China Data Indicating an Upturn Ahead 23 comments
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China’s manufacturing Purchasing Managers’ Index (PMI) strengthened for a third consecutive month in February, climbing to 49.0% from 45.3% the previous month. Li & Fung Research Centre reports that there were some encouraging signs: All sub-indices were higher than their respective levels in the previous month though many were still lower than the critical level of 50% (i.e. still contracting).
In particular, both the Output Index and the New Orders Index rebounded to the expansionary zone of higher than 50% for the first time since September of last year. In addition, the New Export Orders Index grew strongly by 9.7 percentage points to 43.4% in February, compared to the previous month.
A Trough in the GDP Growth Cycle?
The improved PMI numbers, together with the government’s additional stimulus package, probably mark a trough in the GDP growth cycle. Andrew Pyle of Scotia-McLeod, as reported by CEP News said: “Estimates for the country’s growth outlook in 2009 have also started to levitate from the alarming 5-6% suggestions earlier this year back to 8%. Not as lofty as what we have been used to, but firm enough to put a floor under commodity prices …”
Some of the recent headlines from China Economic Net give an indication of Beijing’s strong emphasis on boosting growth.
NDRC: Further shut down backward production facilities [03-05-2009]
NDRC: China’s outbound investment up 13.2% [03-05-2009]
China to further reform power pricing system [03-05-2009]
China to put more funds to support SMEs [03-05-2009]
China aims for 20% growth in fixed asset investment in 09 [03-05-2009]
China to invest 716.1b yuan in agriculture [03-05-2009]
China aims 1.58% of 2009 GDP in research and development [03-05-2009]
China stresses domestic demand in stimulating growth [03-05-2009]
China aims for 17% growth in money supply in 09 [03-05-2009]
China pledges 42b yuan employment support [03-05-2009]
China pledges hefty investment to boost agriculture [03-05-2009]
China budgets record-high fiscal deficit [03-05-2009]
Wen urges efforts to promote export [03-05-2009]
China to continue active fiscal policy for growth [03-05-2009]
New body planned to run underperforming SOEs [03-05-2009]
Official: Spend more to boost economy [03-05-2009]
Let’s focus on a few graphs in order to gain a better understanding of China’s economic situation.
First up is the relationship between China’s PMI for new orders and the Baltic Dry Index - measuring freight rates of iron ore and bulk goods - showing both indices turning up from last year’s lows.
Click to enlarge:
Source: Plexus Asset Management (based on data from I-Net Bridge)
Next, China’s PMI for stocks of major inputs shows the deterioration has probably bottomed, and, based on the close relationship with the Metals Index, should put a floor under commodity prices.
Click to enlarge:
Source: Plexus Asset Management (based on data from I-Net Bridge)
Click to enlarge:
Source: Plexus Asset Management (based on data from I-Net Bridge)
And finally, China’s improving PMI seems to indicate that the country might have seen the worst of the GDP growth statistics. (The Hong Kong PMI is used as a proxy of the Chinese PMI prior to 2004.)
Click to enlarge:
Source: Plexus Asset Management (based on data from I-Net Bridge)
The Chinese Shanghai Composite Index is still down 63.9% from its high of October 2007, but has recovered strongly since its November 4 low (+27.8%) and is also the top performer for the year to date (+20.7%). As mentioned before, the chart pattern of the Index shows arguably one of the most bullish formations of the major stock market indices (see graph below).
The chart (top section) shows a pattern of rising lows, supported by the four-month trend line and the 50-day moving average, with the 200-day moving average within sight. Also, Chinese stocks have outperformed the Dow Jones World Index by 87% over the past six months (see rising relative price-performance line in bottom section of chart) and the S&P 500 Index by a similar magnitude (not shown).
Click to enlarge:
The Chinese believe good and bad follow each other closely. It is therefore also comforting to learn that the Year of the Ox is a sign of prosperity and has been very rewarding in the history of China. Will China’s command economy come to the Western world’s rescue? Time will tell, but there are rays of light, not least of which is a bullish-looking Chinese stock market.
