Category Archives: China

Brits May Have to Work Until 75, Thanks to China

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Stupid taken to new heights.

Retirement is about no longer producing real goods and services and instead living off of the real output of others, incuding China’s exports to you.

The only way this could make any sense is if China somehow was going to force the UK to net export at some time in the future, sort of like war reparations.

Not that the UK might not lose a war to China and be forced to export, but if history is any guide, China and the rest will still be pressing on with net export strategies, like Japan has done for the last 65 years and going strong.

And, of course, keeping millions who want to work from working (unemployment) is entirely counterproductive with regards to real output as well.

Brits May Have to Work Until 75, Thanks to China

By Katie Holliday

Feb 27 (CNBC) — A colossal savings glut in China, the world’s second largest economy, means British workers in their twenties will only be able to retire at 75, a report by the Center for Economic and Business Research (Cebr) showed on Thursday.

According to the report, excessive savings in emerging economies, especially in China, and the country’s growing share of the global economy will keep yields and interest rates down for many years. This will leave pension funds underfunded keeping annuity rates low.

“To retire at close to the standard of living that they (U.K. workers) have previously enjoyed, they will have to extend their working life and cut their number of years of retirement by working till they are much older than the present retirement age,” said Douglas McWilliams, executive chairman of economics consultancy Cebr.

The state pension age in the U.K. is 65 for men and 60 for women currently, but it is set to steadily rise to 66 for both by 2020, as set by the government’s Pensions Bill in October 2012.

McWilliams pinpointed China’s savings glut as a key driver behind this trend.

China’s population holds a staggering 25 percent of the world’s savings, the report found, rising from $153 billion in 1990 to a likely $4.5 trillion this year – a figure Cebr expects to grow further.

Austerity

Weak state finances following austerity measures will also make it difficult for British workers to retire before the age of 75, the report said.

The U.K. economy was stripped of its Triple-A rating by credit ratings agency Moody’s this week on concerns over its subdued growth prospects and rising debt burden.

The British government is currently undergoing vigorous austerity, but the cuts have come at the expense of growth. The economy emerged from a nine-month recession in the third quarter of last year with 0.9 percent growth, however , it then contracted more than expected by 0.3 percent in the final quarter of last year.

According to Cebr, the long-term cost of the austerity measures will outweigh the cost of bailing out banks during the financial crisis.

It estimates that the cost of bailing out the banks will have cost the British taxpayer about 120 billion pounds ($181 billion) eventually, while the problems of excess deficits built up since 2000 will have cost the economy 1.5 trillion pounds by 2025.

“It will be well in the late 2020s at the earliest before austerity policies can be eased up,” said McWilliams.

Interest rates in the U.K. meanwhile are likely to stay low for at least 20 years, the report from Cebr said.

“Even the [U.K.] Pensions Regulator admits that most pension schemes are underfunded and many will never be able to be fully funded while low yields persist without bankrupting their guarantors,” McWilliams said.

“And for those on direct contribution pension schemes, the annuity yields that they are able to buy are unlikely to rise much from today’s very depressed levels. Workers could save more. But they are unlikely to do so and if they did so around the world, they would only add to the glut of savings that is a fundamental cause of the problem,’ he added.

Direct contribution pension schemes are retirement plans where an employer matches its employee’s contribution of his or her earnings each year.

Time to Learn Mandarin?

The tendency towards saving in China means the Chinese will eventually own a quarter of the world’s assets, as they invest heavily abroad to use up their savings, said Cebr.

“So far the Chinese have invested heavily in areas like Africa and South America which the West has neglected as well as in U.S. Treasury bonds. But they will have to turn increasingly to other assets like companies and properties in the West including U.K. companies,” he said.

“Better start learning Mandarin – your next boss may be Chinese,” said McWilliams.

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Efficiency of China’s economy ‘sliding’

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More evidence the Chicago educated offspring have taken charge. Good luck to them…

Efficiency of China’s economy ‘sliding’

Feb 28 — The efficiency of China’s economy is slipping, with money flowing much slower betweendifferent sectors than in the past, according to analysts.

They said this is despite the fact that the nation has a considerable amount of social financing— an approach to managing money that delivers a social dividend and an economic return.

Liu Yuhui, director of the financial lab at the Chinese Academy of Social Sciences, agovernment think tank, said although financing activities in the country appear to be rampant,most of the newly borrowed money is used to repay debts instead of forming revenue amongcompanies.

“We can see that the ratio of money to gross domestic product has been increasing, whichmeans the economy needs increasing capital to promote than previously.”

