Chillin' out till it needs to be funded
One lasted a year as an Economic guru for having forecast a recovery in China followed by the US and a couple of others have managed to last by progressing their forecast since the start of 2011 to a global lasting recession with the world variously hoping for admittedly, an aspersion on the best of them, that China really take a bad dive and somehow the OECD shine on instead.
However, these not necessarily being the two extremities of the spectrum of possibilities, the CBRC and PBOC efforts at inducing a lasting recovery and our hopes springing from a monthly 13% growth in retail sales that continues on despite a virtual shutdown in South East China, the Yangtse Delta or the various Eastern Board clusters that China passes off as urbanisation.
That the twelfth plan asks for progress to move towards the interior and that Chinese Economists have virtually hoped for the Economics of the Yuan to invert and lead to a forage in Domestic Consumption as the leading factor has been the munition for everyone hoping for a better world as the harbinger of the Crossroads of Change on the road we travel.
Chinese firms, especially banks have started exporting business outside, building on Emerging markets and Developed markets Mergers and Acquisitions and increasing Yuan trading habits of Foreign banks as well as more centers for the currency than the erstwhile focus on Hongkong. China hopes to make manufacturing hubs closer to markets in Africa and Latin America like it did for its car companies in Brazil. Everything has been happy esp with the unbridled success of the first QE initiated in China in 2009 when more than $1 T was lent by banks in new loans. The resulting disarray in banking sector has been much less than was imagined when older LGFV loans came calling in 2010 and the crisis not any longer the critical reason for the current slowdown though bank regulators have not stopped trying monetising the banks to resolve the crisis again.
New facts emerge for a lasting slowdown
However, the most critical fact as highlighted by Mohd. El Erian of PIMCO and a few others just now has been China’s transition from an Emerging Market to Big Brother in Economic terms, a likely plateau of growth between the $5 Tln GDP to perhaps $10 Tln GDP in hich weaknesses like China’s statistical robustness and lasting strengths of production and consumption have to outlive China’s hard times and the global recession here its exports to the EU have been falling off a cliff. Thus the calls on a recession , below the magical 7% rate of growwth are also basically flawed if one were to lay credence to a truly weighty fact that China is now going to be the big Economy that historicaally has been happy plodding at 3% growth as stratospheric and the negative growth as recession.
The EU recession apart, the essential factor in that pronouncement of a hard landing , i.e. a rate of growth below 7% is that China is not probably ever thinking of returning back to the double digit growth of the 90s and its more sedate Economic growth in the coming decades could indeed mean a new more stable rate of growth probably even as low as 5% but that is uncertain as no prior history can indicate that coming future for China even in an absurd Economic sense.
A couple of state Economists have also highlighted in a similar vein as the included reference from Bloomberg to Yuan Gangming a state Economist with the CASS who professes a coming Economic growth of 4-5% for not just 2012 but till 2015 leaving more slated cuts in growth estimates to follow from private banks as wealth consumption and hidden largesse of loans or the Shadow reserves fail to prop up China’s new QE efforts as germaine for all follow on QE after the big bang of 2009, most measures though ensuring business confidence to run in place than fall off that cliff everyone dreads.
We are updating our views so to speak and as usual pretty early in the game but again this is a lasting direction. The example of India could also start fitting in with the new aavatar of China as more implementation problems emerge in this new avatar and uneven social growth, if not well managed , becomes a millstone aroud the government’s neck.
The three new leaders of the Polit Buro including Xi Jinping and Le Kequiang will also take more than a year to finalise roles and responsibilities , no longer following in absolute power of onea tthe head of a nine member committee but leaning towards more broad based decision making powers while the President to be come sout of a month long break from Public media for a bad back.
Bank credit has reemerged as strong earlier in May and now in August and even FDI figures for August are as they were for August 2011 which is better than th elarger dips in June and July and China remains a big market for Western luxury goods, cars and Starbucks and McDonalds
Also those hoping for more positive competition as QE and reform agendas get activated would do well to tread carefully as inflation is stronger in Asian economies esp India and even China where the new mechanics mean an especially high sensitivity to prices.