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I keep an eye on the Chinese markets and indeed there are signs that the Chinese economy may be leveling out. Their government has reacted forcefully to deteriorating conditions and has instituted pro-active programs that appear to have calmed the markets. It is still too early to tell how successful they will be.
They seem to be committed to advancing the material conditions of the middle and lower classes, and advances in agriculture appear to be raising living standards in the countryside. Their domestic consumption is still rising.
I am also encouraged by the relative stability and strength of the Chinese Financial Institutions, which are still ready and able to extend credit, a crucial factor in any recovery!
One lesson learned is that de-coupling is a myth; China may not lead the recovery, or 'rescue' us. But we will not recover unless the Chinese and others recover along with us, too!
If you have time, maybe you can comment on the fact that Jan. and Feb. has seen a very high level of lending, and the impact and consequence of that. I mean, short-term is must be good, how about the impact for the second half of the year?
Appreciate thoughts from everyone on that.
CHOMP,
^__^
..
In my opinion there are a couple of reasons for this:
1. the fact that the Chinese markets shot up like a Roman candle in the context of a bubble-like buying frenzy... (we trust our own bubbles more than those of others)
2. even after the scandals at Enron, Global Crossing, Nortel, Tyco etc. etc and the belated discovery that our risk&bonus-happy bankers weren't wearing any clothes, we still think domestic equities are safer and that foreign equities automatically carry greater risk.
3. 'we' still don't trust the Red Chinese 'communists'. (even though they passed from 'red' to 'pink' some time ago, and seem to be in love with private capital even as we nationalize institutions and socialize risk faster than you can say, 'Are we in Sweden yet?'
I'm sure others will have different opinions!
On Mar 06 09:16 AM ArtfulDodger wrote:
> However, I've noticed on this site that many are for some reason
> very wary of them.
> I would like to know why this is so.
> Long: SOHU, HNG, YZC, NTSE
Thank you very much for the info/opinion.
I certainly tend to agree with you. I have a good Chinese contact, and I've had no problem with their balance sheets or the government's numbers, at least in a relative sense as far as the government goes.
It's a sad thing to feel another nation is more ethical than your own, eh?
Moreover, the Chinese are extremely tough when it comes to business ethics. Last year when a Chinese company got the blame for using lead paint, the Chinese promptly shot the man accused—no trial. Turns out the bad paint came from elsewhere.
No matter though. I'm not advocating such actions, but indeed that's their method; it's tough, but no one can say they don't place a high import on honesty.
FWLT's LNG technology, which it developed, has NO competitors.
FWLT's R&D tech arm is cutting edge.
FWLT is aggressively going after bids in China. China announced this week that it'll have 8% economic growth, has had three straight months of increasing PMI's, and that it will INCREASE its oil production, which means it'll need infrastructure work from companies exactly like FWLT.
FWLT's stock has been decimated 80% since May--about 30% of that drop in the past 10 days or so. Yet FWLT said in its earning call that it would make more in 2009 (if it gets all of the contracts it expects to sign)--than it did in 2008, which was its best financial year ever.
FWLT's CEO couldn't talk about the 4 million manhours contract during the Q4 earning call because, even though he knew they'd gotten the bid, they were still negotiating contract details.
FWLT is a great company with great future growth. Also, I believe that cutting-edge industrial technology such as FWLT's--rather than computer technology--will lead us out of this recession. And China et al.--rather than the U.S.--will be who leads the way. FWLT is prepared for that.
No matter though. I'm not advocating such actions, but indeed that's their method; it's tough, but no one can say they don't place a high import on honesty."
------ I for one will say they don't place a high import on honesty. Totalitarian Capitalism is also being operated in Russia. All 20 of the largest companies in China are state-owned. The economic elite of China has either come out of the party elite or it's been absorbed into it.
The Chinese Regime has tilted the market playing field steeply in favour of state-owned companies and private entrepreneurs who have official connections and play by party rules.
