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Offline JoeP

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Re: Official Chinese Toast Thread
« Reply #15 on: September 09, 2012, 08:06:42 AM »
Sock City's decline may reveal an unravelling in China's economy

snip:

But Alistair Thornton of IHS Global Insight warns: "More of the indicators we are looking at are showing strain and weakness. It's nowhere near what we were looking at four years ago, but nonetheless pretty ugly.

"There are huge stockpiles of coal at Qinhuangdao; steel factories in Hebei are over capacity; in retail, auto dealers have two, three, four months' more stock than they are used to."

 
 
click here for complete article
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Offline JoeP

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Re: Official Chinese Toast Thread
« Reply #16 on: September 09, 2012, 08:09:09 AM »
The river that DID run red: Residents of Chinese city left baffled after Yangtze turns scarlet
By Daily Mail Reporter
PUBLISHED: 08:38 EST, 7 September 2012 | UPDATED: 08:39 EST, 7 September 2012

It is the last thing the residents of Chongqing would have expected to see.

But the Yangtze river, which runs through the city in south-western China, turned a bright shade of orange-red yesterday.
The waterway where the Yangtze met the Jialin River provided a fascinating contrast as the red started to filter into the other river.



click here to continue reading article and view more pictures
 
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Offline g

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Re: Official Chinese Toast Thread: An Opposing View of China: China's Next Act
« Reply #17 on: September 12, 2012, 06:32:06 AM »

China’s Next Act
By Frank Holmes
Created 11 Sep 2012
The ECB calmed the markets—will China act next?

After Mario Draghi announced the European Central Bank’s new bond buying program, I was the first guest on CNBC Asia’s Squawk Box to weigh in on this decision. I reiterated my stance that the endgame for Europe would be to print money, which will eventually lead to currency wars. These actions are positive for gold and also for increased economic activity.

See another conversation on ECB and gold with Squawk Box here. [1]

China too has kept investors on the edge of their seats, as we wait for some monetary or fiscal action. Everyday that goes by with no significant policy decisions from the Asian giant causes the market to lose confidence in its ability to steer its ship. Even the most optimistic bull can be vulnerable to a loss of confidence.

The sunset view from my room in Hong Kong

It often helps to gain a different perspective, which is what a business trip halfway around the world can provide.

I’ve been traveling in Singapore and Hong Kong and I continue to be amazed by the juxtaposition of the vibrancy of the Asian continent compared to investor sentiment in the States. It’s a subtle difference, but you can see it in the faces of people walking the cities, you can feel it when talking with local entrepreneurs and you can read it in a speech from local government leaders.

Singapore’s Prime Minister Lee Hsien Loong provided a beam of light to a Beijing audience only days ago. During his speech at the Central Party School, the prime minister discussed China’s significance in the world as it relates to political relations, government policies, and world trade. He also touched on his country’s role in facilitating a solid relationship between the Asian giant and the world’s largest economy.               :icon_study:

http://feedproxy.google.com/~r/fso/~3/GESlnCuDAX8/china-next-act

Offline JoeP

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Re: Official Chinese Toast Thread
« Reply #18 on: September 17, 2012, 05:30:24 PM »
Shadow Bankers Vanishing Leave China Victims Seeing Scams

snip:

The shadow bankers are now disappearing, committing suicide or reneging on agreements, leaving thousands of victims in their wake. In the first half of the year, more than 58,000 lawsuits involving disputes over 28.4 billion yuan in private lending were filed in Zhejiang province, where Wenzhou is located, up 27 percent from the same period in 2011 and the most in five years, according to the provincial supreme court. One-fifth of the cases were in Wenzhou, where authorities have set up a special court to handle the surge.

Private-lending victims nationwide filed more than 600,000 lawsuits valued at 110 billion yuan in 2011, an increase of 38 percent from the previous year. In the first half of 2012, the number of filings rose 25 percent to 376,000, according to People’s Court, a newspaper run by China’s Supreme Court.


How China's Rehypothecated "Ghost" Steel Just Vaporized, And What This Means For The World Economy

snip:

Police have arrested an employee from Baoyang Warehouse in Shanghai and are investigating documentation for steel stocks that the employee issued to a trading firm, said an official with the surname Ou at Baoyang. Baoyang is owned by China Railway Materials Shanghai Company Limited.

