Yet Another Huge Economic Number Coming out of China. Hard to Believe 24 comments
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Some huge, hard-to-believe numbers coming from the Chinese - if I had a nickel for every time I wrote that... I could melt all those nickels, sell it on the spot market and buy enough gold to plate my new ZH decal.
But seriously - is anyone buying this? The story being put forward by the Chinese is that the government pumped in some stimulus which has been enough to get the crank rolling again and leads to statements like:
"China’s downward slide is clearly over,” said Wang Qingtao, an analyst at First Capital Securities Co. in Shenzhen.
We don't want to be the Debbie downers here but where is this demand coming from? Have Chinese consumers suddenly rationalized their government's stimuli against the precipitious declines in aggregate global demand, the drops in real income and the dismal employment picture and come up with a "buy" signal?
Unless market psychology runs differently over there, we have to wonder how much stock to put in these numbers. Our frequent readers know that we typically will do a deep dive into the data but in this case, we're SOL for two reasons - 1) I don't read Chinese (raw data somewhere here) and 2) the next best thing, the Bloomberg article, is a little sparse on some of the details. For example, this little tidbit REALLY needs some explaining:
First-half sales jumped 18 percent to 6.1 million after the government cut some retail taxes and handed out vehicle subsidies in rural areas to spur demand.
Now, some retail tax cuts and vehicle subsidies to spur demand could be a harmless few percentage points here, a 0% APR or $1500 cash back there, but there is a slight possibility it could be quite a bit more drastic than that (especially in light of the strong political pressure to maintain the "all is well" message). The end message is: who really knows? Ultimately, this fails the sniff test. The "China bubble" theory is pretty well-established by this point even if the proponents have screamed themselves hoarse (your beloved correspondent included) as the SHFE runs a marathon with the bulls and this seems yet another data point to shake our heads at.
The other interesting message is that this growth in Chinese demand may have positive spillover effects into Western companies like Alcoa (AA). Indeed, Alcoa CEO Klaus Kleinfield comments:
Alcoa, the largest U.S. aluminum producer, expects government stimulus spending in China and the U.S. to boost metal demand enough to help the company start generating cash again.
On this specific example, I would refer you to an excellent post by Macro Man who basically concludes that the better than expected news can mostly be attributed to aggressive cost cutting rather than any sustainable increase in revenue. The other alleged spillover industries are in similar straits so I won't belabor the point but suffice to say that GM (GMGMQ.PK) is still not a good buy for the US taxpayer.
To be fair - there is a tremendous amount of latent demand in China. As the below graphic shows (click to enlarge), Chinese demand has a long way to go before reaching an appropriate % of GDP (thanks to Brad Setser/Paul Swartz for the graphic).
However it's just too soon. This sort of macro shift cannot possibly be expected to happen in any given 3 month period and especially in the context of crappy ROW macro data (green shoots aside), it's tough to swallow. The long term story is definitely very bullish on China but only when the macro pieces are there - until then, it's a pretty tough pill.
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This article has 24 comments:
You clearly have not been to China and don't know about China, so you are questioning the numbers. But they are real. The annual taxations and fees for owning a car is extremely high in China, compare with here in America. So when government cuts taxes that is a huge boost to auto sales, as that brings a lot of people edge into the group who finally can afford to own a car.
Unlike the sheeples in the USA who are totally clueless, the Chinese are extremely alert and they have mostly determined that the US dollar is going down, and high inflation in both the USA and China is definitely coming, so, within just a couple of monthes, the real estate market in China suddenly turned and boomed again, as people buy multiple housing units as a way to preserve asset value. There are also organized tour groups to visit the USA and to seek buying houses in big US cities.
What people outside Asia normally see are the trend in cities like Shanghai and Beijing as well as the slump in pearl delta, but there are developing cities elsewhere in China were consumer spending is up a little.
I agree with Mark that people who never step foot in China does not know China well enough.
There's a case developing before the WTO, regarding the Chinese purchase of wind turbines, with foreign manufacturers (primarily European) claiming they were excluded from the bidding process, despite having spent many millions on setting up domestic production facilities.
'Superconductivity -- is this for real? Physicists claim it is, but no one I know has ever witnessed an electric current with no resistance! I think the phenomenon is a sham!' --- Cornelius
On Jul 10 08:28 AM Old Trader wrote:
> Given that it seems that China has adopted a "Buy Domestic" stance
> as part of their stimulus plan,
Even a cursory glance of some facts would have informed the author that most of the Chinese stimulus package hasn't even kicked in because of troubles with funding at the local level.
Go ahead, invest in China at your own peril
If you believe the numbers about China, long China.
