China's economic crisis, explained

[Chinese-Dragon]

You missed my point by miles. Please read my post carefully. Even your data clearly indicates that GDP growth in a large part is due to investment - exactly what I was getting at. You already have obscene overcapacity in Industry / real estate / infra and you keep adding more because that is the only way you can maintain a plus five 5% growth. So the gap between your capacity and production requirements will increase year after year. You can't cut back because you are now riding a tiger and any precipitous fall in growth will trigger massive unemployment. This and your real estate bubble..... doesn't look too good.

Overcapacity, are you joking?

Still around half of our entire population lives in the countryside. Do you know how big half our population is?

Check the miles/km of road PER-PERSON between China and the USA. Or any kind of infrastructure at all, China falls behind all developed countries on a per-person basis when it comes to infrastructure.

Actually, anything per-capita and we are far behind any developed country. There are still miles and miles to go in terms of infrastructure, whether is miles/km of roads or hospitals per 1000 people.

The USA in fact has a significantly longer road network than we do (6.5 million km for USA compared to 4.2 million km for China), even though we have a population four times larger than them.

And let's not even talk about electricity production per capita, or power plants and electricity networks per person.

 

[Hellraiser007]

Morgan Stanley: China 'Super Bear' Scenario - Business Insider

China's disappointing June trade numbers has the market murmuring about the Chinese hard landing scenario.
To be clear, China doesn't have to be in a recession to be in a hard landing. Indeed, any significant slow down from its roughly 8% current pace of growth would be disruptive.

The Chinese government has a target growth rate of 7.5% right now.

Morgan Stanley's "Super Bear" scenario has GDP slowing to 5.5% later this year and 4.5% next year.

"The prospect of financial sector deleveraging in China increases the risk of a hard landing," said Morgan Stanley's analysts this week. "Although the probability of the hard landing is still low, it’s not low enough to make hedging costs irrelevant."

Indeed, China's economy is so levered that the BIS warns its at the risk of an all-out credit crisis. And China's regulators appear to be directing the economy in a way to take some of that leverage out, even as interest rates surged.

"The new government’s policy drive to deleverage the banking sector has become more apparent," said Morgan Stanley. "In the three months preceding the spike in money market rates, the CBRC/SAFE have announced measures to regulate interbank entrust payments, wealth-management products, leverage in bond investments, FX lending and interbank loan structures, all with the aim of curtailing the widespread use of new financial channels to grow bank assets rapidly. We think that this deleveraging will likely continue to unfold in the next 6-12 months."

So, how will it all unfold?

"In the super- bear scenario, we expect aggressive policy tightening in credit policy on LGIVs (Local Government Investment Vehicles) and property developers," continued Morgan Stanley. "The government will likely slow down the fiscal expenditure growth and adopt additional administrative measures to curb property demand. We expect the government to use aggressive moral suasion and other regulations to slow down loan growth, especially loans to LGIVs and property developers."

 

[beijingwalker]

Why India lags behind China?
(Mon, 24 Jun Pre-Open)

The global economy has slowed down significantly in recent years. While the developed economies have been struggling with high debt and flagging economic prospects, it was hoped that the emerging economies would continue their solid growth rates and herald the global recovery. But emerging economies too have started showing signs of weakness. While China is going through a choppy transition from an investment-driven export-oriented economy to a domestic consumption-led economy, India has its own set of problems in the form of economic slowdown, persistently high inflation, depreciating rupee, lack of reforms, etc.

Until some years back India and China were the fastest growing large economies, with India closing in at number two. In fact, it was argued that India's growth rate would soon trump China. But all expectations of sustained high growth rate have come under a cloud of doubt as growth has dropped to decade-low levels in recent years.

But does India lag China only in economic growth? We came across an interesting article by Nobel laureate Dr Amartya Sen. As per Dr Sen, aiming to achieve China's growth rate should not be our top concern. In fact, there are several other more critical areas where India lags far behind China.