The trade firm used the stocks more than once as collateral to obtain loans, said an executive at Shanghai Minlurin, another trading firm that had steel stocks in the warehouse. The receipts used were for steel worth around 380 million yuan ($59.96 million), the executive said.

Similar cases have prompted some trading houses to temporarily halt transactions related to warehouse receipts, disrupting China's steel business, traders said.


If the above makes readers queasy, it should: after all rehypothecation of questionable assets is precisely what serves as the backbone of that critical component of the shadow banking system: the repo market, where anything goes, and where those who want, can create money virtually out of thin air with impunity as long as nobody checks if the assets used for liability creation are actually in the system (and with JPM as the core private sector tri-party repo entity, secondary only to the Fed, one can see why this question has never actually arisen).

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Offline RE

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Re: Official Chinese Toast Thread
« Reply #19 on: September 20, 2012, 03:51:09 AM »
Soft Landing?  Hard Landing?  No...

CRASH LANDING!

U.S. Stock-Index Futures Drop on China Manufacturing Data

 By Alexis Xydias - Sep 20, 2012 2:58 AM PT

U.S. stock-index futures declined as data from China to Japan and the euro area increased concern a global economic slowdown is worsening.

Adobe (ADBE) Systems Inc. fell in after-hours trading as the software maker forecast profit that missed analysts’ estimates. Norfolk Southern Corp. dropped 5.4 percent in Europe as the rail carrier’s outlook trailed projections. Bed Bath & Beyond Inc. (BBBY) retreated 5.3 percent after reporting second-quarter profit below expectations. Nike (NKE) Inc. rose 1 percent after the sporting- goods maker announced an $8 billion buyback.

Standard & Poor’s 500 Index futures expiring in December lost 0.3 percent to 1,448.2 at 10:57 a.m. in London before reports on U.S. leading economic indicators and manufacturing. Contracts on the Dow Jones Industrial Average fell 40 points, or 0.3 percent, to 13,457.

“Poor economic data has superseded central-bank stimuli as the market’s near-term focus,” said Ioan Smith, a market strategist at Knight Equity Europe Ltd. in London. “The re- acceleration of a slowdown in Asia and Europe to new cycle lows will be a big worry for countries in the midst of sweeping austerity and a concern for investors betting the recent rally can last.”

U.S. stocks rose yesterday as the Bank of Japan increased its asset-purchase target and sales of existing American homes rose more than forecast. The S&P 500 has advanced 16 percent in 2012 as central banks around the world stepped up their effort to sustain growth.

Chinese Manufacturing

A Chinese manufacturing survey pointed to an 11th month of contraction in September and Japan’s exports fell in August, supporting the case for increased stimulus as Asia’s growth slows.

The preliminary manufacturing reading for a China purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics was 47.8, compared with a final level of 47.6 last month. A reading above 50 indicates expansion. Japan’s overseas shipments slid 5.8 percent on weakness in demand from Europe and China.

Euro-area services and manufacturing output also contracted in September. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area dropped to 45.9, a 39-month low, from 46.3 in August, Markit said today in an initial estimate.

The Markit Economics preliminary index of U.S. manufacturing probably fell to 51.5 in September from 51.9 last month, economist forecasts compiled by Bloomberg show, indicating slowing growth.

Leading Indicators

The Conference Board’s gauge of leading economic indicators might have fallen 0.1 percent in August, after gaining 0.4 percent in July, a separate survey showed. The Federal Reserve Bank of Philadelphia’s economic index will probably be minus 4.5 for September, showing contraction for a fifth straight month, according to a Bloomberg survey of economists. Both reports are due at 10 a.m. New York time.

Trading of futures linked to the benchmark for U.S. options prices has risen to a record as investors seek to protect gains in stocks that are approaching all-time highs.

More than 190,000 futures on the Chicago Board Options Exchange Volatility Index (VIX) changed hands on Sept. 13, the most since the contracts started in 2004, according to data compiled by Bloomberg. That brought the average daily volume to almost 152,000 last week, a record. The VIX fell 41 percent this year through yesterday, leaving the gauge near a five-year low.

Adobe, Norfolk

Adobe dropped 0.9 percent to $32.81 in late New York trading yesterday. The company’s forecast for fiscal fourth- quarter sales and profit lagged behind analyst estimates as it offered a lower-priced subscription version of its flagship Creative Suite software. Norfolk Southern (NSC) declined 5.4 percent to $68.77 in Germany. Third-quarter profit will miss analysts’ estimates as dwindling volumes at the second-biggest eastern U.S. railroad add to signs of a slowing domestic economy.

