Karim writes:
2nd Tier Data – not a view changer:
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Check out the last ‘house hunting’ story.
Looks like they are on to that angle of attack, directing
that form of ‘investment’ as a matter of public purpose,
much like we have done with our public policies over the years.
Also looks like the cut back in lending was to try to moderate
what they deemed to be ‘overheating’ and should only be temporary.
Seems the rate hike was only 26 basis points (not that rates matter very much in any case).
Very interesting note here:
Chinese banks usually “frontload” lending in the first half of each year.
China Money Rates Drop as Central Bank Stops Pushing Up Yields
August 18 (Bloomberg) — China’s money-market rates dropped after the central bank stopped driving up the benchmark bill yield for the first time in six weeks, fanning speculation it will ease availability of funds to stem a slump in stocks.
The People’s Bank of China said it sold 45 billion yuan
($6.6 billion) of one-year bills at a yield of 1.7605 percent, unchanged from last week’s auction. The central bank has let the yield rise 26 basis points since resuming sales of one-year bills on July 9, following an eight-month suspension.
“The authorities may want to ease the market panic after a big slump in stocks,†said Zhang Lei, a fixed-income analyst at Shenyin Wanguo Research & Consulting Co. in Shanghai. “The unchanged yield is a signal that the central bank will stick to its loose monetary policy.â€
The seven-day repurchase rate, which measures funding availability on the interbank market, declined 12 basis points, or 0.12 percentage point, to 1.30 percent as of 5:30 p.m. in Shanghai, according to the China Interbank Funding Center. A basis point is 0.01 percentage point.
A government report showed on Aug. 11 that industrial production gained 10.8 percent in July, less than the 12 percent median estimate in a Bloomberg survey of economists. Urban fixed-asset investment for the seven months to July 31 climbed
32.9 percent, which was also short of analyst forecasts.
China’s Investment-Grade Debt Ratings Affirmed by S&P
Aug. 18 (Bloomberg) — China’s investment grade credit rating was affirmed by Standard & Poor’s Ratings Services, which cited the country’s “exceptional†economic growth potential.
S&P maintained China’s A+ long-term sovereign credit rating and its A-1+ short-term rating, according to a statement issued today. The outlook on the long-term credit rating remains stable, S&P said.
“Fiscal flexibility remains significant,†S&P said in the statement. “The Chinese government faces moderate risks of balance sheet damage if there is a steeper and more prolonged economic slowdown than currently expected.â€
Banks report fewer new loans
August 17 (China Daily) — China’s new lending in July fell to less than a quarter of June’s level, as banks sought to limit credit risks and the flow of money into stocks and property.
Banks extended 355.9 billion yuan in loans, down from 1.53 trillion yuan in June, the People’s Bank of China reported on its website last week. M2, the broadest measure of money supply, rose 28.4 percent.
China Construction Bank Corp, the nation’s second-largest lender, said recently that it will cut new lending by about 70 percent in the second half to avert a surge in bad debt.
The government wants to avert bubbles in stocks and property without choking off the recovery of the world’s third-biggest economy.
A smaller loan number “is probably a good thing – we’re coming off this ridiculously high level of lending in the first half,” said Paul Cavey, an economist with Macquarie Securities in Hong Kong.
Premier Wen Jiabao reiterated in a statement on Aug 9 that a “moderately loose” monetary policy and “proactive” fiscal policy will remain unchanged because the economy faces problems including sliding export demand and industrial overcapacity.
UBS AG stated in a July 31 note that the scale of China’s new lending in the first half was “neither sustainable nor necessary.” New loans of 300 billion yuan to 400 billion yuan a month in the second half would be “more than enough” to support the nation’s recovery, the report said.
Chinese banks usually “frontload” lending in the first half of each year.
The credit boom and a 4 trillion yuan stimulus package drove 7.9 percent economic growth in the second quarter from a year earlier and helped General Motors Co to report a 78 percent increase in vehicle sales in China in July.
A record $1 trillion yuan in loans through June has also helped to drive this year’s 79 percent gain in the Shanghai Composite Index.
Central bank and finance ministry officials said on Aug 7 that they will scrutinize gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state-controlled lenders to slow growth in new loans, citing unidentified people familiar with the matter.
Credit exploded after the People’s Bank of China scrapped quotas limiting lending in November and told banks to back Wen’s 4 trillion yuan stimulus package.
Zhang Jianguo, the president of China Construction Bank, expressed concern about loan growth last week, saying some industries are growing too rapidly and some money isn’t flowing into the real economy.