The most important factor where India lags significantly from China is availability of essential public services such as healthcare, education, etc. India continues to have the dual problem of high illiteracy rate as well as poor standard of schools. Moreover, the public healthcare system is in a mess. While India may pride itself in being the world's largest producer of generic drugs, most poor people in the country have to rely on low-quality medicine. The reason for this is the lack of adequate expenditure on public health. For instance, China spends 2.7% of its GDP on public healthcare. Compared to that India spends a mere 1.2% of its GDP on public healthcare.

It is important to note that failure on providing these basic public services eventually takes a toll on our growth rates. As such, competing with China purely on growth rates is a misguided endeavour. Rather India should focus on the big picture and improve in these basic yet critical areas. If this is done, we believe high economic growth rates would follow in due course.

 

[Hellraiser007]

IMF’s Blanchard: No Replacement for China’s Growth Engine - Real Time Economics - WSJ

China, once considered the engine of global growth, will slow this year, and there isn’t a ready replacement, IMF Chief Economist Olivier Blanchard said this morning on WSJ.com’s MoneyBeat show.

Blanchard said he isn’t worried about a hard landing, but “China made too much investment [in its economy], and they want to tune it down,” he said. That’s going to lead to slower growth in China, and by extension the emerging markets. That slowdown, as well, will be felt in developed markets, and the U.S., he said.

A drop of two percentage points in emerging markets, he said, would drag U.S. growth by about 0.5%.

But there isn’t anything else right now that can pick up the slack of China and the other emerging markets, he said.

“You have to realize, this is the mother of all crises,” he said, “the way out is far from obvious.”

 

[beijingwalker]

India unable to spread benefits, lags behind
Chetan Chauhan, Hindustan Times New Delhi, April 12, 2013

India is behind sub-Saharan Africa in environmental sustainability and social spread of economic benefits even as it is among top six countries for amassing foreign exchange since 1995, a United Nations report said.

The report pointed out that in case of environmental disasters, around 1,200 million people in South Asia, including India, will get affected as compared to 1,000 million people in sub-Saharan Africa. Recent reports have indicated that India’s economic growth model is not environmentally sustainable and the report says that the “business as usual” model would prove environmentally disastrous.

India had witnessed high economic growth but was not able to spread its benefits across the population as some other low growth countries including African nations have done. China, Vietnam, Indonesia and Bangladesh have shown that despite low growth, income disparities in these countries were plugged.

Rajiv Chibber, who presented the report in presence of reform oriented economist and deputy chairperson planning commission Montek Singh Ahluwalia, on the other hand, said inequality in south Asia (read India) has increased since economic reforms were initiated.

Rehman Soban, noted economist from Bangladesh, said China and Korea was ahead of addressing inequality and south Asia was way back. He observed that China has leveraged its economic growth for poverty alleviation whereas India has failed on account of its “partly structured and closed” system.

Soban, from Cambridge, took another dig at Oxford educated Ahluwalia saying land was being appropriated for the industry without creating permanent benefits for dislocated people. “Many of these (dislocated) guys from Singur or Orissa land up in Gurgoan or Kolkatta as rickshaw pullers,” he said.

Ahluwalia agreed that lowe growth can result in more social gains and that was the driving force behind the UPA’s 12th five year plan (2012-17). “We have 25 monitorable goals for 12th plan which include social sector,” he said.

India’s bid to earn demographic dividend because of its may boomerang if it failed to create sufficient jobs for its youth.

 

[Hellraiser007]

Hard Landing In China Could Take Oil Down To $70 Per Barrel, Spark A Rally In Gold - Forbes

China is increasingly giving signs that a hard landing could be in the cards, as the government cracks down on financial excesses and overheating markets amid a global slowdown. If the world’s second largest economy were to slow down dramatically, it would have a substantial effect on commodity prices, given China’s outsized influence in those markets. Under an extreme scenario, oil prices could drop to around $70 per barrel while copper prices would collapse 60%. On the flip side, gold would potentially benefit from a steep sell-off in renminbi-denominated assets, according to Barclays BCS +2.44%’ economics research team.