Those who buy into China's propaganda machine aren't seeing the true picture.
I do invest in China, as I do Indian an, for a time, the next rally in the US markets, before the great ice age descends on Wall street thanks to Obama's grab for socialism. The great consumers and producers will be in the far east and we know that, like it or not.
For if you love Osama, you must love Marxist socialism.
It's hard to deny this. Look at just a few of the groups that openly backed Obamsa:
Frank Chapman – Member of U.S. Peace Council Executive Committee (an FBI-identified communist front group)
Fidel Castro – Cuban dictator
European Socialist Party
Louis Farrakhan – Supreme Minister, Nation of Islam
Hugo Chavez – Venezuelan dictator
Mahmoud Ahmadinejad – President of Iran
Democratic Socialists of America
Communist Party USA (CPUSA)
Mark Solomon – National co-chair, Committees of Correspondence for Democracy and Socialism
Joel Wendland – Managing editor of CPUSA online magazine Political Affairs: Marxist Thought Online
Pepe Lozano – Leader in the Chicago Youth Communist League and editorial board member of CPUSA newspaper, People's World Weekly
Note that as far as I know, these groups have never come out and openly supported a Devilrat presidential candidate before.
Hugo Chavez recently came out and asked his brother Obama to lead a revolution that would take America into socialism.
On the other hand, China does not get involved in this type of thing; they have no plans to socialize their nation.
They may not vote for leaders, but their leaders are not against them either, as many of ours are.
On Mar 06 09:16 AM ArtfulDodger wrote:
> xsellside:
>
> I've been investing in China stocks for years and I've not had any
> problem with their numbers.
>
> However, I've noticed on this site that many are for some reason
> very wary of them.
>
> I would like to know why this is so.
>
> Long: SOHU, HNG, YZC, NTSE
> How reliable are Chinese economic statistics?
How reliable is any US statistics?
I don't think Moodys rating of debt is reliabe
DITTO --the SEC, Treasury, FED et al
What is the source of all that bad paper floating around the World? Is it Chinese?
Which country has a mountain of debt and got the currency snowblower going 24/7.
China is going to beat us playing our game -Capitalism
and, it irks many to think they aren't #1 anymore. Just like kids on a playground !
Kiss the Space Program goodbye- for only one of AIG bailout(60 billion) the USA could have put a team on Mars.
Chinese data looks good and the author has presented everything in a cogent convincing manner. But the logic does not sit well with me – China is an export economy, domestic consumption is small – it simply cannot grow when its exports are falling off the cliff (and imports too). All regional (and world) trade data export & import – is showing steep declines. So Chinese simply cannot grow at the pace they used to, even the 8% growth they are championing likely is a political slogan – unlikely achievable. The recent 2nd stimulus fiasco was cruel joke.
Read Nouriel Roubini’s article on Forbes a couple of days ago – he talks about China: www.forbes.com/2009/03...
Baltic Dry and metal prices have recently rebounded based on Chinese demand. But the fact is all these indexes had an extreme and steep fall – fell 75 – 90% in a few months. So the rebound is very understandable – pendulum swung on the other side too quickly. However as producers have cut back there is steep fall in supply of all commodities- oil, copper, and shipping– so the prices are reacting to that too. Also lot of Chinese purchases are simply building inventory, bottom fishing in the market, not actual consumption. This buildup will quickly end.
Overall I am bearish on the market’s overall, including China. The world is in deep recession unlikely to end any time soon.
Suggest sellout of FXI, definitely S&P.
You nailed it. There will be no decoupling of China or any other country from America. China knows it is in their best interest and their survival to see America solve its problems. There can be no global recovery without an American recovery. We will have an extended soggy bottom, a long "u" shaped recession.
I thought it was interesting to note that the head of the IEA was touting the low oil prices as good and necessary for the recovery of the global economy:
"The fall in the oil price is set to give a $1,000bn stimulus to oil-
importing countries this year, the head of the International Energy
Agency has said, as he urged oil producers to think about their
"mutual interest" with consumers.
