Susan Weerts

Inflation or Deflation: What 'Quantity Theory of Money' Can Tell Us

Hi, User 493781 or flow5,

Our financial system is still in disarray. Hence, we don't see the effect of trickle-down. As I mentioned in conclusion, lack of money multiplier keeps the inflation down. Greenback continues dropping and definitely doesn't multiple . Some say it is in an orderly decline. The other say we head to a dollar collase. We might face a cost-push inflation if we can't reign in our debts.

To ryanclarke: 1970's was a cost-push inflation.

Post-Holiday Chinese Market: Five Key Factors, Part 1

Many banks in China were running low on their foreign currency deposits in Sept. They had to raise the interest rate to attract the foregin currency deposits. Many economists didn't expect the banks to raise the interest rates on the foregin currency again this year.

It is better to gauge the hot money inflow from the differences between monthly increase on foregin reserve, and trade suplus and FDI. You can get the monthly increase on foregin reserve from the balance sheet of people bank of China (under the row of "“Position for Forex Purchase” ). The commence dept will release the trade supplus and Fdi

China Mobile: Dialing for Dividends

Thu user data in August showed that China moblie beats its competitives and attracted 5.26mil new customers, which put its total users at 503 million.

China: The Coming Clash in Savings

finance.qq.com/a/20090...
(in chinese)
All the SOE comerical bank raised the interest rates on the foreign deposit. At least someone likes US $.

Making Sense of Robust Chinese Industrial Production

Excellent article.

China: The Coming Clash in Savings

The last month's balance sheet of central bank of China raised two interesting issues, consecutive household deposit decline and hot money might fleeing out of the China. On Monday, all the majoy banks, IBOC and Commerical banks, raised the interest rate on their foreign deposits while leaving the domestic deposit interest rate unchange.

Still, it is too early to tell what kind of the long time implications might be. Certainly, it is something to keep eyes on.

Credit Card Delinquency Jumps 131.3% - In China

First to Mr. Wrixon:
1."which time card holding has probably risen about 3 fold."
As it is clearly stated that "The total of 163million credit cards were issued, up by 8.1% quarterly and 32.9% annually. However, the rate of the increase was down 50.7 on a YOY base. " Not sure where your "3 fold" come from and hence the number afterwards.

Not everything is a conspiracy and required twisted logics.

2. To coreopsis:
As you pointed out, It is " a matter-of-fact presentation of data which requires interpretation." Initially I want to add some comments. However, at the end, I decide to leave it as plain as possible. There is not enough data point to render a good explanation. Granted, the title is somewhat attention-grabing!

However, the point to raise the alarm is its 180+ days pastdue, not 60 days or 90 days in the US headlines. Mr. Wrixon stated that those card holders had the cards for at least a couple years. Hence, they are mostly likely from the elite group in China. There are somethings to be said if these groups started to skip the payments. Let alone the new card holders, who were given a card under much loose standards.

I'm glad that you pointed out that the credit cards are actually debit cards. I had an argument with the locals whether their cards are the real credit cards or not. They are certainly required to have deposits. However, whether or not they are credit cards, it doesn't change the facts. As stated in the perspective, the credit card outstanding is actually the amount owed above the deposit 应偿信贷总额（信用卡透支余额）.

Floating Rate Mortgage in Hong Kong Is Setting Up a U.S. Style Housing Market Crash

Not Andy lee. I meant: andy Xie

Floating Rate Mortgage in Hong Kong Is Setting Up a U.S. Style Housing Market Crash

Standard & Poor analyst in Hong Kong predicted the recent booming in HK property won't last. The boom was due to ultra loose monetary policy and speclative behaviors.

Andy Lee, a maverick economist, predited HK property will drop 50% next year.

stock.cnstock.com/hk/t...
Sorry I don't have a English version

John Hussman: Conditional Expectations and September Seasonality

By Duffie and etc, a security is a claim to an adapted dividend process. That is, Secruity price is the expectation of discount future dividends, conditioned on the information space. Secruity price is a martingale process and follows random walk. It is inheritedly unpredictable.

Depended on the length of time frame, the market is not necessarily efficient. The market might have strong seasonality over certain time frame. It might be in total opposite over the other time horizon. Without specifing which time horizons they were looking into, the claims by either side of analysts can be misleading.