A drop in coal carloads and merchandise shipments will offset container-freight gains, paring revenue by about $120 million for the three months ending Sept. 30, the company said late yesterday. Fuel-surcharge receipts will decline by $80 million.

Norfolk Southern’s peers also retreated. Union Pacific Corp. (UNP), the biggest U.S. railroad, fell 3.5 percent to $120.68 in Germany, while CSX Corp. (CSX) dropped 4 percent to $21.87.

Bed Bath

Bed Bath & Beyond, the operator of more than 1,000 home- furnishing stores, sank 5.3 percent to $65.16.

Net income fell 2.2 percent to $224.3 million from $229.4 million a year earlier, the Union, New Jersey-based company said late yesterday. Profit per share rose to 98 cents from 93 cents a year earlier after the number of shares outstanding declined. Analysts projected $1.02 a share, the average of 25 estimates compiled by Bloomberg.

Nike advanced 1 percent to $98.61 in Germany. The world’s largest maker of sporting goods announced an $8 billion, four- year program to repurchase Class B shares.

Liberty Global Inc. (LBTYA) may be active. The John Malone-led cable-TV company offered to buy the remaining 49.6 percent of Belgium’s Telenet Group Holding NV for 1.96 billion euros ($2.54 billion), allowing it to forge closer links with his other cable-TV units in Europe. The shares didn’t trade in Europe.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net
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Offline JoeP

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Re: Official Chinese Toast Thread
« Reply #20 on: September 20, 2012, 06:16:09 AM »
489B Yuan is about 80B USD...not chump change.

China's Delinquent Loans Rise 333% Since End 2011
Submitted by Tyler Durden on
09/19/2012 23:26 -0400


Presented with little comment since our jaws just hit our chest - these stunning headlines from a PWC report:

•*CHINA TOP 10 LISTED BANKS' OVERDUE LOANS REACH 489B YUAN END-1H
•*CHINA OVERDUE LOANS RISE FROM 112.9B YUAN END-2011: PWC
•*INCREASE IN CHINA OVERDUE LOANS SHOWS NPLS MAY RISE, PWC SAYS
•*PWC CITES BANKS' REPORTS FOR OVERDUE LOAN DATA


Oops:



This?

<a href="http://www.youtube.com/v/m6TrHuvlf8o?feature=player_embedded" target="_blank" class="new_win">http://www.youtube.com/v/m6TrHuvlf8o?feature=player_embedded</a>

http://www.zerohedge.com/news/chinas-delinquent-loans-rise-333-end-2011
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Offline JoeP

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China is a Roach Motel
« Reply #21 on: September 23, 2012, 05:12:01 PM »
From the best short seller in the history of the universe:

China's a 'Roach Motel'; Don't Trust the Numbers: Chanos
Published: Thursday, 20 Sep 2012 | 8:02 AM ET
By: Jeff Cox


China's economy continues to deteriorate despite the government's efforts to paper over the troubles, making the country's stocks ripe for short-selling, hedge fund titan Jim Chanos told CNBC.

The head of Kynikos Associates may have been the market's most notorious China bear over the past few years, and he said his position has not changed.

In fact, he warned that investors should not trust the data coming out of the government as well as corporations in the world's second-largest economy, charging that he "would take issue with almost any corporate accounting in China."

"It's destined to suck Western capital into the country and have it never go out," Chanos said during a "Squawk Box" interview. "You're almost in a classic emerging market roach motel, except it's a really big one in that it's very difficult to earn adequate returns for capital and get your capital back as a Western investor."

On its face, China's gross domestic product growth is far from a recession level though the rate of growth has slowed.

The country's $7.6 trillion economy grew at a 7.6 percent rate in the second quarter, which would be good for most countries but relatively weak for China. Citigroup economists said Wednesday that the same pace likely will continue through 2013.

But Chanos charges that the underlying drivers in the economy are much weaker.

The most recent trade numbers, for instance, show that the August trade surplus swelled to $26.7 billion as imports dropped, reflecting a demand slowdown internally.

"China's growth is slowing pretty quickly. That's stated GDP — you're never going to see negative GDP from China year-over-year, I don't think, not under this regime," he said. "But look at corporate profits, look what's happening on the ground. Corporate profits are imploding over there."