Housing prices “are rising too fast and housing sales are growing too fast”, Zhang said.
Property sales climbed 60 percent in value in the first seven months from a year earlier, the statistics bureau said.
China’s banking regulator urged lenders on July 27 to ensure credit for investment projects flows into the real economy.
Three days later, the regulator announced plans to tighten rules on working capital loans.
Stephen Roach, chairman of Morgan Stanley Asia, said on July 29 that surging lending and infrastructure spending worsened imbalances in the Chinese economy and “could sow the seeds for a new wave of non-performing bank loans”.
Instead of pumping up growth, the government should do more to boost private consumption, he said.
China goes house hunting to rev up economy
August 18 (Reuters) — The Chinese government is attempting to pass the baton of growth from State-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery.
Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far, though officials are wary that house prices may rise too high, too quickly.
China’s biggest listed property developer, Vanke, lifted its housing starts target for this year by 45 percent, while its rival Poly Real Estate said sales in Jan-July rose 143 percent from a year earlier.
On the ground, construction firms, big and small, are trying to meet the demand, last years’ downturn now a distant memory.
“It’s been a long time since we’ve had a day off. Several months, I think, though I can’t remember exactly,” said Zhang Minghui, owner of a small building company in Beijing.
“From late last year to early this year, we basically had nothing to do. Everybody was careful with their money because of the crisis and so projects got delayed.”
Zhang cut his staff to three in November but is now back up to a crew of 14.
The economic importance of the property sector in China is hard to overstate. Investment in residential housing accounted for about 10 percent of gross domestic product before a property boom turned to bust in 2008, roughly the same as the contribution from the country’s vaunted export factories.
The government’s first steps last year to revive the stalling Chinese economy were to offer tax cuts to encourage home purchases, followed by rules to ease access to mortgages.
These are bearing fruit.
With housing investment up an annual 11.6 percent in the first seven months, Chinese growth momentum is broadening out and the central government has been able to slow the pace of its stimulus spending on infrastructure.
Real economy
But Beijing must strike a fine balance in its bid to kick-start the housing market.
On the one hand, it wants rising prices to persuade house hunters to stop putting off purchases and to get developers to invest in new projects. On the other hand, it is wary of prices rising too quickly, luring speculators into the market and turning it into an asset bubble, not an economic driver.
“Because it is closely linked to so many industries, volatility in the real estate market will inevitably lead to macroeconomic volatility,” the government-run China Economic Times warned on Monday.
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From ‘Lila:’
“Of all the contributions America has made to the history of the world, the idea of freedom from a social hierarchy has been the greatest…”
“And yes, although Jefferson called this doctrine of socially equality ‘self evident,’ it is not at all self evident. Scientific evidence and the social evidence of history indicate the opposite is self-evident. There is no ‘self-evidence’ in European history that all men are created equal. There’s no nation in Europe that doesn’t trace its history back to a time when it was ‘self-evident’ that all men are created unequal. Jean Jacques Rousseau, who is sometimes given credit for this doctrine, certainly didn’t get it from the history of Europe or Asia or Africa. He got it from the impact of the New World upon Europe and from contemplation of one particular kind of individual who lived in the New World, the person he called the ‘Noble Savage.’
The idea that ‘all men are created equal’ is a gift to the world from the American Indian. Europeans who settled here only transmitted it as a doctrine that they sometimes followed and sometimes did not. The real source was someone for whom social equality was no mere doctrine, who had equality built into his bones. To him it was inconceivable that the world could be any other way. For him there was no other way of life.”
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From ‘Lila:’
“The idea that ‘man is born free but is everywhere in chains’ was never true. There are no chains more vicious than the chains of biological necessity into which every child is born. Society exists primarily to free people from these biological chains. It has done that job so stunningly well intellectuals forget the fact and turn upon society with a shameful ingratitude for what society has done.”
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From ‘Lila:’
“What the Metaphysics of Quality indicates is that the 20th century intellectual faith in man’s basic goodness as spontaneous and natural is disastrously naive. The ideal of a harmonious society in which everyone without coercion cooperates happily with everyone else for the mutual good of all is a devastating fiction. It isn’t consistent with scientific fact…Primitive tribes such as the American Indians have no record of sweetness and cooperations with other tribes. They ambushed them, tortured them, dashed their children’s brains out on rocks. If man is basically good, than maybe it’s man’s basic goodness which invented social institutions to repress this kind of biological savagery in the first place…”
…We must understand that when a society undermines intellectual freedom for its own purposes it is absolutely morally bad, but when it represses biological
freedom for its own purposes it is absolutely morally good. The destructive sympathy of intellectuals lawlessness in the sixties and since is derived,
no doubt, from what is perceived to be a common enemy, the social system. But the Metaphysics of Quality that this sympathy was really stupid.”