Otherwise, short China.
On Jul 10 09:34 AM I need more cowbell wrote:
> Wow, you actually believe these numbers, coming from a government
> that just arrested 5 emplyees of Rio Tinto, on charges of espionage?
> The "espionage" is being highly conjectured to be merely an accurate
> reading of the Chinese economy, in order for negotiations to be dealing
> with facts not Chinese BS.
> Go ahead, invest in China at your own peril
Frankly, if the data suggests a new economic superpower is coming to the fore, that's because it is.
Consumer sentiment is basically the same in China and the (CP) Central Party is working overtime to push domestic demand up however the stubborn working classes must SAVE to buy a home, cover their own health care and retirement. The CP stimulus and easy credit lately has lead to returning real estate and stock market BUBBLES in some major cities, but like the US stimulus it has not trickled down to the average people.
The 30% drop in exports has made a dramatic impact and the CP knows that the customer (USA) is broke for many years. They have no doubts that even when a recovery returns that the export levels will not and increased domestic spending is a mandatory.
After 6 years of watching the astonishing growth it is clear to see a slowing in many inner cities not dependent on export. Over the last few years every city has construction cranes in the skyline. When they develop apartments blocks it is 10 to 20 buildings alike and most of them purchased by young middle class for speculation and now many cranes and projects have stopped. Many 35 year old couples have a second apartment and funds in the stock market.
We know what will happen to them as this depression rages on!
This month travel through 4 such cities have the same appearance of projects on hold. In Xi,an city there is a few major industrials that supply domestic markets and their sales are down.
Bouy states "I'm not sure I would believe much from a country thats agenda has always been control and manipulate."
You are so funny! Who really owns our 2 party political system.
As a for Rio Tinto people it is probably true that they bribed their customer as this is the way of doing business in China "green money". It is acceptable way of business and will be used against you when needed to punish a supplier or country! This is a protectionist war in the making.
A side note Alcoa will never get a real piece of the domestic market!
Posted this the other day.
Aluminum is an indicator!
However there is a world wide glut and over capacity of production capability, so even if we get a recover Alcoa is marginalized going forward. Metal production is an emerging market product (EPA) and such!
China has greatly supported the infrastructure development of the domestic producers and will control the players in Asia. The central government is buying the commodities instead of long US treasuries as part of it's infrastructure planning for the future (long term planning). They have the raw material supply with the Yuan to settle trade and they provide nearly free electricity to the domestic producers.
Auto production will replace most Aluminum with EG electro-galvanized metal, also in a huge capacity planning stage in China (boa steel).
Companies grow or die! Alcoa is shrinking in all aspects.
Assuming the Chinese number are accurate, it has became another reason to short US stocks......
However, I will be shorting the Chinese market because China is the only market rallying higher while the whole entire world is falling. Granted that China has over a billion people buying "cars" and TV sets, on the western China the riots of Xinjing and many un-reported cases of unemployed protesters cannot be ignored. Cases of unrest and protests have dramatically increased and in my opinion, China will have a lot of internal problems coming really soon.
The real estate market is overheated, the banks are over lending, and the IPO markets are oversubscribed. Maybe I am overly caution, but wouldn't you be too when things go too fast too soon? Especially in China where reports cannot be verified?
Yeah, and Alcoa's investors can just keep on dreaming. Seriously, once can play China how ever one likes, but one has to be extremely caution. There are too much optimism in China, and the Muslim in Urumqi aren't feeling it.
To say that China is ramping up its engine of economic growth is not to recognize the serious concern running through that country right now. To see it you may take note of its second failed long term treasury note failure. Even there people are predicting bubbles and inflation with government stimulus, not real growth.
Real growth comes from the private sector, not the public sector. If the economy was a chemical experiment government would be a catalyst, the main reaction comes from the active chemicals which would be the private sector (and I don't mean pseudo private sector companies like GM, AIG, BAC, the Federal Reserve, and Fannie Mae and Freddie Mac. I think you call them inactive waste that blocks all chemical reactions). More catalyst simply crowds out the amount of active substances you can fit in a contained space.
www.caam.org.cn/zhengc...
The figures quoted in the Bloomberg article are for total vehicle sales; car sales were actually stronger (up 25.6%), offset slightly by a fall in commercial vehicle sales (0.5%).
The car sales growth figure is huge (obviously) are huge, presumably the incentives will run out at some point & sales will collapse...
On top of the incentives, other factors may have encouraged purchasing:
- falls in oil prices since H1 08
- high levels of savings (no need to get a loan to snap up a bargain)
- perhaps heavy discounting by car manufacturers (at an auto show I went to a few months back there were so many auto companies it struck me the market must be saturated...)
