Skip to comments.Chinese economy slowing faster than expected, worst yet to come
Posted on 10/31/2018 9:30:08 PM PDT by BeauBo
New export orders contracted for the fifth month in a row in October, to 46.9 from 48 in September. Imports also contracted for a fourth straight month, indicating weakening demand within China, while the decline in manufacturing employment accelerated. Non-manufacturing activity, dominated by the service sector, also slowed in October... We expect a worse growth slowdown in spring 2019.
(Excerpt) Read more at scmp.com ...
More from the Article (published in Hong Kong):
"US President Donald Trump said again on Monday that tariffs on an additional US$267 billion worth of Chinese imports which would equate to sanctions on virtually all Chinese goods were ready to go if there was no trade progress.
In a research note released last week, Cochrane estimated that if a 25 per cent tariff were imposed on all China-US trade and Beijing applied qualitative countermeasures, Chinas gross domestic product growth would fall by 1.2 percentage points to 5.2 per cent in 2019 and the Chinese stock market would fall by 9.4 per cent.
Bloomberg reported on Monday that the US is preparing to impose the next round of tariffs on the US$267 billion in Chinese goods in early December if Trumps scheduled meeting with Chinese President Xi Jinping at the G20 summit in late November produces no progress.
If true, and given the 60-day comments period that would start when the tariffs are announced, this would mean that the new tariffs would be implemented in early to mid-February, during or just after Lunar New Year. Like Christmas in the West, the celebration is the largest instance of consumer spending during the year, so any fall in sentiment caused by the introduction of the new tariffs could have a very negative effect on Chinas economy."
Trump basically out flanked them and youre right he called their bluff.
Trump wanted to do this to the Chinese for a looong time going back to the 80s. The love fest at Mar a Lago with Zhi was just to tell him not to take personally what was going to follow. Of course Zhi had no idea at the time.
As someone physically located in China, and currently actively involved in the international trade / supply trade industry, I have a few comments...
1. My American clients have held off new orders.
2. My European and Pacific Rim clients are still placing orders with no change.
Overall, for me, I see about a 1% drop in revenue. But that is just for me and my revenue.
The factories that I work with are most doing well. There are some concern, but most believe that after November a trade deal will be reached and trade will resume.
And folks. That is the way it is. You can accept it or not.
Thank you for your perspective.
I don’t believe this is solely about trade. Trump sees China financing their global build-up off our trade.
I’ve always thought that was suicidal. Perhaps he sees it the same way.
We can most likely work something out if we want to.
Now, do we? I’m not convinced of it.
Someone needs to slam the brakes on China’s growing belligerence.
You are one data point across a vast economy. Here’s something to ponder: if China is shut out of the us markets, where is their excess garbage going? Europe. Btw, tge Europeans don’t have a donald trump yet...
Just saying, as of the most current data published, China is currently running the single largest trade surplus in recorded history, with America.
The largest ever.
Between any two countries.
Ever. This year. Right now.
The Shanghai Market is down 26% in nine months and Hong Kong is down 23% in the same period.
Chinese GDP was below forecast two weeks ago, and the data today is certainly not helpful.
Do you have any insight on government and private debt and the health of the banking system?
I have no insight in the Chinese government or the financial markets. Sorry.
What I do know, however, is that people have been predicting a financial crash of one form or another in China for decades. Never happened.
Unlike the United States which (sort of) directs and manipulates markets and tries to regulate through central control via banks, the Chinese operate differently. They build up relationships with key individuals. They think in terms of “systems thinking”. They create networks and when situations change, the individual network nodes move to adjust.
It’s a new ballgame. While American and Western financial experts are following 1970’s models of global finance, China has adopted a completely different model.
I cannot tell you that it will be successful or not. What I can tell you is that it and the way it operates is completely alien to anyone in the West. So expect to be disappointed in any newsworthy predictions.
“I see about a 1% drop in revenue... most believe that after November a trade deal will be reached and trade will resume.”