Last year, social financing, which included bank and non-bank loans, bond issuance and stocksales, set a record high of nearly 16 trillion yuan ($2.54 trillion). The ratio of M2, a broadmeasure of money supply, against GDP stood at a record high of 188 percent at the end of lastyear.

The proportion of the increase in enterprises’ one-year deposits to total social financingdropped to 20 percent in 2012 from 40 to 50 percent seven years earlier, Liu said.

“Accumulation of debts is pushing up the leverage ratio among companies, with the wholeeconomy more difficult to shore up.”

He said that by adding loans extended to local governments through financing vehicles, theproblem becomes more severe.

Liu estimated local government debt in the financial system at somewhere between 13 trillionyuan and 14 trillion yuan, with interest rates to be paid each year standing at 700 billion yuanto 800 billion yuan.

Rolling over loans has become a widely adopted measure among Chinese banks since lastyear as lending extended during the financial crisis to stimulate economic growth graduallybecame due but could not be paid back on time.

According to a survey released by the China Banking Association at the end of last year, morethan half of the 850 bankers surveyed said they support the practice of rolling over matureloans, saying this offers a way to ensure projects have good cash flow and that the loans willeventually be repaid following a grace period.

Many banks would rather maintain the lending as long as interest rates could be paid, insteadof classifying the loans as non-performing assets, Liu said.

China’s M2 growth accelerated substantially to a 22-month high of 15.9 percent year-on-year inJanuary from 13.8 percent in December.

In January, commercial banks extended more than 1 trillion yuan in new loans, and bank off-balance-sheet and non-bank channels offered another 1.5 trillion yuan of new credit to theeconomy, according to data from the People’s Bank of China, the central bank.

Social financing reached 2.54 trillion yuan last month, up 1.56 trillion yuan year-on-year.

The increase in enterprises’ deposits in January, which stood at 117.9 billion yuan, was muchlower than that of individuals’ savings, which stood at 749.9 billion yuan.

Stephen Green, chief China economist at Standard Chartered Bank, warned last year that foran economy with an already high leverage level, “re-leveraging up” increases overall macrorisk, as many financial crises are foreshadowed by an increase in leverage.

Zhao Xijun, deputy dean of the school of finance at Renmin University of China in Beijing, saidthe current monetary condition basically matches well with the economy, judging by thefluctuation of consumer goods and asset prices.

“It’s very difficult to measure the impact after the central bank issued money, and controlswhere the capital flows into. Price levels could be a fair and final criteria to draw a conclusion.”

He said the declining proportion of companies’ deposits to total financing could also betranslated into their increasing involvement in asset transactions as the financial marketdevelops.

Formation of social capital contributed to more than 50 percent of GDP growth last year,maintaining a strong engine for the economy, although probably much of the money went intoasset transactions, Zhao said.

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China Needs Tighter Monetary Policy, State Research Agency Says

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The narratives of the last few months leave me not expecting a lot from China. Not long ago 7.5% growth was described as a ‘hard landing’ and it probably still means same.

The out of paradigm western educated kids are probably now well entrenched and we all know what that means.

China Headlines:

China Needs Tighter Monetary Policy, State Research Agency Says

Tells me they have serious inflation/corruption issues.

More Chinese cities ready for property tax pilots

Property taxes, functionally, are price increases, so while they keep headline prices and credit expansion in check, they don’t help affordability.

PBOC continues to drain liquidity from banks

Just offsetting operating factors to sustain rate targets.

China to tighten shadow banking rules

Worried about consumer fraud, corruption, and maybe inflation.

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G-20 seeks to allay fear of currency war – latimes.com

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They don’t even know if they want their currencies to be strong or weak. But they want them ‘free floating’, whatever that means.

Last I heard, for example, the US wanted a strong dollar, and at the same time wanted China to move their currency higher vs the dollar.

Sorry, but you can’t have it both ways!

G-20 seeks to allay fear of currency war

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Surge in Chinese credit raises fears

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All else equal, a reduction of state sponsored lending gets ‘replaced’ by non govt lending to the extent it can be sustained by incomes, collateral values, etc.

And not to forget, likewise, the private sector is necessarily pro cyclical.

The western educated kids at the name mainstream schools may not have brought that home with them…

Surge in Chinese credit raises fears

(FT) Chinese credit issuance surged to a record high in January on the back of a boom in shadow banking. Total new financing last month reached Rmb2.5tn ($400bn). Up more than twofold from the same month last year, eclipsing even the start of 2009 when China unleashed stimulus spending to fight off the global financial crisis. The explosion in financing was only partly driven by banks, which made Rmb1.07tn in loans. The rest of the new credit – 60 per cent of the total – came from corporate bonds, loans by investment companies, direct lending from companies to other companies and banker’s acceptances. Since December regulators have started to tap the brakes on shadow banking – in one important move they restricted the financing sources available to local governments.

