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mises
Joined: 05 Nov 2007
Location: retired
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 Posted: Thu Jan 22, 2009 6:36 pm Post subject: |
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http://www.rgemonitor.com/roubini-monitor/255237/the_chinese_devil_wears_prada_why_0_growth_is_the_new_size_68
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The Chinese came out today with their 6.8% estimate of Q4 2008 growth. China publishes its quarterly GDP figure on a year over year basis, differently from the U.S. and most other countries that publish their GDP growth figure on a quarter on quarter annualized seasonally adjusted (SAAR) basis.
When growth is slowing down sharply the Chinese way to measure GDP is highly misleading as quarter on quarter growth may be negative while the year over year figure is positive and high because of the momentum of the previous quarters� positive growth.
Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.
Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9% in y-o-y basis; the Chinese PMI has been below 50 and close to 40 for five months now.
And with manufacturing being about 40% of GDP , manufacturing is certainly in a sharp recession (negative growth) and the overall economy may be close to a recession
So the 6.8% growth was actually a 0% growth � or possibly negative growth � in Q4; and the Q1 figures look even worse. So China is in a recession regardless of what the highly massaged official numbers claim. |
http://fistfulofeuros.net/afoe/economics-and-demography/china-nears-recession-point-as-gdp-slumps/
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Basically it seems to me that few people other than professional macro economists and bank analysts (and far from all of these if the truth be told) really realise what the implications of such a dramatic decline in year on year GDP actually means. If the quarter on quarter rate of expansion was very low indeed, possibly verging on the negative then - guessing a bit, you know what they call back of the envelope stuff - this means output must have been moving in the October-December period somewhere in an annualised 0 to 2% range. This means we may well see quarter on quarter negative growth in 2009 in China, and that the possibility of a technical recession of two consecutive quarters of negative growth must be over 50% at this point. It wasn�t so long ago that the consensus was saying that annual GDP growth which was as high as 6% would be tantamount to a recession!
It is really very frustrating to find that with all the trillions of dollars at issue, and a whole army of China watchers, virtually no one seems to be trying to derive monthly and quarterly rates of movement from the official statistics.
The OECD do at least seem to be aware of this problem and they do have a lead indicator for China (which includes items like cargo handled at ports, Enterprise deposits, Chemical fertilizer production, Non ferrous metal production, a Monetary aggregate M2, and Imports from Asia. Below I have a chart which compares this indicator for both Spain and China. Since Spain, as we know, is having a very strong contraction at this moment in time, it gives some sort of reference point. What is so striking is that it appears China is now slowing much more rapidly than even Spain, and GDP may, looking at the steepness of the recent month on month drops,have even started contracting in November. This is obviously all shell shock stuff.
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So to some up, while it may well be true that China is not (yet) entering the Second Great Depression, I am arguing that China is really going to be one of the worst case scenarios in the current global recession, and that consensus thinking still has a very very long way to go in catching up with events in the China case. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri Jan 23, 2009 7:53 am Post subject: |
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Niall Ferguson of Harvard has coined the term Chimerica to describe the trading and financial relationship between the US and China. The relationship is breaking down quickly. It was a vendor-financing scheme. America has far more ability to increase domestic production than China has to stimulate aggregate domestic demand. The CCP must be shitting their pants.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/01/22/MN2L15697J.DTL
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On a recent Sunday morning, the scene on the K290 train heading west from Shanghai to China's rural heartland was one of chaos.
The hard-seat cars teemed with passengers, many of them migrant workers fighting to place their baggage in overhead compartments or find space to sit in the aisles.
Chun yun, or spring festival transport, is the world's largest human migration, involving hundreds of millions of people annually traveling home before the Lunar New Year. But this year, migrants returning home before the Year of the Ox begins Monday got an early start after hundreds of thousands of workers lost their city jobs.
Work drying up
"There is no work," said Yang Nan, who returned to Sichuan province last month with her husband, Gou Zong Hai, and their 10-month-old daughter, Zhao Yin, after working in the eastern city of Wuxi. The occasional construction work that Gou relied on to feed the family dried up during an economic crisis that is closing factories throughout China's industrial heartland.
As global recession slows demand for cheap consumer goods - whose export has fueled China's breakneck economic growth for nearly three decades - the government is facing waves of factory closures and layoffs. In 2008, 670,000 small and medium-size businesses closed, laying off an estimated 10 million people, mostly migrant workers, according to the ministry of human resources and social security.
The government of agricultural Henan province announced that 3.7 million jobless migrants recently returned. In industrial Guangdong province, by contrast, more than 600,000 migrants have left for home, and the provincial governor says another 1 million could leave in coming months as more businesses close or lay off employees.
Some observers are worried that an army of unemployed workers could spark widespread social unrest.