"...China is considered by many to be the ultimate example of successful central planning. It is run by a ruthless and totalitarian government and exhibited strong economic growth for three consecutive decades. Previously, I wrote about the assumptions outsiders make when looking at Chinese economic indicators, and the way in which such assumptions affect decision making. However, even those who visit China in order to get a "real idea" of what's going on are often misguided by what they see. Visitors to Beijing, Shanghai, and other cities are impressed with the beautiful airports, highways, and central business districts and deduce that the country is developing well.
More than 65 years ago, F.A. Hayek wrote in The Road to Serfdom about the misleading nature of centrally-planned development. He noted that 'every one of the many things which, considered in isolation...would be possible to achieve in a planned society creates enthusiasts for planning'. Furthermore, it would be 'foolish to deny' that people living in such societies enjoy many good things which they 'owe entirely to planning'. Hayek, an Austrian exile in London, used contemporary examples to illustrate his point: Both Hitler's Germany and Mussolini's Italy had centrally-planned economies, and some of the most 'magnificent roads' and machinery in the world.
However, he noted, it would be 'foolish' to 'quote such instances of technical excellence in particular fields as evidence of the general superiority of planning. It would be more correct to say that such extreme technical excellence out of line with general conditions is evidence of a misdirection of resources'. Put differently, when a poor and oppressive country invests a large amount of its resources in one place, it means that another part of the economy is being neglected. This, in turn, leads to imbalances which hinder overall development. Of course, free societies also suffer from over-investment in different sectors, but these are less pronounced, and are periodically corrected by market forces..."
www.drorism.com/blog/2...
And a Day in the Life of a U.S. Dollar:
www.drorism.com/blog/2...
Being in China, they may read in the local publication that the unemployed migrant workers are 25 million (19% of 130 million "farmer-workers), instead of 20 millions published by agriculture department. Agriculture department doing survey and statistics of unemployment? What is National Bureau of Statistics doing? The unemployment rate in Xian is 16%, not 4.2% reported by Residential Registry. Speaking of advantage of being to China???
I visited certain institutions in Shanghai sometime ago. Several young scientists told me that all American consultants telling them that no one will trust their data and no western academic publication will publish them. I wonder why? That is very discouraging to young Chinese scientists!
Empirical knowledge derived from the facts of the case must be established before any tentative hypotheses are postulated. This is the basis of the scientific method regardless of where thinkers are situated.
Seeking Alpha is an investment-related site, so it is not useful for you and other to distract us from our goals: financial investment opportunities.
Many, if not most, of the people who post here (thankfully, there are a few exceptions) offer no specific knowledge of investment opportunities whatsoever. Instead, they offer their, and others', opinions. Well, that really isn't the point. If you don't like the Chinese, China, Communists, countries which challenge the hegemony of American orthodoxies, whatever...that is your privilege, just as it is your right to be ignorant in the face of data which proves otherwise. This is a free country with regard to your right to think whatever specious thoughts you might have.
But to the many unhappy and troubled souls here (with no economic focus at all), please don't feel that it is necessary for you to weigh in with your meretricious thoughts (which are already well-known through your incessant and ever-multiplying, almost identical, half-literate posts) are every opportunity. Let others who have valuable information (not just opinion) to offer some space to share.
On Jul 11 03:22 PM huangthomas wrote:
> "People who never step foot in China does not know China well enough".
> Chinese space scientists have never been to the space. Please don't
> repeat the line like an 0xym0r0n.
As for those looking to invest in this incredibly volatile and opaque market, more people are getting sick here, as could be expected with no regulation. And while the stimulus has pushed up the stock market, a number of medical suppliers have been red-flagged, pushing down their prices even while hospitals are being build across the country. A basket of flagged hospital suppliers could deliver a nice return.
A note to boot: along with money and relationships, health care has become a very important gift between business men, like gifts of Wisconsin ginseng, or reclusive qi gong doctors who can heal anything, medicine has become the preferred medium of Chinese business bribes.
Everything I am reading says China growth is a sham ,cause most of their factories still remain shut down. How can you have growth if your not manufacturing anything?
And where is anything that is manufactured supposed to be sold? we were their largest buyer,until 2007 or 2008 . Who are they supposed to export to now?Most of the spending you see going on it China right now is in stocking up on gold, and other metals and oil. But, you can only stock so much, which means we need to watch them closely to see how spending continues or dies in the near term. Yes, growth is still happening there, but way down from just 2 years ago, and certainly not enough to warrant these huge jumps in stock prices.