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I've been calling this one for YEARS.  About time.  The Chinese are....


China Stocks Drop To Fresh Post-2009 Lows Following Plunge In Industrial Company Profits
Submitted by Tyler Durden on 08/27/2012 04:33 -0400

Bank of AmericaBank of AmericaCarbon EmissionsChinaDeutsche BankEurozoneHong KongJim ReidMonetary PolicyRealityWen JiabaoYuan

Today the Chinese stock market did something unthinkable: it plunged to fresh post 2009 lows on news so bad they would have been enough to send the stock markets of such "developed" bizarro economies as the US and Europe limit up. The catalyst, as Bloomberg reports, was that Chinese industrial companies’ profits fell in July by the most this year, a government report showed today, adding to evidence the nation’s economic slowdown is deepening. Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the fourth straight decline, National Bureau of Statistics data today showed. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May. What is disturbing is that the slide persisted even as revenue in the first seven months increased 10.6 percent to 50 trillion yuan, today’s report showed. Which means that cost and wage pressures are starting to truly bite Chinese corporations, that the US ability to export inflation to China is much more limited, and that one can forget the PBOC easing monetary conditions any time soon for many of the reasons discussed in the past week. It also means that China is now stuck hoping that Wen Jiabao will at least implement some fiscal stimulus. The reality however, judging by the SHCOMP's reaction, is that the benefit from fiscal programs in China, and everywhere else, is far more limited than monetary policy intervention. End result: SHCOMP down 1.74%,to 2,055, a three year low.

From Bloomberg:

Today’s data add pressure on the government to step up policy easing to reverse a slowdown that may extend into a seventh quarter. On an inspection of Guangdong province from Aug. 24 to 25, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the Xinhua News Agency reported.

“The economy is slowing faster than what had previously been expected,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. The profit outlook is for “further weakness throughout the year,” he said.

Industrial companies’ profits in the first seven months of the year declined 2.7 percent to 2.7 trillion yuan, according to today’s statement. That compares with a 2.2 percent drop in the first half and a 28.3 percent gain in the same period in 2011.

Bank of America and Deutsche Bank AG this month reduced their forecasts for full-year economic expansion to 7.7 percent, which would be the slowest pace since 1999. Wen in March set a target of 7.5 percent.

Company profits are declining amid falling prices, higher costs and slower demand.

Xinjiang Goldwind Science & Technology Co. (2208), China’s second- biggest maker of wind turbines, said last week that first-half profit slumped 83 percent as competition intensified and market growth slowed.

Deutsche Bank's Jim Reid had this to add:

Asian equities are weaker despite the positive US lead on Friday. The Hang Seng and the Shanghai Composite are down 0.15% and 1.32% as we type as China‘s latest industrial profits dropped 5.4%yoy in July (-2.4% year-to-date). Chinese Premier Wen was quoted by state media over the weekend as saying that “negative factors…will affect stable economic operations in the second half” and the difficulties of estabilising growth are “relatively large”. Adding to the negative sentiment, BHP Billiton CEO commented that he expects ''long-term'' price declines for the miner's commodities as slower economic expansion in China weighs on demand. Iron ore prices continue to fall with the spot benchmark down for its 8th consecutive day on Friday.

We showed the iron ore collapse previously here.

Finally, the Telegraph adds some more color on what is now China's last recourse, namely more fiscal stimulus, since courtesy of the risk of soaring Soybean prices first predicted here over a month ago, and since confirmed, the PBOC's hands are tied:

 The Telegraph has travelled to the south of China over recent days to witness a slowdown in the coastal economy and in the export sector, and also to areas which are flourishing with new investment, and where the local economy is booming. The picture appears mixed. China, geographically almost the same size as the Eurozone, appears to be struggling in some areas and flourishing in others. A new inland corridor, running from Liaoning in the north to Guizhou in the south, through cities such as Wuhan and Changsha, is booming.

In response, Guangdong has unveiled 177 "core projects" worth 1 trillion yuan, joining a long list of local governments to announce "stimulus" plans. The huge cities of Chongqing and Tianjin, meanwhile, both said they would spend 1.5 trillion yuan, while Guizhou, one of China's poorest provinces, has said it will spend 3 trillion yuan on eco-tourism and creating a series of national parks.

The central government, meanwhile, said it would spend to plough 2.4 trillion yuan into reducing carbon emissions and energy conservation programmes over the next three years, and has already set aside 26bn yuan in subsidies to encourage consumers to switch to low-energy appliances.

The role call of announcements may be a signal that after half a year of fine-tuning monetary policy, the government is preparing to take more drastic measures.

While the Communist party had pencilled in slower growth of 7.5pc for this year, in order to restructure and rebalance the economy, there are indications that China may suffer, or may already have suffered, a "hard landing", where growth would fall to below 7pc.

"A hard landing in China would look like the fourth quarter of 2008 and the first quarter of 2009 when exports collapsed, factories had no orders and migrant workers were laid off by the tens of millions," says Wang Tao, an economist at UBS.

Mr Wen said many "negative factors" would continue "to affect stable economic operations in the second half" and that the difficulties of boosting growth are "still relatively large".

"Facing the current difficulties, we have to improve the operating environment for companies and enhance the corporate confidence," he said.

At this point all we can add is that we are jealous and envious of China, where men are men, women are women, bad news are no longer not good news, and things are finally starting to make sense. As reported earlier, expect US stocks to soar on the realization that for China a hard landing now looks inevitable.

