Chillin' out till it needs to be funded
Though the minimum in PMI is just about to be reached, a lowly 47-8 in manufacturing(Composite still 49), keeping China shuddering at the implosion in Exports and Europe continued with contraction(PMI = 46,
second rate cut near, but increasing contraction can easily last a year with transmission losing the holy grail), the feverish pitch at which China’s hard landing is being targeted, is a media drama that runs contrary to the writing on the wall. China has shown it before, months before we entrusted ourselves with the objective of following China into a brilliantly logically discussed subject and when nothing much was available about China’s governance models except some rumors of banking scuttled by bad loans a lot of nosie from Washington and much ado about nothing. Being from India, we can see what a growth of 8% brings on the ground and while the 7.2% growth will be the toughest China faces in December, it could also fall below 7% without any deleterious effects on China. China imports a good $100 bln from Europe and that will also likely be arrested in line with slowing exports, keeping the trade surplus, or even moving to a deficit to put pressure n the domestic Chinese economy to grow or counter the pressure on wages
A growth rate of below 10% in Exports is not just true for China and Asia but is in fact a significantly lower braking than it is for the $00 bln US trade, and the newly rising partnerships in the Americas. The fact is that Chinese Capital has already supported and raised the bar in many countries in Africa and now in Brazil in significant amounts that they are owed favors in return. China’s itching to move militarily on its neighbours, its military establishment well knowing that the lowering of growth is happening but with enough free hand to spend on naval, land and air intelligence and infrastructure
Its measured angst with India and Taiwan, and its excursions in the South China Sea are of course not as benign as its growth. However, its economic slowdown seems a rather benign yet extended excursion while it uses its staying power to avoid making expensive purchases of world commodities while lower demands and shortages of power have shutdown its factories in many industries while labour being more exensive is also more restive and impatient. That however leaves a significant impact on inflation as targeted, and China has probably reached a lower 4.5% inflation in November after reaching 5.5% on the down curve in October, showing success in slowing down the usual normative speed hat defines China’s trouble, yet evident in an incalcitrant real estate market, dropping in Shanghai only after 2 years of persistent targeting and a more than 60% jump in prices later. In other cities where price increases have not been as significant it has not come down wither nor the bank leverage and exposure to real estate become any less tempting for an outsider taking in the larger picture. However oversupply has to result in dropping off the spending excesses
The talk of manufacturing slowdown draws ones attention also to Services businesses which continue to grow as a percentage of the Economy. Manufacturing utput has grown 14% in China this year and may slow to 11-12% the worry being in the crash in new orders, which is also an impacted measure on the Services side.
world wide, unlike the digital medium which grows only in advertising revenue. Services are also easy to control in terms of transmission of inflation subduing policy as banks are targeted directly in any monetary expansion measure and tourism has been affected.
Where the growth is virtually guaranteed to both India and China probably is in the structural asymmetry, so much more magnified in China with the interiors yet to rise to calls for economic balancing, all urban clusters in China measured around the Eastern seaboard.
The new leadership changes in 2012 have already had a policy impact, monetary easing kicking in as smooth changes at regulatory offices ensured a no slip up in new policy likely in place till 2022. It also seems unlikely that China will ignore its popular opinion and hand over reserve investments to Europe as it is too visible an option while it experiments with professional hedge fund managers for is sovereign funds in trancehes and lets JP Morgan and McDonalds establish a credit market for foreigners in Renminbi. Deutsche Bank, StanChart and Citi are active in China and increasing business 2-3 fold despite not comparing in size with 4 of the World’s biggest banks in the Top 10.
China is Green, is the US?
On the US front China will end the year at nearly half a trillion in trade but visible fights have begun in the arena of Solar panels for example where China is going to use WTO tools to release shrapnel into US trade ministries even as the Trade Commission’s decision today marks trouble for the solar companies in California, exporting solar cells to China for solar panels that they market under their brand. China will as always take time till May 25 to end its investigation into Washington, Mass. , Ohio California and 2 in New Jersey to compare the subsidies paid by states and Federal governments. One particular grant to the complainant Solar World itself is a more than $1 bln green grant while China claims its $30 bln solar encouragement programs are worth only $866mln in drawdowns, and Chinese competitors ( under the China Photovoltaic Industry Alliance) pay more than 10% rates on Loans and duties will hurt the US trade panel instituted just three weeks ago voted 6-0 in favor of the government imposing punitive tariffs and countervailing duties
As a dominant manufacturer of Solar Panels and Wind Turbines, China is going to have a lot of inventory as it looks to kickstart Carbon Trading in 2-3 years. The Chinese would, in the mean time, investigate the subsidies received by US companies to produce solar equipment. US exported $5.63 bln worth in 2011, $2.52 bln in polysilicate used for the cells, and $1.4 bln in infrastructure to build the panels China then exports back to the USA
Imports of Chinese solar products have more than quadrupled from 2008 to 2010, lawmakers said in the letter. Chinese imports control half the market, benefiting from government-provided loans, cheap land, tax breaks and an undervalued currency, the lawmakers, including Senator Ron Wyden, an Oregon Democrat, and Representative Edward Markey, a Massachusetts Democrat, said.