After several months flying below the radar, China erupted into the scene over the past several weeks as a dangerous liquidity squeeze seemed to threaten the integrity of its financial system. Amid low inflation, Chinese economic data gave further troubling signals on Wednesday, as exports contracted 3.1% in June, marking their first drop in 17 months. While imports fell 0.7%, commodity imports took a steeper tumble, contracting 5.2%.
It comes as no surprise that China’s economic growth has been stalling. After expanding 9.3% in 2011, GDP expansion slowed to 7.8% according to IMF data, which downgraded their growth forecasts even further for this year and next (to 7.8% and 7.7% respectively). Things could be way worse, as “the IMF is very good at producing beautiful reports that point out the barn door is wide open, long after the animals have already run away,” as Tom Essaye of daily newsletter The Sevens Report puts it. Nomura’s economic research team suggests there’s 30% probability that GDP drops below 7% in the second half of the year. Barclays posits an even more extreme scenario.

If China were to truly suffer a hard landing GDP would have to fall to about 3%, Barclays’ global economics research team indicates. And this would have an important effect on global commodity markets. Their models show that elasticities put the fall in oil demand at 2.5% per year, which added to the de-stockpiling that would ensue, would take demand for crude down some 7% to 8%. China accounts for about 11% of global oil demand, so that means a reduction of about 500,000 barrels of oil a day in imports.

Crude has broken to the upside as of late, after remaining relatively range-bound for several months this year. A coup in Egypt that deposed President Mohamed Morsi, coupled with involuntary production cuts due to low prices and tight supplies, have helped pushed crude prices higher, with WTI breaking the $100 per barrel mark and Brent hitting its highest levels since April. And while fundamentals seem to point to even higher prices, a steep decline in Chinese demand could knock international prices (i.e. Brent) all the way down to about $70 per barrel, hurting major producers like Exxon Mobil XOM +0.48% and Chevron CVX +0.71%.

The drop would be more contained than during the 2008 crisis, Barclays’ team argues, as OPEC would deliver a swift response, which coupled with the marginal cost of production could keep prices from reaching levels as low as $36 per barrel, like they did last time around. Indeed, the beginnings of a recovery in China could help prices climb back to the $90 range quickly, they indicate, giving Big Oil some breathing room.

Another metal that is highly reactive to China is gold. China, and India, are the largest consumers of gold in the world, accounting for more than 60% of total jewelry demand and 55% of bar and coin demand in the first quarter, according to the World Gold Council.

Gold prices have taken a beating this year, bringing with them major miners like GoldCorp and Barrick Gold ABX +8.71%. Talk of the Fed taper and a move into risk assets, among other things, have pushed down bullion prices. Counter intuitively, a hard landing in China could feed demand for the yellow metal, as it could shake faith in the government’s management of the economy and lead to a sell-off in renminbi-denominated assets, Barclays argues. It could also begin to cause a change in structural demand in China, as buyers move away from purchases around festivals, high inflation, and drops in international prices, and increasingly see the yellow metal as a financial asset and a portfolio diversifier.

Base metals would take a big hit if GDP growth in China falls to 3%. Copper would hurt the most, as it’s one of the few that still trades at a nice premium to production cost and is highly leveraged to China. Barclays suggests it could drop 60% to around $2,535 a ton. From Barclays: “lead [would drop] to $850/t and zinc to just over a $1000/t (for both metals, a 40-50% fall). In contrast, the potential downside for aluminum is a lot less, of 30%, to a potential $1234/t.” On the latter point, in their latest earnings release, Alcoa AA +2.27%’s management team reiterated their expectations of 7% growth in aluminum demand and remain bullish on China.