Chanos said his "roach motel" remark was directed specifically at the country's "H shares" market — companies based in the mainland but whose shares also trade on the Hong Kong exchange.

"Take a look at the Chinese stock market. It's gone nowhere despite having one of the highest rates of growth of any emerging market, any market," he said. "GDP growth has been 9, 10 percent for 10 years and you've made no money in the Chinese stock market."

http://www.cnbc.com/id/49099734
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Offline JoeP

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Progress in environmental regulation - China rolls out new Clean Water Act
« Reply #22 on: September 30, 2012, 08:41:25 AM »
China's Great Wall Of Suds: Chemical Spill Results In 50 Foot Foam Tsunami

Submitted by Tyler Durden on 09/30/2012 10:29 -0400

This is just the second time in three days that China's province of Guangdong is being discussed on Zero Hedge. On Thursday we wrote that the mega city of Dongguang, once Guangdong richest, is now on the verge of bankruptcy as China's hard landing begins to take its toll. Today, we learn that instead of the rivers running red once all hell breaks loose in China, the color will be soapy white. Specifically, following a chemical spill in Xintang, in the provine of Guandong, the result was a 50 foot tsunami of foam which was swept down a river by heavy rainfall, causing widespread panic and evacuations. It also caused the following brilliant explanation from a Chinese spokesman: "People are right to be cautious but it is harmless. It made very large bubbles when it went over a waterfall, but apart from one or two dead fish, it is harmless." We can't wait to hear Chinese justifications of mushroom clouds: "aside from one or two billion dead people, they give you a healthy green afterglow"?

More:

This wall of foam sparked widespread panic among locals as it rushed along a river in southern China.

The mass of soapy suds blanketed the water in Xintang, in China's Guangdong province, leading to evacuations along the banks of the river.

But officials have now said the only threat posed by the foam - thought to have been caused by chemicals washed into the river - was the possibility of 'one or two dead fish' lurking in the bubbles.

The bizarre scene is thought to have been caused after heavy rainfall washed a non-toxic chemical deodorant from a household rubbish tip into the river.

The bubbles were created when the chemical was swept over a waterfall, officials said.

A spokesman said: 'People are right to be cautious but it is harmless. It made very large bubbles when it went over a waterfall, but apart from one or two dead fish, it is harmless.'


This is how China's great wall of soap suds looks like:


River of bubbles: The mass of foam sparked panic along the banks of the river in Xintang


Wall of foam: The suds are thought to have been caused by a chemical spillage in Xintang in China's Guangdong provinced by the mass of suds floating down a river in southern China

http://www.zerohedge.com/news/2012-09-30/chinas-great-wall-suds-chemical-spill-results-50-foot-foam-tsunami
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Offline WHD

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Re: Official Chinese Toast Thread
« Reply #23 on: September 30, 2012, 09:36:55 AM »
Quote
And ye shall hear of wars and rumours of wars: see that ye not be troubled: for all these things must come to pass, but the end is not yet.

For nation shall rise against nation, and kingdom against kingdom: and there shall be famines, and pestilences, and earthquakes, in divers places.

All these are the beginning of sorrows.

Right after rivers flow wild with walls of chemical bubbles.

Offline RE

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Re: Official Chinese Toast Thread
« Reply #24 on: January 09, 2013, 12:36:29 AM »
    The Pundits are discussing the ramifications of a Chinese "Hard Landing".

    How come they aren't discussing a Chinese CRASH Landing?

