"Per CBB's Scissors,
#China
is not “suddenly” doing poorly; its economy “has been off course for at least 14yrs & continues to slowly grind to a halt.”
“Debt is rising & demographics are starting to bite,” w/little hope govt stimulus can overcome that"
"
#Evergrande
’s funding channels started drying up well before last wk...The co started forcing staff to help bail it out via short-term loans last April...70-80% of employees across
#China
were asked to put up money used to help fund Evergrande ops"
1)
#Evergrande
may cause systemic stress
2) Evergrande won't be
#China
’s
#Lehman
moment
3) Evergrande's demise may open up clever trade opportunities for savvy investors
Soon as everyone realizes that all 3 of these can be true at the same time, a more sane dialogue can begin.
Even for Beiiing, tonight's numbers were a real doozy. Official 2022 GDP growth = 3%. Q4 = 2.9%.
Reality?
Our proxy indicators suggest GDP growth was <2% for 2022. Q4 was a clear contraction.
#China
's econ model didn't "break" & this didn't happen in 2023.
For a decade+ it was stretched beyond its limits. When shift finally came—2021?—it was bc Beijing saw it as no longer sustainable.
We explained this at the time. So did the CCP! Who whiffed totally? Wall Street.
#China
’s 40y boom is over. What comes next? The economic model that took the country from poverty to great-power status seems broken, and everywhere are signs of distress. (HT
@knowledge_vital
)
Solid thread until Lehman comparison, when it goes off the rails.
#1
key pt to internalize:
#China
is a non-commercial financial system. There will be systemic stress, there will be long-term stagnation. But those waiting around for a Lehman moment are watching the wrong movie.
1/31
Evergande and other Chinese developers stocks dropping off a cliff in the HK morning session today.
Here is what you need to know about why Chinese Real Estate may impact crypto and even US markets.
"
#Bridgewater
has managed Chinese govt money since '93, w/clients that incl the $1T SWF China Investment Corp & State Administration of Foreign Exchange...In total, it oversees abt $5B for the 2 entities, making
#China
1 of its biggest clients by assets"
"
#China
is increasingly barring people from leaving the country, including foreign execs, a jarring message as Beijing says the country is open for business after 3yrs of tight restrictions...Scores of Chinese & foreigners have been ensnared by exit bans"
Scissors takes aim at the China watching field:
"
#China
is not collapsing...No credibility: economists recently 'discovering' these problems. Worse: financial commentators screeching stimulus or death...🇨🇳’s economy has been off course for at least 14yrs"
Over 3yrs ago we started writing about how Beijing was proactively committing to deflating the property bubble.
Everyone nodded their heads.
Turns out now that some analysts didn't comprehend what "deflate" would actually mean. Did people think it would be pretty?
#China
's EV & battery sectors were massively subsidized, & ring-fenced, starting around 2009.
A decade later Beijing began to liberalize these rules, but only *after* key champions (BYD, CATL, etc.) achieved scale.
Now we're being told how successful the "private sector" is.
At Harvard Kennedy School, excited to debunk 2 stereotypes about Chinese industrial policy. (1) It's mostly about direct subsidies.
While subsidies still exist, gone far beyond that outdated model. Govt has learned to work with private venture capital (VC) or behave like one.
"There are many eyebrow-raising practices. Eg, a subsidiary raised $1 billion against a certain project. Another sub consolidates the balance sheet of the 1st & also borrows $1 billion from the same project.. meaning an asset is pledged away many times"
"According to CFR's
@Brad_Setser
, the data suggest that “foreign companies are no longer reinvesting back in
#China
” & instead “are getting [their] profits out of the country as fast as they can.”
'Twas a mere 2wks ago that de-dollarization gurus plastered this site w/panic-spam abt how
#Russia
&
#China
(&
#Turkey
&
#SouthAfrica
) we're on the verge of combining their currencies into 1 big mega currency to challenge the $.
Lots of old tweets being quietly deleted this wkd
**CRUCIAL CHINA POLICY UPDATE**
It has come to our attention that a friend's uncle apparently told his cousin last week that Wang Huning let it slip during happy hour that
#China
may consider banning lemonade.
This could be BIG, so act quickly before it's trending on Weibo.
"A top quant at JPM accused colleagues of allowing political bias to influence their mkt research. “So our commodity guys base their forecast on our FX forecast, which is based on our economist forecast, which is based on party preference”
Now do
#China
"McKinsey's think-tank advised
#China
to deepen coop'n bt business & the military & push foreign cos out of sensitive industries as part of its project for Beijing in 2015"
This is MIND-BLOWING. McKinsey is literally the godfather of Made-in-China 2025.