China Back In Recession, U.S. Economy Sluggish

Now that we're well past the statistical anomalies associated with the timing of the Chinese New Year/Spring Festival holiday, the year-over-year growth rates of the value of trade between the U.S. and China indicates that China's economy has likely fallen back into recession, while the U.S. economy is growing, if sluggishly, through May 2013:

The data in the chart above has been adjusted to reflect what each nation's economy "sees" in terms of its own currency. For the most recent trends in the overall data, the value of the U.S. dollar has been falling steadily with respect to the value of the Chinese Yuan since May 2010, as the relative value of U.S. goods in China has fallen while the relative value of Chinese goods in the U.S. have become more expensive

 

[kena]

Overcapacity, are you joking?

Still around half of our entire population lives in the countryside. Do you know how big half our population is?

Check the miles/km of road PER-PERSON between China and the USA. Or any kind of infrastructure at all, China falls behind all developed countries on a per-person basis when it comes to infrastructure.

Actually, anything per-capita and we are far behind any developed country. There are still miles and miles to go in terms of infrastructure, whether is miles/km of roads or hospitals per 1000 people.

The USA in fact has a significantly longer road network than we do (6.5 million km for US compared to 4.2 million km for China), even though we have a population four times larger than them.

You do have a Frankensteinian economy with massive overcapacity in sectors such as steel, Aluminium, Autos, shipbuilding etc. Read up about it as you can easily find articles on the web.

The entire Chinese miracle is a giant fraudulent exercise which can only be performed in a tightly controlled, politically repressive centralized country. The modus operandi is to artificially depress prices of raw materials by providing huge subsidies. China has virtually been an economic cheat. It is estimated that subsidies are upto 30% of the final product cost. Come out of your subsidies and we will see how competitive you are. India should immediately ban imports of all poor quality Chinese crap which we hardly need.

 

[beijingwalker]

Why India trails China in economic growth
New York Times Jun 20, 2013, 01.05PM IST

By Amartya Sen

Modern India is, in many ways, a success. Its claim to be the world's largest democracy is not hollow. Its media is vibrant and free; Indians buy more newspapers every day than any other nation. Since independence in 1947, life expectancy at birth has more than doubled, to 66 years from 32, and per-capita income (adjusted for inflation) has grown fivefold. In recent decades, reforms pushed up the country's once sluggish growth rate to around 8 percent per year, before it fell back a couple of percentage points over the last two years. For years, India's economic growth rate ranked second among the world's large economies, after China, which it has consistently trailed by at least 1 percentage point.

The hope that India might overtake China one day in economic growth now seems a distant one. But that comparison is not what should worry Indians most. The far greater gap between India and China is in the provision of essential public services - a failing that depresses living standards and is a persistent drag on growth.

Inequality is high in both countries, but China has done far more than India to raise life expectancy, expand general education and secure health care for its people. India has elite schools of varying degrees of excellence for the privileged, but among all Indians 7 or older, nearly one in every five males and one in every three females are illiterate. And most schools are of low quality; less than half the children can divide 20 by 5, even after four years of schooling.

India may be the world's largest producer of generic medicine, but its health care system is an unregulated mess. The poor have to rely on low-quality - and sometimes exploitative - private medical care, because there isn't enough decent public care. While China devotes 2.7 percent of its gross domestic product to government spending on health care, India allots 1.2 percent.

India's underperformance can be traced to a failure to learn from the examples of so-called Asian economic development, in which rapid expansion of human capability is both a goal in itself and an integral element in achieving rapid growth. Japan pioneered that approach, starting after the Meiji Restoration in 1868, when it resolved to achieve a fully literate society within a few decades. As Kido Takayoshi, a leader of that reform, explained: "Our people are no different from the Americans or Europeans of today; it is all a matter of education or lack of education."Through investments in education and health care, Japan simultaneously enhanced living standards and labor productivity - the government collaborating with the market.

