CHINA'S MANIPULATED DATA WILL NOT SAVE THE MACRO OUTLOOK
Ambrose Evans-Pritchard wrote in the UK telegraph an article entitled "Hold the champagne, China is not recovering and cannot rescue the West again" I have extracted IMHO the salient points which fundamentally points out the global impact of clearly manipulated economic data. This along with other sources suggests the greater China sphere is in the midst of an Industrial Recession!
The PBOC deserves plaudits for delivering a softish landing, but a landing it is. The economy will probably bottom out at growth rates of 4.5pc this quarter (on proxy measures). Such stabilization is not enough for a world that has come to depend on China to hold up the heavens.
The greater China sphere of east Asia is in the midst of an industrial recession. Nomura’s forward-looking index still points to a deepening downturn. “Those expecting a strong rebound in Asian export growth in coming months could be in for disappointment,”
MANIPULATED ECONOMIC NUMBERS
However, don't confuse this with political manipulation! Xi Jinping had to beat expectations with a crowd-pleaser in the first quarter. The number was duly produced: 6.4pc. “Could it really be true?” asked Caixin magazine. Of course it is not true.
- Japan’s manufacturing exports to China fell by 9.4pc in March (year-on-year).
- Singapore’s shipments dropped by 8.7pc to China,
- 22pc to Indonesia, and
- 27pc to Taiwan.
- Korea’s exports are down 8.2pc.
A paper last month by Wei Chen and Chang-Tai Tsieh for the Brookings Institution – “A Forensic Examination of China’s National Accounts” – concluded that GDP growth has been overstated by 1.7pc a year on average since 2006. They used satellite data to track night lights in manufacturing zones, railway cargo volume, and so forth.
Bear in mind that if China’s economy is a fifth or a quarter smaller than claimed it implies that the total debt ratio is not 300pc of GDP (IIF data) but closer to 400pc. If China’s growth rate is 1.7pc lower – and falling every year – the country is less able to rely on nominal GDP expansion whittling away the liabilities.
Debt dynamics take an ugly turn – just at a time when the working-age population is contracting by two million a year. The International Monetary Fund says China needs (true) growth of 5pc to prevent a rising ratio of bad loans in the banking system.
The thinking is that China will rescue Europe. Optimists are doubling down on another burst of global growth, clinched by the capitulation of the US Federal Reserve. It will be a repeat of the post-2016 recovery cycle.
FISCAL FLOOD GATES OPEN
Beijing has opened its fiscal floodgates to some degree over recent weeks.
- Broad credit grew by $430bn in March alone.
- Business tax cuts were another $300bn.
- Bond issuance by local governments was pulled forward for extra impact.
- But once you strip out the offsets, it is far from clear that the picture for 2019 has changed.
I stick to my view that the US will slump to stall speed before China recovers. Europe is on the thinnest of ice. It has a broken banking system. It is chronically incapable of generating its own internal growth or taking meaningful measures in self-defense.
Momentum has fizzled out in all three blocs of the international system. We are entering the window of maximum vulnerability.
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ABSTRACTED FROM: 04-17-19 - - "Hold the champagne, China is not recovering and cannot rescue the West again"
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