We can all agree
#China
is recovering well from
#COVID
. But its economy did NOT expand YoY in Q3. We have huge amts of data on this.
So Q for all the bank economists making outlandish Q3 GDP growth calls of 5%+: Based on what? Anything other than govt claims?
SHOW. YOUR. WORK.
"The leading assn of global chip cos warns that
#Huawei
is building a collection of secret chip-fabrication facilities across
#China
, a shadow manufacturing network that would let the blacklisted firm skirt 🇺🇸 sanctions & enable its technology ambitions"
*READ OF THE WEEKEND*
"Chief among
#CHIPS
Act problems: red tape. From 1990-20, time req'd to construct new fabs in 🇺🇲 soared by 38%. Clean Air Act permits take 18mos. Enviro reviews take 4.5yrs. Endless other fed, state & local laws come into play..."
Current Wall St logic:
-bad 🇨🇳 econ data = positive bc that'll convince Xi to pivot
-riots vs Covid Zero = positive bc that'll convince Xi to pivot
-easing property = positive bc it'll help developers
-not easing property = positive bc bad data will cause Xi to pivot
Got it.
Biggest difference is that
#Japan
got rich before it got old.
#China
got old before it got rich. Means the demographic headwinds will be substantially rougher.
China State Construction Engineering Corp. proudly reported that one of its employees stamped documents 700 million times in 2000. Assuming a 40-hour workweek, this means she stamps 5500+ times per minute, or 3-4 times faster than the MG42, the fastest single barrel machine gun.
Many have asked us to step in to clarify what's really going on across
#China
's faltering economy.
As
@michaelxpettis
notes, the critical issue is "stimulus" vs loan demand.
But
@ChinaBeigeBook
data over past 6+ mos show there is much more here than meets the eye.
*THREAD*
1/
2/2
If businesses aren't investing because demand for their products is weak, forcing banks to expand credit to them will only feed the wrong kind of credit.
"South Korea exported more goods to the US than to
#China
last yr for 1st time in 2 decades, a shifting trade pattern as 🇺🇸 draws more allies into its
#supplychains
...Goods exports to 🇨🇳 ⬇️10% to $122B bt 2021-22, while to the US ⬆️ by >22%, to $139B"
"
#China
told US banks
#GoldmanSachs
&
#JPMorgan
to avoid publishing politically sensitive info ahead of key Communist Party summit"
We shld stop pretending these shops do real research & recognize them for what they are: marketing arms for their bankers.
"The Chinese economic growth model ‘as we know it is over,’
@ChinaBeigeBook
CEO says"
We've been saying this for years, but markets are *finally* listening
"Net foreign direct investment (FDI) in
#China
tumbled to its lowest quarterly level in >2 decades in Q2, buffeted by overseas firms’
#supplychain
concerns & geopolitical tensions"
New 🇨🇳govt trade data confirm that exports continue to keep
#China
afloat & domestic consumption continues to be mindnumbingly weak.
So lets be done w/all the China weakness foreshadows developed world pain commentaries. China is dependent on 🌏 for growth, not other way around.
YES & YES. We keep hearing everyone say how desperately there needs to be a policy solution to this slowdown. The Party needs to...do something!
But that's incorrect, the slowdown is the solution. It's baked. Trick will be to maintain political & social stability as it happens.
2/5
That is probably why it seems that many of the recent policies initiatives are driven more by the need to be seen doing something than by a clear understanding of what needs to be done.
The problem is that it is not at all clear to me that there is any "solution".
Per the hit, there are 3 somewhat discrete 🇨🇳 economic problems right now being conflated into 1 "crisis":
1. Deflating property bubble: painful but engineered, overblown
2. Shadow banks wobbling:
painful but engineered, overblown
3. Refusal to do consumer stimulus: baffling
The data coming out of China has been grim, but
@ChinaBeigeBook
CEO Leland Miller says we need to keep the negative sentiment in perspective: "I think relatively speaking, people are too bearish because all we're hearing about is collapse."
China's non-manufacturing PMI sub-components:
- Construction: 60.2 (Feb) to 65.6 (Mar): +5.4 (m/m)
- Services: 55.6 (Feb) to 56.9 (Mar): +1.3 (m/m)
Construction and govt spending is supercharging this PMI, not surging household/consumer spending.
Shanghai subway just now, Friday night at about 11pm. The sustained closures are truly remarkable. Still hard to believe people have fully baked in the entirety of the economic impact of the lockdowns here in China.