Despite the catastrophe of Japan's war years, the lessons of its development experience remained and were followed, in the postwar period, by South Korea, Taiwan, Singapore and other economies in East Asia. China, which during the Mao era made advances in land reform and basic education and health care, embarked on market reforms in the early 1980s; its huge success changed the shape of the world economy. India has paid inadequate attention to these lessons.

Is there a conundrum here that democratic India has done worse than China in educating its citizens and improving their health? Perhaps, but the puzzle need not be a brainteaser. Democratic participation, free expression and rule of law are largely realities in India, and still largely aspirations in China. India has not had a famine since independence, while China had the largest famine in recorded history, from 1958 to 1961, when Mao's disastrous Great Leap Forward killed some 30 million people. Nevertheless, using democratic means to remedy endemic problems - chronic undernourishment, a disorganized medical system or dysfunctional school systems - demands sustained deliberation, political engagement, media coverage, popular pressure. In short, more democratic process, not less.

In China, decision making takes place at the top. The country's leaders are skeptical, if not hostile, with regard to the value of multiparty democracy, but they have been strongly committed to eliminating hunger, illiteracy and medical neglect, and that is enormously to their credit.

There are inevitable fragilities in a nondemocratic system because mistakes are hard to correct. Dissent is dangerous. There is little recourse for victims of injustice. Edicts like the one-child policy can be very harsh. Still, China's present leaders have used the basic approach of accelerating development by expanding human capability with great decisiveness and skill.

 

[Chinese-Dragon]

You do have a Frankensteinian economy with massive overcapacity in sectors such as steel, Aluminium, Autos, shipbuilding etc. Read up about it as you can easily find articles on the web.

The entire Chinese miracle is a giant fraudulent exercise which can only be performed in a tightly controlled, politically repressive centralized country. The modus operandi is to artificially depress prices of raw materials by providing huge subsidies. China has virtually been an economic cheat. It is estimated that subsidies are upto 30% of the final product cost. Come out of your subsidies and we will see how competitive you are. India should immediately ban imports of all poor quality Chinese crap which we hardly need.

Is that why the Rupee is collapsing, and India is being downgraded to "junk" status? While FDI is fleeing the country in record amounts?

You should tell S&P and Moody's, and all the international investors that they have got it the wrong way round.

 

[beijingwalker]

How far ahead of India is China?
India is a decade behind China as far as the basic indicators of income are considered. The picture is far less pretty when we look at social indicators
Niranjan Rajadhyaksha