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the macro cons

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Skipping the pros and focusing on the cons regarding the economy:

1. 0 rates (including QE) continue to be a highly deflationary bias that require deficits to be that much higher.

2. The FICA hike’s a serious setback that reduces growth from 3 or 4% to 1.5 or 2.5% or less.

3. Corporate cash building, foreign dollar accumulation, pension fund rebuilding, etc. are demand leakages

4. Past expansions were fueled by things we won’t do again- sub prime fraud, tech/y2k bubble, S&L expansion leg, emerging market fx debt fueled bubble, etc.- and that Japan has been careful to avoid.

5. Global austerity, where, in general, everyone of consequence thinks the problem is deficits are too large when in fact they are far too small for current credit conditions.

The January ‘bounce back’ from avoiding the cliff, debt ceiling delay, ideologues angry at the election results, etc. and the head fakes from the accelerated dividends and bonuses in Dec, seasonal issues with claims, the strong euro, some relatively modest China strength, and a few other things, is all fading fast.

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Japan’s debt approaches 1 quadrillion yen

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Debt approaching 1 quadrillion, and the highest as a % of GDP anywhere I know of, and still no bond vigilantes in sight!

Who would have thought???

Not to mention decades of 0 rates, massive QE, and in general the BOJ trying as hard as it can to inflate.

Maybe it’s not all that easy for a CB to cause inflation???

Anyway, net fiscal will add a bit to GDP, but nothing serious, and the hawkish rhetoric doesn’t seem to have changed any.

And note the cuts in welfare ‘paying for’ the increases in defense and infrastructure.

Of the Y92.6 trillion yen in spending, Y43.1 trillion will be financed with tax revenues and Y42.9 trillion with issuance of new bonds, adding to Japan’s massive public sector debt that already totals nearly Y1 quadrillion.

The FY2013 budget does show clear differences from those of the previous DPJ administration, with a clear shift away from social welfare toward defense and infrastructure programs.


It calls for a reduction of Y67 billion in welfare benefits over the next three years, an increase of Y712 billion, or 15.6% in public works programs and a Y35 billion, or 0.8% increase in spending for the Self-Defense Forces.

“Adequate amounts have been provided to ensure the safety of public infrastructure and to address public concerns about national defense,” Mr. Aso said.

The LDP’s call for aggressive public works spending got better reception after the collapse of an expressway tunnel in December that killed nine people. Simmering tensions with China have also increased support for spending programs to improve security of Japanese territory.

In a policy address Monday, Mr. Abe vowed to erase fiscal deficits in the medium-to-long term, but stopped short of saying when, leaving the task to his economic advisory panel.

Sayuri Kawamura, a Japan Research Institute economist, is worried that not enough attention has been given to the risk of fiscal implosion.

“As debt piles up, the cost of servicing that debt also goes up, eating deeper into tax revenue, and leaving less and less for policy programs. The government hasn’t explained how they are going to deal with this challenge,” Ms. Kawamura said.

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CSRCs Guo Says Intervention in Stock Market Necessary: Xinhua

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Not that a stock market is ‘necessary’. And not to forget that a 30% corporate income tax, as in the US, is at least as good as owning 30% of all taxable enterprises. If govt, want’s a larger share of corporate profits, it can just hike the tax rather than buy the stock.

If govt cares about stock prices, the question has to be why. If it’s because lower stock prices cause people to spend and consume less out of fear, you’d think cutting taxes on people working for a living would be more attractive than the govt buying stocks? If it’s due to an attack on a fixed fx currency, like HK, I’d rather float the currency than buy stocks.

CSRCs Guo Says Intervention in Stock Market Necessary

January 22 (Bloomberg) — China Securities Regulatory Commission Chairman Guo Shuqing said at the national securities
and futures supervision meeting that its necessary to intervene in Chinas stock market at key moments, the official Xinhua
News Agency reports.

* Chinas stock market is not mature, Guo was cited as saying

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Oil Settles Higher After Saudi Arabia Cuts Output

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As the article states, production fell because demand fell. If anything that would be oil unfriendly as the Saudis can only cut maybe another 5 million bpd without ‘permanent’ cutbacks, at which point they lose control of price on the downside.