    RE

    A Hard Landing In China Part 1 - Evolution And Response


    Submitted by Tyler Durden on 01/08/2013 18:30 -0500


    Via Wei Yao of Societe Generale, Imagine a hard landing in China...
    The Chinese economy has been enjoying a cyclical rebound since the beginning of Q4 2012. SocGen's central scenario is that this recovery will last until early Q2 2013 and then gradually lose momentum. In the medium term, they still anticipate a bumpy path of secular deceleration, leading to an average growth rate of 6-7% over the next five to seven years, down from 10% per annum over the last three decades.
    This piece focuses on what is probably the most popular “what-if” question about the Chinese economy – what if China hard lands? We define a hard landing in 2013 as one where the official, full-year, real GDP growth rate plummets to below 6%, which we see as the minimum level needed to keep the job market stable and avoid systemic financial risk. As China undergoes demographic ageing and growth of the working-age population slows, this minimum stable growth level will decline further. However, if progress in rebalancing and structural reform remains slow, the probability of a hard landing will rise over the medium term. In the tail risk scenario set out below, 2013 will see several quarters with just 3% growth and full year growth would stand at just 4.2% compared to our central scenario of 7.4%.
    What are the most likely triggers?
    Two types of events could trigger a hard landing in China. First, the experience of 2008 showed that the Chinese economy is vulnerable to trade shocks. The Lehman crisis made exports go into reverse, resulting in the loss of nearly 50 million migrant worker jobs in the two quarters after it took place. Second, a hard landing could be provoked by either insufficient public investment from Beijing or a sharp property market correction, which could also be partly induced by tight policies. Policymakers might choose to do so out of concerns over systemic risks posed by local governments’ unhealthy leverage or rising social discontent on high housing prices. The point is that they would not deliberately choose to force a fast correction, but as China’s imbalances are already at a precarious level, the room for error and the likelihood of nasty unintended consequences is not negligible.
    However, China is unlikely to experience a currency crisis like the Asian Financial Crisis, as it has little external debt and a still largely controlled capital account. The domestic financial market also lacks the clout to trigger a sharp correction, even though the dynamics there could aggravate the situation once the downward trend is set in motion.
    How would the crisis evolve?
    Whatever the catalyst, the excess capacity in the manufacturing sector – estimated at 40% in 2011 by the IMF – would be exacerbated by a sharp growth slowdown. This would cut corporate margins sharply, making profits plunge, and triggering a downward spiral in domestic demand. Bankruptcies and unemployment would occur on a large scale, endangering financial and social stability. One factor that could accelerate the downward spiral is the high leverage of China’s corporate sector, which exceeded 120% of GDP at end-2011 and has kept rising throughout 2012. As the crisis progressed, non-performing loans would undoubtedly rise beyond the capacity of local governments to contain them, as their fiscal resources dwindled. Even in China’s (semi-) controlled system, banks could choose to freeze lending as a knee-jerk reaction, while the authorities rushed to draft a decisive response. The rapid development of the non-bank credit market in the last few years, especially shadow banking activities, has created a new vector through which a systemic liquidity crunch could take place. Capital outflow would likely ensue, stretching domestic liquidity conditions further.


    How would the government respond?
    China’s political institutions allow the government to respond promptly in a crisis. A hard landing would test the new leaders’ willingness and capability to transform China from a capex-driven economy to one fuelled by consumption demand. The easy but dangerous choice would be for Beijing to repeat the post-Lehman package of massive state-driven lending and investment facilitated by ultra-low interest rates and ample liquidity. However, such a solution would be less effective than in 2009 given the overhang in capacity, and would increase corporate leverage even further. A more judicious response would combine genuine tax cuts to lower the burden on the corporate sector, further liberalisation to give private enterprises new space to grow, more social spending to anchor consumption, and selective state investment to prepare China better for future challenges. We believe such policies could pave the way to more sustainable growth in the medium term. In the short term, however, the impact on growth would be gradual, likely putting the new leaders under immense political and social pressure. There would be many aspects of policy response and an unlimited number of combinations. We would like to elaborate more on two aspects that would have direct and clear implications for the financial market.
    • Monetary policy. To be more specific, there would be monetary policy easing, but relying more on the market mechanism. The People’s Bank of China would both cut the Reserve Requirement Ratio (RRR) (likely by 400-500bps) and conduct sizeable repo operations to counter any capital outflow pressure and to ease liquidity conditions, so that money market rates could go down to the level seen in 2008. The benchmark deposit rate would be cut aggressively from 3% to 2%, while the benchmark lending rate might simply be scrapped, serving the dual purposes of liberalisation and policy easing. However, state-driven lending would not be pushed, at least not as much as in 2009. Hence, credit demand would mend, albeit much more gradually.
    • Currency policy and capital controls. With regards to the currency, there would be immense depreciation pressure from the market. The PBoC would allow the market to push USD/CNY up, instead of arbitrarily fixing the yuan like the response to the Lehman Crisis. The spot rate could easily shoot up to 7, i.e. 10% nominal depreciation. However, the PBoC would also beware of the danger of unchecked capital flight and would likely intervene to stabilise the currency market at a certain point. In any case, FX reserves would probably stop rising or even decline at the height of the crisis. Throughout the process, we would not expect the PBoC to use capital controls as extensively as before.
    How bad could things get?
    To put it bluntly, the situation could get as bad as one dares to imagine, since the history of economic crises is packed with nasty surprises. In terms of GDP components, fixed asset investment usually contracts outright in a crisis, while consumption growth merely decelerates. If the government chooses the second (more difficult) path discussed above, investment growth might grind to a halt in the year after the crisis first hit, which implies at least one quarterly contraction. Household consumption would probably hold up better thanks to the accommodative and targeted fiscal policies. Together with direct fiscal spending, total consumption could grow by 4-5% annually. Assuming that there is no other shock to external demand, imports would probably fall more sharply than exports, so net exports would contribute positively to growth. Putting this together suggests GDP growth of only 3% during the four quarters between Q2 2013 and Q1 2014.