He urged oil-producing countries to recognise that "to stimulate the
importing countries' economies is very important for their future,
too". The IEA has calculated that if oil stays at about $40 a barrel
this year, down from an average of about $100 a barrel last year, it
will be worth $1,000bn to oil-importing countries in increased
spending power. That compares with the US administration's plans for a
$787bn fiscal stimulus."
Mar 5 by Anthony Faiola
WaPo - As World Trade Plummets, Bustling Ports Stand Idle And Foreign Workers Track Back Home
Singapore
This shimmering city-state was the house globalization built. When world trade boomed, Singapore's seaport at the crossroads of East and West became the Chicago O'Hare of freighters and supertankers. Singapore Airlines took off despite serving a country with no domestic air routes. Nearly everything manufactured here is made for export. One out of every three workers is a foreigner.
But as the world enters a period of deglobalization, Singapore is a window into the reversal of the forces that brought unprecedented global mobility to goods, services, investment and labor. With world trade plummeting for the first time since 1982, the long-bustling port has become a maritime parking lot in recent weeks, with rows of idled freighters from Asia, Europe, the United States, South America, Africa and the Middle East stretching for miles along the coast. "We're running out of space to park them," said Ron Widdows, chief executive of Singapore-based NOL, one of the world's largest container lines.
Thousands of foreign workers, including London School of Economics graduates with six-digit salaries and desperately poor Bangladeshi factory workers, are streaming home as the economy here suffers the worst of the recessions in Southeast Asia. Singapore is an epicenter of what analysts call a new flow of reverse migration away from hard-hit, globalized economies, including Dubai and Britain, that were once beacons for foreign labor. Economists from Credit Suisse predict an exodus of 200,000 foreigners -- or one in every 15 workers here -- by the end of 2010.
Singapore's exports collapsed by a stunning 35 percent in January, mirroring much of the rest of Asia. The export boom here was tied to credit-fueled buying sprees in the United States that stopped abruptly and may take years to return, if ever. Manufacturers are grasping for a Plan B. But none of the options -- mining domestic markets, or trying to tap consumers in still-growing China and India -- offers a truly viable solution. Adding to fears of a years-long depression for exports is a rising tide of trade protectionism in countries including neighboring Indonesia.
The scene in this port city -- along with a glimpse inside two of its reeling neighbors in export-dependent Southeast Asia -- illustrates the ebbing of a golden age of trade, innovation, wealth accumulation and poverty reduction through globalization.
"The collapse of globalization . . . is absolutely possible," said Jeffrey Sachs, a noted American economist. "It happened in the 20th century in the wake of World War I and the Great Depression, and could happen again. Nationalism is rising and our political systems are inward looking, the more so in times of crisis."
1. World growth is collapsing. This isn't hyperbole, but a sobering fact. The International Monetary Fund can't downgrade its global growth estimates fast enough as the credit crisis overwhelms economies as diverse as Ireland, Japan, the United Arab Emirates and the US.
Asian governments are increasing spending to soften the blow from falling asset prices, consumer spending and manufacturing. The European Central Bank is struggling to keep up with the region's plunging economy.
The trillions of dollars of wealth being lost as markets plummet are depleting public coffers and damaging consumer psychology. It's not a good environment for any government hoping for a revival in global demand.
2. China's key customer is in hiding, indefinitely. Just when you thought conditions in the $US14 trillion ($22 billion) US economy couldn't get any worse, they ''deteriorated further'' in almost all corners of the country over the last two months, the Federal Reserve said in its regional business survey.
Wang Hanmin, a sales manager at Yixing Bochangyuan Garments Co. in Jiangsu province, spoke for many this week when he said exporters are facing a ''life and death'' crisis. Exporters are so worried that they are calling on the government to weaken the yuan after the biggest slump in overseas sales in more than a decade.
One thing is for sure: The US consumer isn't about to help China out of this dilemma.