Market price action, however, might be telling us the cutbacks were due to production issues in which case the risk is loss of control of price on the upside.

Oil Settles Higher After Saudi Arabia Cuts Output

January 10 (Rueters) — Oil futures rose on Thursday on news that top world oil exporter Saudi Arabia had cut back production in response to flagging demand, and after China reported strong demand for its exports.

U.S. light, sweet crude rose to a 14-week high of $94.70 a barrel before settling at $93.82, up 72 cents on the day. Brent crude futures rose as high as $113.29 a barrel before settling at $111.89, up 13 cents.

OPEC’s top producer slashed oil production by 700,000 barrels per day (bpd) to 9 million bpd during the last two months of 2012, according to industry sources. Major customers for Saudi crude said the cuts were driven by lower demand.

News of the Saudi supply curbs helped briefly push Brent over $113 a barrel for the first time since mid-October, well above the $100 a barrel price Riyadh has said it favors.

Oil and other markets also got a boost from Chinese trade data that showed strong export growth rebound in December, raising expectations of revived growth in the world’s No. 2 economy that could drive more fuel demand.

Crude pared some gains after the Philadelphia Federal Reserve Bank said its annual revisions showed that factory activity in the U.S. mid-Atlantic region grew at a lower pace in December than originally reported.

“The strong data from China indicates demand might be improving there and the Saudis have cut back production, but the downward revisions by the Philly Fed gave the market a little pause,” said Phil Flynn, analyst at Price Futures Group in Chicago.

Gains in U.S. crude pushed the benchmark to a level of 67 on the 14-day relative strength index. That is close to the 70 mark that, according to traders who follow technical charts, can indicate a commodity has been overbought.

U.S gasoline futures rose along with crude, but heating oil futures in the New York Harbor fell by 0.6 percent to around $3.05 per gallon.

Traders attributed the fall to speculation that cargoes of Russian gas oil may come to the Harbor. Physical oil traders told Reuters that up to six cargoes may be headed for New York.

Also helping oil’s advance on Thursday was news of a pipeline explosion in Yemen that halted most of the country’s oil exports.

Flows of oil through Yemen’s main crude export pipeline stopped on Thursday after it was blown up by unknown attackers, government and oil industry officials said.

“These three factors – Saudi Arabia, Yemen and the China data – are all helping to push up the market,” said Tamas Varga, an oil analyst at broker PVM Oil Associates in London.

Saudi Arabia says it favors an oil price of about $100 a barrel, but recent reports have suggested that the market is well supplied and that output from some regions, particularly North America, will grow rapidly over the next two years. U.S. government data showed that domestic oil output rose above 7 million barrels a day last week for the first time since 1993.

“Short term, the Saudi output figures are bullish, but longer term they are more bearish, because they suggest Saudi Arabia sees the need to cut to balance the market,” Varga said.

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China Loan Share at Record Low Shows Financing Risks

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Lending by state banks there- shelling out funds without much concern about getting them back- is functionally a lot like deficit spending here, and both probably have similarly high multiples as well.

So while ‘normal’ deficit spending is reportedly going up in China, temper that by this kind of decrease in ‘shadow’ deficit spending.

China Loan Share at Record Low Shows Financing Risks

January 9 (Bloomberg) — Chinas bank loans as a share of funding in the economy may have fallen to a record low, highlighting the growth of alternative financing channels that have prompted warnings of rising credit risks.

New yuan loans probably dropped 14 percent last month from a year earlier, according to the median projection in a Bloomberg News survey of 37 analysts ahead of data due by Jan. 15. That would give bank lending a 55 percent share of aggregatefinancing for 2012, based on UBS AG estimates, the least in figures dating to 2002.

The decline underscores the waning ability of official loan data to capture the scale of debt in the worlds second-largest economy as borrowers and investors turn to less-regulated, higher-return shadow-banking products. The Peoples Bank ofChina is putting greater emphasis on aggregate financing and the International Monetary Fund says the growth of nonbank credit poses new challenges to financial stability.

Chinas economic performance in 2013 will be significantly affected by how seriously Chinese regulators are going to treat non-bank financing, said Shi Lei, a Beijing- based analyst with broker Founder Securities Co., who has provided research advice to Chinas securities regulator. While a hands-off approach will help the economy, a crackdown would be really bad for growth.

The PBOC lending figures are among December data in the coming days that will show whether an economic rebound that began in September picked up or slowed last month after a seven- quarter growth slowdown. Trade figures due tomorrow may show exports rose at a faster pace and a Jan. 11 report may indicate inflation accelerated.

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