The decision of several European countries to join the China-inspired Asian Infrastructure Investment Bank has created a widely believed narrative as follows. Beijing, frustrated by its exclusion from the centres of power in existing international economic institutions, creates its own. The accession of the UK to the bank, followed by (to date) five other European countries, is a powerful testament to China’s role as a rising hegemon.
This narrative is not wrong, but is far from the whole story. First, China’s decision to bypass multilateral institutions and go it alone with development lending was hardly forced on it. Second, Beijing’s willingness to allow western nations to join the AIIB is also an admission that its bilateral efforts have often not worked well. Read more
By Derek Scissors, American Enterprise Institute
“In 2014, faced with the complicated and volatile international environment and the heavy tasks to maintain the domestic development, reform and stability, the Central Party Committee . . . seized the momentum of development, fully deepened the reform and opening up, focused on the innovation of macro control, tapped into the vitality of the market and fostered the driving force of innovation.”
That is the start to today’s National Bureau of Statistics’ (NBS) press release on the economy, a reminder that Chinese statistics are published at the pleasure of the Communist Party. Read more
By Rafael Halpin, China Confidential
At the start of his premiership, Li Keqiang drew on an ancient Chinese proverb to explain the task ahead. A Chinese warrior, having been bitten by a snake, cuts off his hand in order to save his body. China’s reform process will be “very painful and even feel like cutting one’s wrist”, Li warned.
Pain has certainly been part of 2014 for the Chinese economy. To a large extent, it has been self-inflicted. Measures to deleverage the shadow financing system, for example, led to a sharp slowdown in credit, which in turn contributed to a drop in home sales. This has resulted in slower growth in industrial output, as well as weaker consumer purchases of cars and white goods. Meanwhile, anti-corruption campaigns have hit spending on luxury goods and services and led to delays in the approval of new projects by local officials. Read more
By Gabriel Sterne and Alessandro Theiss, Oxford Economics
If there was a financial crisis in China, the government could take a big hit, transferring a huge chunk of bad debts onto its balance sheet. But this remedy would have a big impact on the domestic and global economy.
Overall debt (public, private and financial) has skyrocketed in recent years, rising from 176 per cent of GDP in 2007, to 258 per cent of GDP by mid-2014. The debt binge may be fuelling a time bomb in the property market. Read more
“If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.”
For about two weeks in late October, it seemed as if these optimistic words from Calvin Coolidge, the former US president, might have encapsulated the mindset of emerging market (EM) investors.
But the late October rally in EM financial assets has now stalled. Investors are relinquishing hopes that market troubles may turn out to be mere phantoms and focusing again on the very real problems coming their way. Four of the most intractable are set out below. Read more
Unofficial readings on China’s industrial activity released on Thursday add to a sense that the underlying economic vibrancy of the world’s second largest economy may have continued its ebbing trend into October.
This may surprise those who bought into the notion that industrial output rebounded strongly in September, rising to 8 per cent year on year, up from 6.9 per cent in August. In fact, though, that September “rebound” was largely the result of a big statistical base effect, according to China Confidential research.
Similarly, the announcement on Thursday of a pick up in HSBC/Markit’s manufacturing Purchasing Manager’s Index (PMI) to 50.4 in October so far – up from 50.2 in September – is misleading. In fact, readings on manufacturing output and new orders – the key measures of industrial vibrancy – revealed markedly weaker trends. Read more
In a private meeting with the US Ambassador to China in 2007, provincial Communist Party secretary Li Keqiang described his country’s GDP figures as “man-made” and unreliable.
To get a good idea of what was happening to the economy in his province of Liaoning, Li said he preferred to focus on three alternative indicators: electricity consumption, volume of rail cargo and the amount of loans disbursed.
All other figures, and especially GDP statistics, were “for reference only”, Li told the Ambassador, with a broad smile on his face. Read more
A reported export surge in September is failing to dispel the gloom suffusing forecasts for China’s third quarter GDP growth, which several economists predict will slump to a five-year low.
One problem lies with the export numbers themselves, which raise suspicions that over-invoicing may once again be artificially inflating export statistics as Chinese smuggle hot money into the mainland from Hong Kong to take advantage of an appreciating renminbi. Read more
A surge in fake invoicing is once again inflating China’s export figures, according to a survey, raising questions over a mysterious recent ballooning in Beijing’s trade surplus and suggesting that inflows of hot money may be rising.
A survey of executives at 200 export companies, trading firms and shipping agents in China in September revealed a spike in the number of respondents who think over-invoicing of exports is resurgent (see chart). The levels are reminiscent of late 2013, when hot money inflows prompted a managed depreciation of the renminbi. Read more
Wealth is not necessarily translating into health for China’s growing cohort of millionaires, many of whom complain of eating disorders, too much alcohol and an average of just 6.2 hours of sleep a night (see chart).
Fast living is blamed for a variety of ailments, with around a third of millionaires (those with a personal wealth of Rmb10m or US$1.6m, £1m) suffering from insomnia, headaches, fatigue and memory loss while smaller proportions endure hair loss, immune problems, numb limbs and smokers’ coughs, according to a survey by Hurun Research Institute released on Friday.
