Replies

The following is an excerpt from an article at Zerohedge detailing the economic problems in Europe and China.

* * * * * * * * * * * * * * * * *

China’s July activity data came in weaker than expected across the board

Industrial production decelerated further to 9.2% yoy and nominal retail sales growth stepped down to 13.1% yoy, both much below expectations. Total fixed asset investment growth remained at 20.4% yoy year-to-date, but the yoy rate for the single month of July slowed by 0.7ppt from the 21.1% in June.

The property sector continued to exert downward pressure on overall growth momentum. Despite the impressive rebound in housing sales (in volume terms, +13% yoy in July vs -3.3% yoy in June), property investment growth dropped below +10% yoy, within which investment in residential projects was up only 4.8% yoy in July. Moreover, total new starts declined 26.7% yoy in July and residential new starts contracted 30.4% yoy. The base effect was one of the factors contributing to such a sharp decline, but the trend since Q1 has been unambiguously sluggish.

Infrastructure investment did pick up, but was still too modest to offset the drag from the housing sector. Railway FAI growth recovered to -6.6% yoy in July from -21.5% yoy in June and highway FAI growth rebounded to +8.5% yoy from -6.9% yoy. This trend is set to persist in the coming months, with the help of credit expansion and acceleration in bond issuance.

We have been arguing that Beijing is unwilling to repeat the investment stimulus of 2009/10 and that a moderate boost to infrastructural investment without a relaxation in property policies will not be enough to lift overall growth substantially. Today’s data reconfirms our view. And, unfortunately, the bottoming-out seems to be taking even longer than we initially anticipated.

Clearly, the easing policies announced so far have not fully passed through to the real economy. The central government’s determination to cap property prices will continue to obstruct its push for public investment. We think the PBoC’s options could be even more limited if food inflation continues from here onwards. We see the most likely action from the PBoC as further liquidity easing via reverse repo and required reserve ratio cuts, alongside increased bank lending. We continue to look for a 50bp RRR cut in August.

Given today’s data and expectations for further incremental easing, we revise down our forecast for Q3 GDP growth from 8% yoy to 7.7% yoy, but our Q4 call for 8% yoy remains unchanged. This revision reduces our full-year growth forecast to 7.8% from 7.9%.

To see charts, go to: http://www.zerohedge.com/news/ecb-re-regurgitates-draghi-greek-unemployment-rises-new-record-china-deteriorates-no-easing-sig

* * * * * * * * * * * * * * * * * * * * *

I am no expert on China. My community does a lot of business with Japan and Asia, as southwest Washington State exports grain and lumber, imports Japanese cars and Asian goods generally.

When I moved here 13 years ago, the local newspaper had 6 to 7 pages filled with help wanted ads. Today, they can barely must 4 or 5 help wanted ads, period. That doesn’t even fill a column! Our unemployment rate is actually around 25% and huge numbers of people are on food stamps.

I see the problem of Chinese exports due to lack of customer demand from our end. For China itself, exports are essential to maintaining peace and security within its borders. We are not buying, and that will cause problems for them. Their economy AND social/national stability requires that China stays employed. It would help them enormously if the yuan replaced the dollar as the global reserve currency. An internally unstable China is a very dangerous entity.

The article referenced ended with this statement: “In other words, the economy of the entire world is rapidly deteriorating. But at least futures are up at last check.”

It’s hard to know whether I should laugh or cry.