3. A lack of tools. It's important to remember that the 4 trillion yuan ($910 billion) spending plan unveiled in November was more spin than reality. Much of it wasn't new, but a tally of existing spending efforts. They were never going to boost a $US3.3 trillion economy anyway.
China's almost $US2 trillion of currency reserves would seem to give the nation considerable policy latitude. Yet China's vast economy lacks the financial infrastructure to get the bang it needs from its stimulus in yuan. Would building more roads, bridges and dams do the trick?
''8% GDP doesn't really tell you anything about job creation,'' says Stephen Green, Shanghai-based head of research for China at Standard Chartered Plc. ''Many of these projects are not particularly job-intensive.''
The spending will help, but such projects didn't propel growth as hoped over the last 30 years. Exports did.
4. All those US Treasuries. Financing loads of new projects could prove dicey, even for cash-rich China. Any move to draw down $US696 billion of US government debt could leave China with major losses and prolong the US recession.
That leaves domestic lending institutions. If China wants to avoid a Japan-like bad-loan crisis, or something far worse, it has to be careful about massive public-works projects with questionable economic benefits.
Of course, there's the ''official'' gross-domestic-product figure, and then there's the real situation in the most populous nation. The double-digit drops in exports among China's biggest trading partners in Asia show how bad things are getting. Offsetting those trends won't be easy and it won't be cheap.
5. Rebalancing takes time. Just as the US needs to become a nation of savers, China needs more consumers. That's a destabilizing, decade-long process that requires the creation of national safety nets and more education and health-care spending.
Reverse migration
Making that transition would be a big enough challenge with a healthy world economy. Doing it while Group of Seven members are in recession and developing Asia is slowing rapidly will prove extraordinarily difficult.
Wen wasn't exaggerating yesterday when he said China faces its ''most difficult'' year of the past 30. How much China's export collapse is hurting can been seen in the 20 million migrant workers who are suddenly unemployed. The risk of social unrest is higher than at any time since 1989, the year of the Tiananmen Square protests.
China's top-down system has worked extraordinarily well in recent years. It's still a stretch to think the country can turn its economy upside down in this ever-worsening environment.
Wen says China needs to ''reverse the economic slide as soon as possible.'' Too bad officials in Beijing think their work is largely done. It's not, no matter what the official spin is.
business.smh.com.au/bu...
China container volume drops
BEIJING - CHINA'S port container volume in February fell 17 per cent from a year ago, the Xinhua news agency reported on Sunday, reflecting a persistent slowdown in the country's export sector.
Nationwide container volume totalled 6.97 million twenty-foot equivalent units (TEUs) in February, which represented a 22.5 per cent drop from January's 8.99 million TEUs.
Beijing is expected to report February trade data next week, but the 21st Century Business Herald newspaper last week cited an unnamed official as saying that China's exports and imports in February both dropped by more than 20 per cent.
China's exports in January fell 17.5 per cent and imports tumbled 43.1 per cent from year-earlier levels.
If confirmed, the February figures would mark an acceleration in the decline in China's exports and the fourth straight monthly decline for both exports and imports.
The total volume of coal passing through the country's ports in February was 15 million tonnes below year-ago levels, or a drop of 15.5 per cent, while the volume of metals was 8 per cent lower, Xinhua said. -- REUTERS
If you want to see a similar reaction just watch the likes of AIG and Citibank. The US hides their derivatives and real estate losses off balance sheet or simply doesn't report them (we hold them to maturity and say the market value doesn't count). China produces product and keeps it in warehouses and their state machine says they can keep them on the books at the price paid indefinitely until what time they can write them off. Then the government uses public money to subsidize them and forces companies to buy their stuff.
In the end, it's the little companies that suffer in China. And in the end, it's the masses that rise up and start new Communist purges there. So the government has good reasons to lie. Very very good reasons.
With US demand falling off and jobs being lost in China, where exactly is their production spike going? Unless a warehouse is now considered a consumer I am not buying it. No one else is either. That's the point.
It's true the US financial accounting is dodgy. The problem with China is everything is dodgy.