China only exports about $500 billion/year to the US, out of a GDP of $12 trillion (4%), but there is some added supply chain activity on top of the export number.
Although it is not a big chunk of GDP, it is probably enough to cause a recession, if pulled out quickly. China is not used to real recessions.
Although it is not a big chunk of GDP, it is a much larger chunk of the Nation’s foreign currency earnings, which are used to shore up (manipulate) the Chinese stock markets and currency. There is significant secondary financial risk there, as well as from a debt bubble burst. If you subtract the exports to the USA, China currently runs a net trade deficit with the rest of the world (heavily dependent on imports of raw materials and energy).
What most believe in China, is quite heavily influenced by Government censorship and media manipulation, as well as what they might say, is influenced by self-censorship to stay out of trouble. An economic downturn will be politically damaging to Xi - both publicly and within the Party. He wants that downplayed, and he gets that downplayed.
Only a fraction of the potential (probable) tariffs are yet in effect, and there is a bow wave of pre-orders, trying to stock up before the heavier sanctions hit. That pre-ordering is borrowing from next quarter’s orders.
Currently, the total new tariff load is running around 5% of total export volume to the USA. January 1st, that goes up to around 12%. If President Trump goes ahead with the next round, that could possibly rise to 25% by Lunar New Year. The real effects have not occurred yet.
The next round of tariffs (on 50% of volume) might phase in like this one, 10% immediately, rising to 25% three months later (17% total at Chinese New Year, 25% total in May).
Outside of China, attitudes toward China have changed. No one thinks anymore that the communists will moderate, if incorporated into the global economy. Instead, they have only become increasingly aggressive militarily toward their neighbors, and more repressive to their own population, seeking to effectively crush or co-opt all religion in a five year plan, and have built gulags/re-education camps for a million Uighurs. Surveillance has become Orwellian. One man rule has effectively been reinstated.
Consensus has grown, that things can not continue as they were, with the communists and their cronies leading an effort to rapaciously consume global industries by hook or by crook; lying, cheating and stealing.
The end of the run is coming. Labor costs have risen significantly, and China is no longer the low cost producer based on labor. The cost of having all your intellectual property stolen, and bootleg products on the market within months, is now widely recognized. New money is seeking safer harbors. Graduating classes have peaked and are declining due to the one child policy. That will be a demographic drag on the economy for a couple of decades, at least. The banks are a house of cards, with the same assets being carried on three and four sets of books, with mountains of bad debt for ghost cities and zombie factories, that will never be re-paid.
Change is the only constant. Change is coming.
That model is called Mercantilism and it is from the 16th century. China's command economy and its Belt and Road mercantilist bullying of its neighbors is a model that has been a failure for centuries.
Not to mention they have a national debt of 300% of their GDP. That is if you believe they are a $9 trillion economy. Which they most likely are somewhere around 50-60% that size.
The tariffs are only one small aspect of how Trump is tackling China. China's neighbors hate them. He has successfully marginalized their influence in North Korea. Rebuilding the US military. There are other ways to hamstring China and all are being employed.
Iran was a major source of China's energy imports.
[Even in the best of times, Chinas vaunted economic growth was a Potemkin illusion.]
My fondest hope is for Chinese civil war, kicked off by all the factions opposed to Xi. The perfect end state for such a war would be a devolution into multiple independent countries with, at most, Russia-sized populations. They’d be strong enough to defend themselves, but not strong enough to overwhelm their neighbors.
If such a scenario came to fruition, it would not be the first time this has happened in the territory in which China exists today. But it would be the first time in which large and powerful neighboring and distant powers were able to offer substantial help to the newly-independent states that were under threat from irredentists looking to re-annex these states to reconstitute the ancien regime.
[The love fest at Mar a Lago with Zhi was just to tell him not to take personally what was going to follow. Of course Zhi had no idea at the time.]
“While American and Western financial experts are following 1970s models of global finance, China has adopted a completely different model.”
[The Shanghai Market is down 26% in nine months and Hong Kong is down 23% in the same period.]
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