    What would happen afterwards?
    The difference between our central scenario and this risk scenario is merely the pace at which China corrects its structural problem of a production economy out of proportion to the consumption economy. Under our central scenario, investment will decelerate gradually and consumption increase moderately faster to partially offset the drag. This will only be possible if the new leaders proceed steadily with necessary reforms to improve investment efficiency, liberalise vital sectors and grow consumption sustainably. On the other hand, an abrupt correction doesn’t have to mark the end of China’s growth story, like Japan in the 1990s. It is the top leaders’ choices during the difficult times ahead that will determine the fate of the Chinese economy. The key is not to waste a crisis.

    A Hard Landing In China Part 2 - Rest Of The World Impact


    Submitted by Tyler Durden on 01/08/2013 22:17 -0500

    Via Wei Yao of Societe Generale, ...and what it means for the rest of the world

    Following on from our earlier discussion of how a Chinese hard landing would evolve, SocGen now examines how a Chinese hard landing would impact the global economy. They see the contagion in several ways: mechanically (since China is part of the global economy) and through trade, financial and market channels. Mechanically, a slump in Chinese GDP growth to just 3% would cut our global GDP growth forecast by 0.6pp. Add to that the channels of transmission to the global economy, and our expectation is that a Chinese hard landing would result in 1.5pp being slashed from global GDP growth in the first year.
    How important is China as a source of global demand?
    With imports equivalent to 30% of its GDP, China is a major source of global demand. Exports to China as a percentage of GDP are largest in Asia and amongst the commodity exporters, so these countries would be hardest hit. Drawing on different studies, mainly from the IMF and the OECD, we estimate that the impact of the trade channel from the type of hard landing in China described in the previous section would cut GDP growth by around 4.5pp in Taiwan, 2.5pp in South Korea and Malaysia, 1.2pp in Australia, 0.6pp in Japan, 0.3pp in the euro area and 0.2pp in the US. For the global economy ex-China, the trade channel effects would bring about a reduction of around 0.7pp to GDP growth.


    The impact of a Chinese hard landing on the rest of the world could be aggravated by the fact that investment would be particularly hard hit. As noted in the previous section, we expect investment – which now makes up half of Chinese GDP – to fall more than consumption if China does suffer a hard landing. And investment has significantly higher import content than consumption, most notably through commodities and machine tools. This could have a particularly sharp impact on some smaller commodity producers. For example, exports of energy and metals to China make up over 40% of Mongolia’s GDP. In terms of capital good exports to China, Taiwan has the closest ties, depending for just under 15% of its GDP thereon; but this is already a much lower number than that of Mongolia and many of the other commodity exporters. Exporters of consumer goods are less exposed, as seen in the chart overleaf.
    For all the talk of the importance of China to exporters such as Germany, the absolute numbers remain modest despite strong growth in recent years.


