening its tight dollar peg. Recently, the Chinese currency has repeatedly tested the weak side of its daily trading band, despite attempts by the People’s Bank of China (PBoC) to signal a steadier bilateral renminbi-US dollar rate via its daily fixing (see chart below, left panel).
What has led to the changing fortunes of the renminbi? What lies ahead for the currency in 2015? Read more
Being born under the dragon sign of the Chinese zodiac is considered to be the luckiest start in life one can have. Dragon babies were so sought after in 2012 – the most recent window of opportunity – that some would-be parents went to extraordinary lengths to make sure they had one.
Evidence suggests those endeavours could yet pay off. According to a (not very) scientific piece of research from Wealth-X, dragons are indeed more likely to end up sitting on (or rather earning) vast piles of gold. Read more
By Marty Sun, Goldman Sachs
The launch of the Shanghai-Hong Kong Stock Connect last November has made it easier for international investors to access China’s equity markets.
The link got off to a smooth start largely thanks to the money from hedge funds worldwide flowing into Shanghai.
But unlike their hedge fund cousins, less than one-third of Hong Kong’s long-only fund managers (who buy stocks hoping their prices will rise) are using the link to buy Shanghai-listed shares, according to a recent survey by the Hong Kong Investment Funds Association (HKIFA). Access from Europe has been even more measured, with only a few Luxembourg funds approved for the programme, even though a fast track application process has been put in place. Read more
Ever fancied a holiday from the internet? Complete peace of mind, a world away from the hyperreality of tweets, email, hashtags, likes, blogs and the other trappings of an ICYMI world?
Welcome to China, where, ensconsed behind the Great Firewall, you can relax, maybe shop on Alibaba, send the odd Wechat message, or fight little bug eyed jumping dragon thingies with a Kung Fu laser sword. But that’s it. No Gmail, no YouTube, no Facebook or Twitter. You’re guaranteed a relaxing disconnect from being a beast of online burden.
But it turns out not everyone appreciates the opportunity. Read more
China faces a monetary policy “wall of worry” as its economy slips towards a deflationary spiral driven by structural forces that are simultaneously dragging prices lower and depressing economic growth, analysts said on Tuesday.
The important insight, the analysts said, behind a decline in consumer price inflation (CPI) to a five year low of 0.8 per cent in January was that it was caused not by isolated or temporary factors but by a confluence of mutually-reinforcing trends that will require a concerted and accelerated easing in monetary policy if China is to avoid a deflationary cliff. Read more
By Ali Wyne, Wikistrat
This September will mark the ten-year anniversary of two documents that have been highly influential in framing contemporary analysis of America’s relationship with China: an essay by Zheng Bijian in Foreign Affairs explaining how China would achieve a “peaceful rise,” and a speech by Robert Zoellick advising China to serve as a “responsible stakeholder” in the evolution of world order.
Today the two countries are struggling to define a framework of partnership that reconciles the imperative of enduring cooperation with the inevitability of mutual suspicion. Meanwhile, initially shared enthusiasm over adopting a “new type” of great-power relations has waned, in part because of the difficulties in bringing such an abstract and ambitious ideal into existence. Read more
China’s currency policy dilemma sharpened on Monday as the country announced a record January trade surplus in spite of falling exports and reported dismal imports in spite of a strong appreciation of the renminbi against the euro and yen.
Exports contracted 3.3 per cent year on year in January, down from an increase of 9.7 per cent in December. Meanwhile, imports also declined 19.9 per cent, falling from a 2.4 per cent contraction in December. This produced a record merchandise trade surplus of $60.0bn, up from $49.6b a month ago (see chart). Read more
By Achilles Risvas, Dromeus Capital Management
Could changing tides in “carry trade” capital flows suddenly drain value from Chinese property and equities, causing the renminbi to depreciate rapidly and darken investor perceptions of China’s prospects?
Such an outcome is more likely than generally realised.
China has undeniably boomed in recent decades, thus engendering a general bias that Chinese state planners will prevail or triumph – as suggested by the more than 60 per cent run-up in the Shanghai Composite Exchange Composite Index since mid-2014. Read more
By Rodrigo Zeidan, Fundação Dom Cabral
The debate over the minimum wage in the US is an interesting one. Wages have been falling in real terms for the last 30 years but there is strong resistance to any kind of increase in the federal minimum wage. The social contract in the US calls for a flexible labour market, and market efficiency trumps equality considerations. Not even Nobel Laureates can influence the debate. But there are lessons to be learned from the strong real growth minimum wage policies in two of the Bric countries, Brazil and China. Read more
By Sammy Suzuki, AllianceBernstein
China’s millennials are better educated and more affluent than their elders. They also have a serious case of travel fever. Their favored destinations, and shopping habits abroad, could have far-reaching implications for a wide range of global companies.
China’s millennials make up a large and growing slice of the country’s most affluent citizens. It’s estimated that there are around 300m of these young consumers born between the early 1980s and 2000. They’re the first generation in the history of the People’s Republic to be raised amid relative prosperity and social stability and are the beneficiaries of the country’s roughly five-fold increase in education spending over the past decade. Read more
Emerging Asia is set to be the world’s fastest-growing region again in 2015, skirting the contagion from Russia’s crisis and riding the fall-out from weak commodity prices, according to Fitch, the credit rating agency. Nevertheless, structural frailties stalk seven out of 10 countries in the region, with surging debt levels a particular concern, the agency said.
The region, excluding China, is expected to expand by 5.9 per cent in 2015 and 6.1 per cent in 2016 – compared to an average for global emerging markets of 4.1 per cent and 4.5 per cent respectively, Fitch said in a report. These forecasts compare with the International Monetary Fund’s (IMF) estimates that developing economies would this year grow at 4.3 per cent, accelerating to 4.7 per cent in 2016. Read more
Economic slowdowns in Macau and China have driven headlines recently, but a new report by the Brookings Institute ranks Macau as the top economically performing metropolitan area in the world for 2014, followed by four Chinese cities in the top 10 and 11 in the top 20.
Macau’s casino industry took a hit over the second half of 2014, due mainly to a Chinese crackdown on corruption and graft that has reduced the number of VIP high-rollers travelling to Macau from the mainland. In December, gambling revenues hit their lowest point since 2011, and for the whole year, the industry recorded its first ever year-on-year decline – much to the dismay of casino and junket operators. Read more
By Robert Moffatt, Neuberger Berman
Throughout much of the world, auto market prospects appear sluggish. In the US, auto sales are moving back to normalised replacement demand levels, implying slowing growth. In Europe, sales are being held back by a choppy economic recovery. China, in our view, presents a different story. Despite near-term concerns about the country’s slowing GDP growth and slipping consumer confidence, we are bullish on the long-term growth prospects of Chinese autos.
The Chinese auto market went through a rapid growth spurt from 2005-2010, growing nearly six-fold in six years, from 2.5m units in 2004 to 13.75m units in 2010. This unprecedented 35 per cent compounded annual growth rate has since slowed to roughly 9 per cent, but with nearly 18m cars sold in 2013, China has displaced both the U.S. and Western Europe as the world’s largest auto market (see chart below). Read more
The press conference to announce China’s annual economic statistics is always an Orwellian affair in which bad news is given a positive spin and good news is entirely thanks to the leadership of the Communist Party Central Committee.
This year’s event, announcing the slowest growth rate in 24 years, included a less subtle pitch to the media than usual. In the midst of a soliloquy on the improving quality of growth and the ongoing rebalancing of the economy, China’s genial statistician-in-chief Ma Jiantang paused to take a breath and address the assembled journalists directly. Read more