"Setting tongues a wag in world of Chinese astrology: 2020 is yr of Geng-Zi, or metal rat, which comes once every 60yrs. Each =a history-shaking incident. 1840: Opium War. 1900: Boxer Rebellion (started mos earlier). 1960: famine from Great Leap Forward"
"Starkest warning yet comes from Hunan Valin Iron & Steel, which met to discuss the rapid downturn in the
#steel
sector & measures the co must take to ensure its survival, incl halting unprofitable production...They expect the crisis to persist for 5yrs"
Few noticed...the very quiet post-Christmas downward revision of
#China
's 2022 GDP.
This will provide a welcome boost to the 2023 figure, getting it right where they want it.
"Global fund managers say they are rushing to meet client demand for new Asian investment products that exclude
#China
, as investor appetite for the region’s largest economy is hit by slowing growth & mounting geopol risk"
“
#China
went on a lending spree & issued 1000s of loans worth >1T dollars for big-ticket infrastructure in 150 countries. Now, many borrowers are having difficulty repaying...In 2010, only 5% of overseas borrowers were in financial distress. Today: 60%”
"DefSec Austin argued in a tense video call w/TreasurySec Yellen that
#CFIUS
should block the deal. Treasury disagreed. It found concerns over
#China
too abstract & believed scuttling a deal would be improper market interference"
Same story, different day
“Beijing is pushing manufacturers to maintain or speed up their growth in output despite shortages of labor & lack of domestic demand for what they produce, notes Scissors, chief economist at
@ChinaBeigeBook
...
1/3
There would be no need for ‘different tools’ if Commerce didn't lard every high-profile action with endless backdoor licenses & exemptions, most carefully hidden from public scrutiny.
Make no mistake: The failure of these export controls is by design.
This is the 10 millionth time Beiiing has announced support for the private sector. It's never real, or sustained, bc all of Xi's instincts & goals push policy strongly in the other direction.
But westerners invariably believe it's real & report it as fact.
Rinse, repeat.
I first heard the term “two unwaverings” when I edited a story by
@PeterMartin_PCM
back in late 2018.
Now 4.5 years later, the party is still having to reiterating its “unwavering” for the private sector.
Weird that the message isn’t getting across.
“It’s the question of questions,” says AsiaSociety's Schell, “If you have a good thing going, why screw it up?”
Xi is far from blameless, but he never had "a good thing going." He's coping w/a dying economic model & is moving to forestall the fallout.
Curious you'd wish to take credit for that.
China's credit explosion during the GFC & its aftermath is why policymakers in Beijing now feel completely incapable of pulling the economy out of its structural decline, even temporarily. It broke the model.
"The fracturing
#supplychain
is rippling across Asia, causing a spike in industrial land prices in
#Vietnam
, a revival of manufacturing in
#Malaysia
& surge in demand for low-wage workers in
#India
. For
#China
, it is siphoning away manufacturing activity"
Analysts who continue to forecast massive stimulus need to start getting named & shamed.
That is neither what's happening nor what the leadership itself says it wants to happen.
So why do we keep hearing it? Bc stimulus rumors drive trading flows & thus Wall St yr-end bonuses.
#China
disappoints the markets with its 'around 5%'
#GDP
growth target - dashing hopes of massive stimulus. Real estate stocks fall on warnings of 'hidden dangers' while defense stocks rise on more spending
@cnbci
"
@ChinaBeigeBook
publishes
#China
activity indicators using hi-frequency data"
Yes, & we don't publish silly "leading econ indicators" that are just the derivatives of flawed govt statistics.
Every single thing we put out is independently collected data.
"Droves of Chinese farmers are showing up in Russia looking for arable land...In the Xi era there have been even more border crossings & Moscow is increasingly having to deal w/its farmers fuming over 🇨🇳competitors...More Chinese are likely on the way..."
"China Merchants Bank has suspended a USD remittance service as Beijing steps up efforts to scrutinize
#outflows
. The program allowed forex remittances to overseas accts thru automatic, periodic transfers, w/limits of US$30K for any single transaction"
China is unlikely to hit back at the U.S. blow for blow over the Biden administration's new investment ban on certain Chinese technology companies, limited both in its ability and desire to fire a big salvo.
@lizalinwsj
@DanStrumpf
@Kubota_Yoko
A Chinese business consultant in a Ted-style talk justified zero-Covid policy by saying that in 10 years the West will be brought to its knees b/c long-Covid, which will decimate most of its labor force.
“In
#China
, we've found...the main effect on consumption is income," GS's Han said. "Ppl need to have income to consume"
Genius! Goldman's China shop has finally discovered that financially-suppressed consumers won't spend...
1/5
China now is going from door-to-door to check the expiration date of home appliances such as washing machine, air conditioner, TV, and gas stove.
If your home appliances expire, authorities will force you to buy new ones —— It's Xi Jinping's plan to boost domestic consumption.