    Would currency and trade wars result?
    The decline in global trade that would come with a China hard landing naturally leads to the question of whether currency and trade wars would result. As outlined by Wei Yao in the previous section, our scenario assumes Chinese policymakers would tread very carefully, being only too well aware of the dangers. In Washington, the appreciation of the dollar that would follow as investors (both new foreign investment and US repatriation from abroad) seek the safety of US shores would not be welcome. Moreover, the Chinese yuan would be far from the only currency depreciating against the US dollar; trade weighted, our China hard landing scenario assumes a 10% dollar appreciation in the first year and this despite additional QE from the Fed. It does not take any great stretch of the imagination to paint an even bleaker scenario in which a China hard landing triggers outright currency wars and protectionist measures on trade flows. This would further aggravate the negative impact of a China hard landing and extend the duration of the shock.
    How important are financial links to China?
    Of the total foreign claims of BIS-reporting banks as of June 2012, only $731bn – or just 2.4% of the total – are on China. The risk of China transmitting a hard landing to the rest of the world through the banking channel thus appears modest. Foreign corporations present in China would see the value of their investments decline, but more importantly, profits generated in China would slump, hitting several major multinational companies. The response would be cost cutting, and not just in China.
    Does the starting point for the global economy matter?
    Our what-if analysis of a China hard landing draws on a wide body of academic research that analyses various shocks and how these disseminate to the global economy. These analyses often implicitly assume the starting point of an economy in equilibrium and with a well stocked arsenal of policy ammunition. The current situation is very different, however, with large output gaps in many of the world’s major economies, ongoing headwinds from deleveraging and policy arsenals already depleted. Add a China hard landing to the mix, and we expect the result would be a far greater uncertainty shock than had the starting point been a world in overall good health. Uncertainty would cause corporations globally to hold back further on investment and hiring decisions (even those not directly exposed to China). And, feedback loops from financial channels would further amplify the uncertainty shock as risky asset prices collapse. At the global level, we estimate that the combined uncertainty shock in our China hard landing scenario could exceed 1% of global GDP.


    Where could offsets come from?
    The effects of a Chinese hard landing on growth could, however, be offset by some secondary effects. Lower commodity prices are perhaps the most important. As a rule of thumb, we assume that, all else being equal, a $10/b permanent drop in the oil price would boost global GDP by around 0.3pp. Our commodity strategists’ assumption that a Chinese hard landing would initially cut oil prices by 30% implying a first offset.
    The greater hope for offset is policy. Central bankers are usually the first at the scene of any shock and a first response would likely be more QE from the Federal Reserve, Bank of Japan and Bank of England. However, several prominent central bankers have already noted that there is a limit to QE and that it comes with diminishing returns. The ECB would keep the promise of OMT (Outright Monetary Transactions under the conditionality of a European Stability Mechanism programme) on the table and continue to supply amply liquidity. Central bankers could also explore other possibilities. The BoE already has a funding for lending scheme, the BoJ buys ETFs and REITs, Danmarks Nationalbank has a negative deposit rate … none of these measures have to date proven a panacea, however. This would not prevent central banks from trying, but we remain doubtful it would work and also note that some measures would require changes to legislation (such as the Fed buying equities) and would thus not be a day one response option. Turning to fiscal policy, we believe most advanced economies have little room for manoeuvre, though the US and Germany are potential exceptions; but even here we would not look for aggressive steps measures.
    By contrast, emerging economies have greater room for both fiscal and monetary policy stimulus. If China does experience a hard landing however, some of the foreign inflows attracted by the higher returns in these markets could reverse, adding to pressure on these economies (albeit with the silver lining of currency depreciation).
    Overall, we see little scope for economic policy to significantly offset the negative effect of a Chinese hard landing on the global economy. Additional policy stimulus would mainly serve to limit negative tail risks.[/list]
    « Last Edit: January 09, 2013, 12:45:17 AM by RE »
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    Offline Stucky1

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    Re: Official Chinese Toast Thread
    « Reply #25 on: January 09, 2013, 08:18:35 AM »
    Thoughts about China from Jared Diamond:

    ================================

    China, Lurching Giant

    China's leaders used to believe that humans can and should conquer Nature, that environmental damage was a problem affecting only capitalist societies, and that socialist societies were immune to it. Now, facing overwhelming signs of China's own severe environmental problems, they know better... In 1983 environmental protection was declared a basic national principle — in theory. Many environmental protection laws and policies that have been adopted on paper are not effectively implemented or enforced.

    Sandstorms inflict damage of about $540 million per year, and losses of crops and forests due to acid rain amount to about $730 million per year. More serious are the $6 billion costs of the "green wall" of trees being built to shield Beijing against sand and dust, and the $7 billion per year of losses created by pest species. We enter the zone of impressive numbers when we consider the onetime cost of the 1996 floods ($27 billion, but still cheaper than the 1998 floods), the annual direct losses due to desertification ($42 billion), and the annual losses due to water and air pollution ($54 billion). The combination of the latter two items alone costs China the equivalent of 14% of its GDP each year.