Such conditions underpin a burgeoning demand among wealthy Chinese for products, treatments and lifestyle choices that are thought to confer health. “There is a clear trend among the Chinese millionaire class towards exercise, eating more carefully and generally taking better care of their bodies,” said Rupert Hoogewerf, chairman of the Hurun Report. Read more
China’s factories suffered a fourth consecutive month of contracting activity in April, according to a private survey on Monday, suggesting a GDP growth slowdown in the world’s second largest economy is extending into the second quarter of the year.
Outside China, the slowdown threatens to exacerbate the impact on several vulnerable emerging market economies (check out the ranking here). Inside China, the softening economy is fostering a yawning divergence in fortunes – with some regions, sectors and people feeling it far worse than others. Read more
This news that China is poised to overtake the US as the world’s largest economy in purchasing power parity terms has prompted plenty of discussion. But, as Jamil Anderlini, the FT’s Beijing bureau chief, points out, size isn’t everything. So here is yet another way of looking at China’s place in the global economy and another excuse to mull how we measure these things.
In a new report, the big brains at the McKinsey Global Institute, the consulting house’s own think-tank, try to capture the ways in which globalisation and particularly “flows” of capital, goods, services, people, and data are exploding and finding new forms. They argue that the world today is as much about the flow of data and services as the traditional trade in goods. And they point out that, increasingly, trade is really about “knowledge-intensive” goods and service. In 2012 the trade in knowledge-intensive goods and services – think computer chips, smart phones etc – accounted for $12.6tn of the total $26tn in global “flows”. Read more
China’s release of GDP data on Wednesday is triggering a fresh bout of scepticism over the accuracy of Beijing’s statistics. The key question is whether the reported GDP growth rate of 7.4 per cent in the first quarter gives a misleadingly strong impression of the real state of the world’s second largest economy?
“In our view, the 7.4% YoY growth does not reflect the full scale of the economic slowdown in 1Q14, and the actual growth is closer to 7.0-7.2% YoY,” wrote Shen Jianguang, economist at Mizuho Securities in Hong Kong. Read more
There is no doubt that emerging market (EM) investors have cheered up considerably of late. Following a torrid January and February, virtually all asset classes in the EM universe appear – on aggregate at least – to be gaining in value.
The bellwether stock index, the MSCI EM index, is up 9.6 per cent from its low on February 5. EM sovereign bonds are yielding an average of 5.51 per cent, down 0.37 per cent since January 1. Local currency bonds are, in many cases, producing stellar returns sharpened by windfall currency gains. Indeed, some EM currencies are among the world’s best performers, with the Indonesian rupiah rising 7.81 per cent, the Brazilian real gaining 7.3 per cent and the Indian rupee climbing 2.8 per cent so far this year. Read more
Investment banks slashed forecasts for China’s GDP growth on Thursday after Beijing reported the biggest slowdown in investment for more than a decade and the slowest retail sales expansion for nine years. Confidence was further undermined by news that a well-known steel mill has failed to repay loans that came due last week.
Ting Lu, China economist at Bank of America Merrill Lynch, said the bank was cutting its first quarter GDP growth forecast to 7.3 per cent from 8 per cent and the full year forecast to 7.2 per cent from 7.6 per cent previously. Nomura Securities revised down its first quarter forecast to 7.3 per cent from 7.5 per cent previously but kept its full year prediction at 7.4 per cent. UBS revised down its full year forecast to 7.5 per cent from 7.8 per cent previously. Read more
For many emerging markets, the most worrying aspect of Chinese economic statistics announced on Thursday is that they reveal a slump in the construction spree that has sucked in vast quantities of metal ores and other commodities from Latin America, Africa, Russia and parts of Asia.
But which EM economies are most vulnerable as China throws the commodity cycle out of joint? Craig Botham, emerging markets strategist at Schroders, has come up with a vulnerability ranking (see chart) that identifies the exposure of EM countries to a slowdown in net non-food commodity exports to China. Read more
A gloomy outlook for key Chinese economic data to be announced on Thursday is prompting analysts to predict that Beijing may take steps to stimulate the economy to prevent GDP growth from falling too far below its target of “about 7.5 per cent” this year.
The shifting perceptions follow a downbeat forecast from the State Information Centre, a government think tank, which projected GDP growth in the first quarter of this year may come in at “nearly 7.5 per cent”, down from 7.7 per cent in the whole of 2013. It also said fixed asset investment – a key indicator of Chinese demand for metal ores, steel, cement and other inputs – would grow at 18.6 per cent in the quarter, down 2.3 per cent year on year. Read more
When China’s premier was an up-and-comer in the provinces, he famously told US diplomats that he looked at indicators including electricity consumption and freight transport to gauge the true state of the world’s second largest economy. According to a Wikileaks cable, Li Keqiang said such figures were more reliable than the government’s own official GDP growth number.
Embarrassingly for the then premier, Wen Jiabao, the “Keqiang index” was thus christened and was subsequently used by economists to cross-check the GDP growth numbers revealed every March at the annual session of China’s parliament, the National People’s Congress. Read more
So rarely does China’s official GDP growth target bear more than a passing resemblance to subsequent reality (see chart), that it might be regarded as a less than useful indicator.
This year, however, much is riding on which number – if any –Beijing announces as its GDP target for 2014 at the annual National People’s Congress (NPC), which convenes on Wednesday. There are several potential permutations, each of which may indicate very different policy intentions. Read more
Just when world markets need them least, new signs of underlying economic weakness are emerging from China.
Data from China Confidential, an FT research service on China, show that the real estate market – one of the key 2013 engines of Chinese growth – is starting to sputter. Read more