The idea that biological crimes can be ended by intellect alone, that you can talk crime to death, doesn’t work…Only social patterns can control
biological patterns, and the instrument of conversation between society and biology is not words. The instrument of of conversation between society and
biology has always been a policeman or a soldier and his gun. All the laws of history, all the arguments, all the Constitutions and the Bills of Rights and
Declarations of Independence are nothing more than instructions to the military and the police.”
A culture that supports the dominance of social values over biological values is an absolutely superior culture one that does not, and a culture that supports the dominance of intellectual values over social values is absolutely superior to one that does not.”
Where biological values are undermining social values, intellectuals must identify social behavior, no matter what its ethnic connection, and support it all the way without restraint. Intellectuals must find biological behavior, no matter what its ethical connection, and limit or destroy destructive biological patterns with complete moral ruthlessness, the way a doctor destroys germs, before those biological patterns destroy civilization itself.”
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We now fact the risk that Obama loses whatever control of Congress he might have had as he loses popular support and the nation goes rudderless, while rising unemployment and faltering financial markets again work to get the deficit where it needs to be via the very, very ugly automatic stabilizers that might have more work to do.
And nothing the right fiscal adjustments (payroll tax holiday/per capita revenue sharing) can’t immediately reverse, but that seems less and less likely with each passing day.
And a national media that continues to have it all wrong.
On Mon, Aug 17, 2009 Russell Huntley wrote:
I would agree and I am an Independent. I know he has lost the progressives.
I have not seen Obama do anything different that what Bush did:
Still doing extraditions and harsh interrogations (possibly torture)
Still fighting wars and wasting tax payer’s money.
Still imprisoning 3% of our population for profit.
Economy is still a mess because the man who stood for change surrounded himself with a Wall Street team, who know nothing different. So the banks keep barely surviving. He should have put the money in the hands of the civilians and business through a payroll tax cut. Business’s would have had more money to retain employees and employees would have more money to buy goods, and if needed to save. Those savings would have gone to banks.
Health care — will give him credit, he is trying to give it a shot, but probably will end up doing nothing new but lining some pockets along the way.
Cap and trade — again whose pockets does that line. Probably GS and JP Morgan.
Stimulus — Where are our great new infrastructure projects. I thought we were going to build a ladder to stars, not a pit to hell.
By the way — Peter Schiff, the doom and gloomer, gold advocate and a person who thinks the FED should be abolished, gets a lot of press coverage. He recently announced that is running for Senator Dodd’s seat as a Republican. In his first month he raised $800,000. Pretty impressive. I think there is a large mass of the population out there who feel 100% unrepresented and who will support someone who says that they will represent them. Obama did it, but it appears he cannot speak honestly and that he is merely a mirage and probably the reason why his poll numbers are going in Bush’s direction.
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Brazil seems to be catching on?
Brazil Lula Vetoes Spending Limits for 2010 Budget, Estado Says
August 14 (Bloomberg) — Brazil’s President Luiz Inacio Lula da Silva vetoed 20 items in the guidelines for next year’s budget that sought to curtail government spending on public
works, O Estado de S. Paulo said.
Lula also vetoed a measure that would have limited the government’s ability to increase investment under its so-called Growth Acceleration Program, which is comprised of infrastructure spending on ports, roads and energy projects, the Sao Paulo-based newspaper reported, citing the official gazette.
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Yes, there’s clearly an ‘unidentified demand leakage’ to have all this deficit spending with demand only holding at very low levels.
I keep coming back to the depressing effects of low interest rates and a large Fed portfolio shifting interest income from savers to govt., banks, and corporate borrowers with consumers who borrow getting very little benefit as incomes at best stagnate.
As Bernanke stated in his 2004 paper, the fiscal drag from lower interest rates can be offset by a tax cut or fed spending increase.
Karim writes:
Biggest news this morning was surprising drop in Michigan survey. Despite equity rally, lower gas prices and labor market becoming ‘less bad’, Michigan survey drops 2.8pts to lowest level since March. Consumer still nowhere to be found in current ‘recovery’.