    Average blood lead levels in Chinese city-dwellers are nearly double the levels considered elsewhere in the world to be dangerously high and to put at risk the mental development of children. About 300,000 deaths per year and $54 billion of health costs are attributed to air pollution.

    Because of geographic factors, China's geographic core was unified already in 221 BC and has remained unified for most of the time since then, whereas geographically fragmented Europe has never been political unified. That unity enabled China's rulers to command changes over a larger area than any European ruler could ever command — both changes for the better, and changes for the worse, often in rapid alteration (hence "lurching").

    The strengths and risks of China's unity have persisted into recent times, as China continues to lurch on major policies affecting its environment and its population. On the one hand, China's leaders have been able to solve problems on a scale scarcely possible for European and American leaders: for instance, by mandating a one-child policy to reduce population growth, and by ending logging nationally in 1998. On the other hand, China's leaders have also succeeded in creating messes on a scale scarcely possible for European and American leaders: for instance, by the chaotic transition of the Great Leap Forward, by dismantling the national educational system in the Cultural Revolution, and by the emerging environmental impacts of three megaprojects.

    Q: China is a pursuing rapid expansion, as are India and other countries. What is the significance of this for us?

    A: China is the world’s most populous country with the most rapidly growing major economy and rapidly increasing rate of per capita consumption. One way to appreciate the significance of China is to note the fact that the First World is currently operating unsustainably. Even if tomorrow morning everybody in China, Africa and South America were to die, and the only people left alive in the world were those in the First World, the fact would remain that the First World is operating unsustainably, running out of resources very quickly. But China is very much here, pursuing its goal of catching up to First World standards. At present, the Chinese consume things like water, metal and electricity at much lower per capita rates. However, if this country of 1.4 billion people catches up, the world will run out of resources even faster. At present, the First World will run out of resources in about 50 years, but it would be only five years if China, India, Africa and South America were all to catch up. It won’t work, incidentally, for Americans to tell these countries that their ambitions are going to cause problems and that they should lower their aspirations. Because their aspirations are our aspirations — which are now our accomplishments.

    Offline Petty Tyrant

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    Re: Official Chinese Toast Thread
    « Reply #26 on: January 09, 2013, 05:31:31 PM »
    Im not sure why they put consumption of metal in the same sentence as consumption of water. Iron ore is 5% of earths crust, never going to run out, aluminium, copper, lead, even steel theres plenty of scrap still to be recycled as well. Clean water is already critical. Anyway consumption in the 3rd world is catching up fast and theres no way their environments can stand up to their populations all having cars and aircon.
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    alan

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    Re: Official Chinese Toast Thread
    « Reply #27 on: January 24, 2013, 04:31:25 PM »
    Via Wei Yao of Societe Generale, Imagine a hard landing in China...
    The Chinese economy has been enjoying a cyclical rebound since the beginning of Q4 2012. SocGen's central scenario is that this recovery will last until early Q2 2013 and then gradually lose momentum. In the medium term, they still anticipate a bumpy path of secular deceleration, leading to an average growth rate of 6-7% over the next five to seven years, down from 10% per annum over the last three decades.

    Oh my GOD!  You mean they could slow from a FANTASTICALLY fast rate of growth
    down to only a VERY fast rate of growth?!?  This is a disaster!  This presages the
    irreversible collapse of not only China, but of global industrial civilization!

    Offline RE

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    Re: Official Chinese Toast Thread
    « Reply #28 on: January 24, 2013, 04:57:31 PM »
    Oh my GOD!  You mean they could slow from a FANTASTICALLY fast rate of growth
    down to only a VERY fast rate of growth?!?  This is a disaster!  This presages the
    irreversible collapse of not only China, but of global industrial civilization!

    For Banksters this represents a "Hard Landing", because  all their investments are based on the Chinese continuing to grow their economy at outrageous rates.

    This isn't the kind of Hard Landing I expect though.  I expect them to go from a FANTASTICALLY fast rate of Population Growth to a FANTASTICALLY rapid DEATH RATE.



    Alan, are you related to Socrates?  LOL.

    Maybe I should open a new board for Cornies?

    RE
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    Offline RE

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    Re: Official Chinese Toast Thread
    « Reply #29 on: January 29, 2013, 02:35:55 AM »
    Guest Post: Soaring Debt Precedes Financial Crises...


    Submitted by Tyler Durden on 01/28/2013 19:46 -0500
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