China announces £800bn stimulus to boost confidence
China has announced a total of 8 trillion yuan (£800bn) of "stimulus projects" to try to boost confidence in an economy that appears to be cooling faster than expected.

China's export sector is suffering from anaemic demand from Europe and the United States. In the first seven months, exports rose 7.8pc, while imports rose 6.4pc, leaving China in danger of missing its 10pc target for trade growth this year. Photo: Reuters
Malcolm Moore

By Malcolm Moore, in Beijing

7:00PM BST 26 Aug 2012

Comments114 Comments

One Chinese province after another has stepped forward over the last fortnight to announce their plans, in what appears to be a propaganda effort to reassure the public that the economy is still on track.

Meanwhile, Wen Jiabao, the Chinese premier, promised over the weekend that the Chinese government would intensify its efforts to boost the economy in the second half of the year.

On a visit to Guangdong, the heartland of China's export industry, Mr Wen warned that "there will still be a lot of problems and uncertainties in      :icon_study:    


Thanks for link to the Telegraph article.  £800bn is not chump change.  I hope they use some of this money to fix some bridges.

From the Telegraph article:

"Many of the new stimulus projects appear to simply be restatements of existing commitments, and there was no indication of how they will be funded."

So I guess we'll find out if this is BS or the real deal when/if it happens....and isn't (at least partially) a "restatement of existing commitments".

I think they probably will "really" do it because the newz coming out of China is getting pretty crappy lately.  Like stories of non-performing loans and  mounting piles of unsold goods.

Bags of toys stored at a shop in a wholesale market in Guangzhou, a city in southeast China

...and it's not just bridges that are broken..."Broken Dreams" (emphasis added):

China: Broken Dreams

Despite the country's rapid economic growth, many young Chinese are growing disillusioned as they struggle to find jobs.

101 East Last Modified: 24 Aug 2012 17:39

Many young Chinese are losing faith in China's economic miracle.

Although the nation's economy has expanded to more than $7 trillion and is poised to overtake the US in the next decade as the world's largest, fewer Chinese feel they are sharing in the prosperity.

A sense of disillusionment is spreading, particularly among the post-1980 generation, who are well-educated and mobile but still struggle to find profitable jobs.

Signs that the economy is slowing only add to the malaise. The Chinese government predicts the economy will grow by 7.5 per cent in 2012, down from 9.2 per cent last year, which would be the slowest growth rate since 1990. Economists say this could mean the loss of two million jobs.

At the same time a record number of new graduates are looking for work. Some 25 million Chinese will be on the job hunt this year. Even those who find work are frequently disappointed.

Surveys show that young Chinese office workers in big cities are widely unhappy. Most complain of a feeling of insecurity.

After two decades of economic reform, per capita GDP has risen 13-fold, and average salaries in major cities are on par with those in many developed countries. The post-80s generation, the first to come of age in this era of opportunity, has been raised on a belief that if one can do well in school, graduate from a good university and work hard on his or her career, one can enjoy a measure of success.

Instead, many find themselves squeezed by skyrocketing housing costs, rising prices for basic necessities and family pressures. As a large percentage of the post-80s generation are only children, they alone will be expected to provide for their parents and older relatives.

As many as three million young Chinese professionals toil in slum-like conditions in cramped housing on the outskirts of big cities. They are known as 'ant tribes,' a term coined by scholar Lian Si, China's foremost researcher on post-80s graduates.

"They share every similarity with ants," writes Lian. "They live in colonies in cramped areas. They're intelligent and hardworking, yet anonymous and underpaid."

Li Zhirui from China's northeast is one of them. Home is an eight square metre space outside Beijing that costs 500 Chinese yuan per month, a quarter of his salary. He dreams of one day buying an apartment, but with average real estate prices in the capital soaring to more than 20,000 yuan per square metre, he could be in for a very long wait.

He has already lost his fiancée, who dumped him when he refused to buy a second-hand car and an engagement ring.

The experiences of Li and other 'ant tribes' resonate strongly with young Chinese and have spawned a popular song and a TV series called Struggle of the Ant Tribe.

But for some despair takes over. Suicide has become the biggest cause of death for Chinese between 15 and 34 years of age.In a recent trend, some young graduates are deciding to flee the big cities and instead seek opportunity in smaller cities and towns. But there, too, they are frustrated, as they discover that good diplomas - and even ability - do not open doors. Local networks and family background do.

Leading Chinese sociologist Guo Yuhua calls this phenomenon of young Chinese "escaping and returning" an example of widespread disappointment that is spreading across China. She says people are bitter when they see their social status languishing in contrast to the "rise of a great and powerful nation".

"People are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalised and are finding that improving their lives is getting harder," she says.

She warns this imbalance could lead to "the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak .... The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem."">China

Quote JoeP "GO,

Thanks for link to the Telegraph article.  £800bn is not chump change.  I hope they use some of this money to fix some bridges."

Hi JoeP,  Have come to the point with this entire China conundrum that my brain just goes "Tilt"

1.3 Billion people in a country the size of Texas, putting more cars on the road than the US every year, with air, food, and water pollution rampant, suffering a severe economic contraction and real estate bust at the same time are just too much for my brain to handle.        :icon_scratch:

I just stare at the whole situation with my mouth wide open in bewilderment wondering what's next.   Have an instinctive feeling however, that it won't be pretty!               :icon_study:


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