Destabilizing force
"If these people organize, it could be quite different than what happened in '89," said Melissa Thomas, a partner in the Shanghai office of Freshfields Bruckhaus Deringer, an international law firm that advises foreign companies doing business in China, referring to the pro-democracy demonstrations in Tiananmen Square that left as many as 3,000 dead or injured. "These are people who feel they have nothing to lose, because there's nothing for them. The government is really aware of that."
Most observers agree that most of the newly unemployed are part of China's so-called floating population of more than 100 million migrants who left impoverished rural areas to work at low-paying casual labor jobs ranging from construction and factory work to street cleaning. Under China's rigid hukou policy, established in the 1950s to control internal migration, each citizen is issued a residence permit only for his or her place of birth, which limits - legally and financially - where that person can go to school or receive such benefits as health care. As a result, migrants don't qualify for even the most basic social services.
"This is a place where there's no social safety net, so it is a terrible tragedy for people when this kind of hope for a better life - or even hope of improving your family circumstances - when that's taken away from you," said Thomas.
Peng Xizhe, director of the Institute of Population Research at Fudan University in Shanghai, says rural areas will also be adversely affected if remittances sent to families dry up. In some provinces, those payments are more than the total gross domestic product. "If many companies in coastal areas go bankrupt, these rural areas will seriously suffer," Peng said.
In the central province of Hubei, more than 300,000 migrant workers have already returned, according to the provincial government. As a result, the province now requires small and medium-size state-owned enterprises to reduce salaries instead of laying off workers; large state companies and medium-size private businesses are required to receive state permission before giving pink slips to more than 50 employees.
The eastern coastal Zhejiang province has recently lowered required pension payments as an incentive to companies to prevent mass layoffs. Its Yangtze River Delta region has set up an "early warning system" to monitor job opportunities.
Fears of mass unemployment and social instability are also delaying landmark labor and land reforms announced last year. Plans to raise the minimum wage, which varies from province to province but averages about $200 a month, have been postponed. Instead, factories are encouraged to employ more flexible hours and wages. A rural development plan that would allow peasants to sell the land they work on - one of the biggest rural land reforms since 1978 - has also been held up.
Next months crucial
It is uncertain whether millions of unemployed migrants will protest on city streets, flood rural provinces with surplus labor, or remain in urban areas illegally, unwanted and regarded with suspicion by local residents.
"The next couple of months will be crucial. No one knows how many (factories) will be (left) open, how many migrants can have a job," said Peng. "If China can successfully handle this economic crisis and make most of the companies remain open," there will be little social unrest.
In the meantime, Yang Nan and her family plan to return to Wuxi city in the spring to look for work. When asked whether she expects to find a job, she is hopeful.
"There will be work," she said. |
China is increasingly looking like America in the first months of the Great Depression:
http://www.dailyreckoning.com/rss/DR012209sec1.html
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Eighty years ago, America was in China's position. It was the world's young, growing, dynamic economy. Manhattan soared then as Shanghai soars now. But when the collapse came in the '30s, the demand for American goods shriveled. Foreign and domestic purchasers pulled in their belts and cancelled their orders. For a while, America was out of business. It was only at the onset of WWII that the orders started coming in again in massive quantities.
This time, it's China that's going out of business.
Yes, dear reader, China is going to suffer even more than the United States. At least in the short run. America will lose its position in the world. The dollar will lose its status as the world's reserve currency. Americans will be beaten up - first by deflation, then by inflation. When it is over, they will be poorer, wiser, and probably better people� With a little luck and good leadership, maybe they can sink into a graceful post-imperial poverty�followed by genuine prosperity.
That is the story we'll be covering in The Daily Reckoning going forward. It is the story of BUSTS. Companies will go bust. Governments will go bust (Ireland and Iceland are already effectively broke.) Households will go broke by the millions. And, eventually, even the U.S. government itself will go bust. (A bankruptcy that will most likely be disguised by inflation�)
But China! There, the story will be even more dramatic�even more dangerous�even more explosive! |
Yeah, the "daily reckoning" isn't exactly Bloomberg, but they have the right idea. |
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caniff
Joined: 03 Feb 2004
Location: All over the map
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| Posted: Fri Jan 23, 2009 9:10 am Post subject: |
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| America will lose its position in the world. |
Who do you figure will replace the US? The quoted text doesn't provide an alternative.
Seems everyone is suffering right now. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Fri Jan 23, 2009 9:21 am Post subject: |
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| I suppose that is a reference to the so-called global dollar standard. This is a special privilege America will not be able to keep. But that doesn't mean that then the Chinese RMB is going to replace it as a reserve currency. Just significant diversification at first (following this crises) and then regional currency blocks. It will be much harder (expensive) for the American government and individuals/firms to finance debt. I think this is a good thing. |
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mises
Joined: 05 Nov 2007
Location: retired
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mises
Joined: 05 Nov 2007
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