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Yes, this further supports the notion that some of the world economic improvement was due indirectly to ‘one time’ inventory building and additions to capacity in China, including the eurozone, where exports nudged France and Germany to positive GDP reports.
Hong Kong Climbs Out of Recession as Trade Improves
August 14 (Bloomberg) — Hong Kong climbed out of a yearlong recession as trade improved, adding to signs that the global economy is recovering.
Gross domestic product rose a seasonally adjusted 3.3 percent in the second quarter from the previous three months, after dropping 4.3 percent in the first quarter, the government
said today. The median estimate in a Bloomberg News survey of seven economists was for a 1.2 percent gain.
The Hang Seng Index has gained 84 percent from this year’s low in March as China’s record lending and 4 trillion yuan ($585 billion) stimulus package help the city, which is a hub for
trade and finance. Hong Kong’s government raised its forecast for this year’s GDP to a contraction of between 3.5 percent and 4.5 percent today from a previous estimate of a 5.5 percent to
6.5 percent decline.
“This rebound has largely been ‘Made in China,’†said Brian Jackson, a senior strategist at Royal Bank of Canada in Hong Kong. “Exports to the mainland have picked up, while easy
liquidity conditions there have contributed to recent gains in Hong Kong’s asset prices, providing a strong boost to Hong Kong consumers.â€
The economy shrank 3.8 percent in the second quarter from a year earlier, after a 7.8 percent drop in the previous three months. The first-quarter contraction from the previous three
months was the worst since data began in 1990.
Singapore Retail Sales Post Smaller Drop as Recession Recedes
By Stephanie Phang
August 14 (Bloomberg) — Singapore’s retail sales fell the least in three months in June as the nation emerged from its worst recession since independence 44 years ago and an annual island-wide sale supported spending.
The retail sales index dropped 8.2 percent from a year earlier after sliding a revised 10.4 percent in May, the Statistics Department said today. The median estimate of 11 economists surveyed by Bloomberg News was for a 9.2 percent decline. Adjusted for seasonal factors, sales rose 2.3 percent from May.
Singapore’s economy expanded for the first time in a year last quarter as manufacturing and services improved. The government raised its 2009 export forecast this week as policy makers around the world predict the worst of the global recession is past after pledging about $2 trillion in stimulus measures and cutting interest rates.
“We should generally expect gradual improvement in retail sales from hereon,†said Kit Wei Zheng, an economist at Citigroup Inc. in Singapore. He cited “firmer signs of a turnaround in labor markets, and perhaps some positive spillovers on confidence from the buoyant property and equity markets.â€
Singapore’s benchmark stock index has climbed 49 percent this year and home sales by developers including Frasers Centrepoint Ltd. rose 9.1 percent in June from May, according to the Urban Redevelopment Authority.
Singapore employers fired fewer workers last quarter, cutting 5,500 jobs compared with 12,760 in the first three months of the year, the Ministry of Manpower said July 31. The seasonally adjusted unemployment rate held at 3.3 percent.
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Yes, this further supports the notion that some of the world economic improvement was due indirectly to ‘one time’ inventory building and additions to capacity in China, including the eurozone, where exports nudged France and Germany to positive GDP reports.
China stops expansion projects in steel industry for three years
August 13 (China Daily) — China’s Ministry of Industry and Information Technology (MIIT) Thursday announced a three-year moratorium on approvals of new expansion-related proposals in the iron and steel industry, as the government pledges to eliminate outdated capacity.
MIIT Minister Li Yizhong said overcapacity in the steel industry was “the most evident” of all the industrial sectors, with this year’s estimated total output capacity at 660 million tons, compared with estimated demand at 470 million tons.
He called for steel mills to stop expansions for the next three years. Projects with total capacity of about 58 million tons already under construction would continue, he said.
“If the trend goes down like this, the steel industry will come to a dead end,” he said.
Another move to step up elimination of outdated capacity was consolidation of the industry, he said. Steel mills in Hebei province would reduce their overall capacity from 120 million tons to 80 million tons annually over the next two to three years.
He said the ministry was drafting steel industry consolidation guidelines aimed at reforming the world’s largest market. He gave no time for their publication.
The Shanghai Securities News reported in late July that China would release the guidelines in September.
The ministry will issue another guideline on energy conservation and emissions reductions in key sectors, including the chemical and steel sectors in the second half of this year.
The country’s steel mills produced 50.68 million tons of steel in July, up 12.69 percent year on year.
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