There has been ample bad news on the economy in recent months, thanks to the growth slowdown, high inflation, an investment crisis and the massive current account deficit.
Now, here is some good news: the size of the Indian economy will cross the $2 trillion mark this year, just five years after it became a trillion dollar baby.
There are two reasons why any celebration should be tempered with a dose of reality. One, the potential rate at which the economy can expand in the coming years without setting off an inflationary fire has been falling, thanks to the investment crunch. Two, what India has achieved pales in comparison with what China has done.
Some may say that the comparison is unfair, since the Chinese economic success has no parallels in human history. But China has been a benchmark to measure Indian progress, and benchmarking should always be against the best.
Two recent articles in foreign newspapers have led to renewed discussion on how the two Asian giants have fared. British historian Timothy Garton Ash recently spoke at Gateway House, a think tank in Mumbai. Garton Ash gave a civilizational spin to the issue. He said he was rooting for India because it could show that democracies can grow rapidly. The argument was repeated in his column in The Guardian.
A little earlier, Steven Rattner wrote in The New York Times: “Now the contest is emphatically over. China has lunged into the 21st century, while India is still lurching toward it.” He offered a lot of data to conclude that India has lost the race; it can only finish a respectable second in the race.
It is hard to disagree with this contention, but how big is the gap? One way of figuring this out is by comparing the two countries by size. The $9 trillion Chinese economy dwarfs the $2 trillion Indian economy on almost every count.
There is another way of looking at the race, by checking out how many years ago China was at the same level as India is today on a variety of parameters. This approach offers us some useful clues about how far behind India is right now. I have used data from the International Monetary Fund (IMF) and the World Bank. Some of the conclusions are surprising.
China was a $2 trillion economy in 2002. So India is 11 years behind China in the grand sweepstakes. Or, consider average incomes using purchasing power parity. Chinese average incomes in 2004 were at around the level that Indian average incomes are at now ($3,620). That is a nine-year gap.
The gap is narrower if we consider output per worker. The average Indian worker produces $8,401 of output a year, measured in 1990 dollars. China was at that level in 2006, not too long ago. The reason why the gap in terms of output per worker is less than that of average incomes is because China has a greater proportion of its population (especially women) in the labour force. The Indian labour participation rate is 56% versus 74% in the case of China.
Take a look at the consumption data. There is almost no difference between the two countries as far as mobile subscribers per 1,000 people is considered, but the gap is around eight years when one considers passenger cars. India currently has 12 cars per 1,000 people, a level that China crossed in 2004.
Poverty rates? The poverty headcount ratio—or the proportion of people living on less than $1.25 a day—in China in 2002 was around what it is in India today (32.7%).
So, one can broadly say that India is a decade behind China as far as the basic indicators of income are considered.
The picture is far less pretty when we look at social indicators.
For example, the proportion of Indians living in cities in 2011 (31%) was matched by China in 1995. The gap is similar when one considers access to improved sanitation. China is around 17 years ahead of India. It crossed India’s current rate of child mortality sometime before 1980 as it also did with energy use per capita.
A gap of 10 years is already a large one, especially given the pace at which the Chinese economy grows. Every percentage point growth differential in the coming years will make the gap between the two countries expand.
A lot thus depends on how fast the two economies will grow in the coming years. Investment bank Morgan Stanley believes that India will eventually outrun China. A recent IMF working paper says that the Chinese labour force will peak between 2020 and 2025, a Lewis Turning Point. The working paper is provocatively titled: Chronicle of a Decline Foretold.
The race with China has been almost lost—but perhaps there is still a whiff of a chance to close the 10-year economic gap. But one should not underestimate either the ability of China to overcome its newest challenges or the ability of India to add to its own woes.

 

[shuttler]

We are in the drivers seat steering away from a hard landing but this news sure will affect other economies like india:

Spark A Rally In Gold

And despite a softening dollar the ruuupee breaches the 60 mark again having a low of 60.2 today! Sell your ruuupees before it hits 65 soon!

 

[Hellraiser007]

Is that why the Rupee is collapsing, and India is being downgraded to "junk" status? While FDI is fleeing the country in record amounts?

You should tell S&P and Moody's, and all the international investors that they have got it the wrong way round.

FDI is coming not fleeing and India has no worries, India will grow at its own pace, But China should be worried with the recent economic data.

We are in the drivers seat steering away from a hard landing but this news sure will affect other economies like india:



And despite a softening dollar the ruuupee breaches the 60 mark again having a low of 60.2 today! Sell your ruuupees before it hits 65 soon!

Check out my post India is least affected by chinese hard landing, Devalued rupee will help India local market ....

 

[kena]

India unable to spread benefits, lags behind
Chetan Chauhan, Hindustan Times New Delhi, April 12, 2013

And I am to suppose that China has done "green" growth? Are you for real????

 

[shuttler]

Check out my post India is least affected by chinese hard landing, Devalued rupee will help India local market ....

I have pointed out the one of reasons. This is mid-July. still >75 days from end of September! fastern you seat belt!

You dont have enough economic knowledge to understand why a dropping ruupee will cause damage to your economy!

 

[kena]

We are in the drivers seat steering away from a hard landing but this news sure will affect other economies like india:



And despite a softening dollar the ruuupee breaches the 60 mark again having a low of 60.2 today! Sell your ruuupees before it hits 65 soon!

Indians don't keep savings in Rupee but in Gold. We have almost half the world's gold in private Indian hands. So, you first worry for the worthless US treasury bonds you have accumulated.