3) Our May flash data are up in a few days, so we'll see...but there is as of yet no sign of meaningful
#stimulus
.
4) Independent of lockdowns,
#China
's economy is going to slow *precipitously* in coming yrs. And markets still aren't ready for that.
10/
Citi, one of the most bullish on China's growth, has cut its 2022 GDP forecast to 4.2% (vs 5.1% previously)
Morgan Stanley and S&P have also cut to 4.2%
JPMorgan to 4.3%
"
#Russia
has announced suspension of S-400 surface-to-air missile systems to
#China
...Suspension comes after Moscow recently accused Beijing of spying"
"Lithium miners are scaling back plans to expand production after slowing demand in
#China
for
#EVs
crushed its price...Price of
#lithium
has tumbled >80% in past yr to $13,200/tonne, lowest since 2020, after excessive levels of supply hit the market"
"Signs of stress are appearing in 🇨🇳 banks’ loan books, as more of their corp loans to developers go sour...“We haven’t seen such a high level of bad
#property
loans in over a decade”
Balance sheets only provide visibility into the tip of the NPL iceberg
“There's recognition the old build, build, build playbook does not work anymore & is actually getting dangerous,” CBB's Miller tells
@FT
. Beijing cant wait any longer to change the growth model. I wont be surprised if a decade from now GDP growth is 1-2%”
"All the evidence I’m seeing is that
#China
's economic data is a lot weaker than I thought, than anyone thought,” said Thomson, head of intl equity at T.RowePrice.
Sounds like someone needs access to better data
For those anxiously reading 🇨🇳 headlines today...& working themselves into a panic:
#Evergrande
's demise in 2021 didn't lead to a Lehman Moment in
#China
...& the disintegration of its already dead husk in 2024 won't either.
Remember what we know about China's financial system:
Once again, our regular reminder that high GDP growth does NOT mechanically drive global growth. Trade does.
Perpetually high exports & weak imports mean
#China
is hoovering up demand from the rest of the world, not "driving" it.
It’s important to present analyses of China’s growth headwinds alongside these kinds of facts and projections.
“China will account for about 21% of the world’s new economic activity from this year through 2029.”
China's real retail sales are a staggering 17% below pre-covid trend. Unless we see a strong and sustained recovery the day zero covid ends, China won't go back to being a high-growth country that can catch up to developed economies.
Every day someone insists we're just one day away from Big Stimulus, which will swoosh in like a tidal wave & bail out everybody's suffering 🇨🇳 portfolio.
We've been pushing back against this for...4 yrs now. Few listened then, remarkable how few are listening now.
Wow! The Hang Seng Index is down a whopping 4% today after another round of poor
#China
Macro data.
How long until China defies gravity and starts adding massive amounts of
#liquidity
despite its swiftly rising
#debt
pile?
Everyone is so sure there is a plan.
Within about 10 days we'll see if there is actually a plan.
There are very high odds they are simply playing it by ear.
"Joske uncovered roughly 2 dozen cases of Western universities that had hosted researchers from the Chinese military who had claimed to be students elsewhere, including universities that did not exist."
Nice due diligence by the administrators
Amusing
@LHSummers
quote today at an Omfif forum:
"
#Europe
is a museum,
#Japan
is a nursing home,
#China
is a jail &
#Bitcoin
is an experiment," so the
#Dollar
as the global reserve currency still has a pretty long run to go."
Let's be honest. To be recorded as a
#Covid
death in
#China
you basically have to utter "I am...literally...dying...of...Covid" as you physically expire. Or else they report it as something else.
Hold up. When is the last time Chinese demand wasn't "soggy"?
We routinely forget that 🇨🇳 consumption has disappointed year after year.
Point of fact, GDP doesn't drive global growth, trade does. Imports do. The idea that 🇨🇳 is or has been the global growth driver is a fallacy.
The risk for the global economy is that a prolonged spell of soggy demand in China holds back growth everywhere else. Already, U.S. companies have warned of disappointing sales in China and a gloomier outlook in what had long been a dependable market.
We have a winner!
Over 1/2 of Chinese listed firms now claim to be not merely profitable during the Q1 national shutdown, but see *rising* profits from this time last yr.
Economics is dead. Long live Party reporting.
"In almost 40 yrs of analyzing
#commodities
mkts, Suderman says he has never witnessed an industry-jolting event as dramatic as the contagion spreading across
#China
’s pig farms"
This is just starting to get the proper attention. Big deal.
Sorry David, rewrote this for you:
"China's economy is poised for a historic slowdown despite the fact that most economists massively underestimated
#China
's slowdown until yesterday's Bloomberg article"