Short Interest at Lowest Level Since February 2007

a good contrarian indictor.

China: Is Retail Growth a Proxy for Consumption Growth?

Although it is called “retail sales”, the figures include wholesale and retail businesses, according to National Beareau of Statistics of China. So, you have to wonder how much it is true "retail".

Why the Divergence on Chinese Housing CPI and Housing Sales Prices?

Thanks for your comments.

You are right that "trying to asses fair value of property prices in China is very difficult.". As a fact, it is difficult to access fair value of property prices every where. The housing market is illiquid and it is local specific. All one can do is to put the puzzles together to decipher the realtive valuation. In a nutshell, it is a simple supply and demand problem. However, how many risk factors affect the fundamentals and each to which degree are unknown. Besides, irrational exeburance can persist in a housing market for a long time. The above analysis provided a glimpse into just one piece of the puzzles. It is a snapshot. Certainly, it is not a indepth research.

There is no doubt that the rental yield was very low and will continue lower if the above trends persist. A rapid increase of home prices combined with a lower rental market often signal the onset of a bubble. For the riches, upper-middle and the people from the old system who were assigned one or two apartments and have no mortgage, even though they might not feel the need to rent their apartments, price-rental raito or rental yield is the common metrics to get an idea of the level of income they can get from property.

What Jim pointed out are very true associated with the Chinese housing market. That is why it is so difficult to get a representive picture. Each segments of the market is unique and changing constantly. Even if we truncate the top and bottom 5%, we might miss some vital information

I also believe what Mr. Mattoli mentioned in his comment. From what I know, the rental is about half or lower of monthly mortage in China.

Many defined the Chinese middleclass as a group who own an apartment and a car. Alongwith the myth that the Chinese property will only go up (sound family), everyone, who want to join the bandwagon of the middleclass,save every penny to realize their Chinese dreams. It is very important and a culture thing to own a tangible asset in China, even though this tangible asset only gives you a 70 year user right.

The current housing demands are mainly from the speculative investors (from Wenzhou) or the newly-weds with combined income above CNY 100,000. The real estate was used to sell itself. Now, it started to rely on heavy advertisements to attract the buyers. It might not be a buyer market yet. It will become so.

China Becoming a 'Middle-Class' Nation

Oops! My fault. Many thanks for pointing it out, HaavBline.

"Can China fake the $2T forex reserve and the $1T+ US goverment debt they hold?"

No. There is no doubt about the huge forex reserve. As long as China artifically keeo RMB down, they have to keep buying US debt. The question I got when I traveled to China is THE EXACTLY AMOUNT really in Chinese Treasure and how much leaked out as some form of gratifications. When I was in China to take care of my sick dad in 2007, I was approached by one of minions of Chinese top generals as this general was granted CNY Billions as part of package for his retirement. The deal was way over my head. Later, I found out that this general chose a supposed former morgan PE associate to invest the fund into the natural resourses at one of provinces in Northwestern part of China. It turned out that this associate was an US fugitive and possible murder. I don't know how much the fund was recovered at the end. However, all thse tales were reminiscent of what happened in 1999 just before HK was returned to the mainland. Former Primer Zhu found out that the treasure was running on empty even though the reserve showed the recorded surplus.

“Can China fake the endless new infrastructures the build? “
To a degree they can. The local officials want to build NO. 1 bridge, highway, skyscrape, theme park, industrial park and etc. in the world, regardless of the demands. The more they build, the quicker they get promoted.

Will the consumers respond to goverment's car buying insentives with such gusto if there are no hidden wealth in China? Can there be a #1 car market if only the corrupt officials get rich, as many China-bashers are insisting?

A good news for the Western companies is that China is full of aspiration buyers who will try to imitate western lifestyle (mostly from the movies). This day, a guy has to own a car in order to find a girlfriend and get married. I want to ask how many people here have been a ordinate Chinese apartment? If you were in one, you would have ask why they even want a car? If you can only park your car in a car farm miles away, what is the point to have one? Chinese cities try to urbanize not suburbanized. The marginal utility of owning a car is not that great.

China Becoming a 'Middle-Class' Nation

From foreignpolicy.com
How China Cooks Its Books

It's an open secret that China has doctored its economic and financial statistics since the time of Mao. But could it all go south now?

BY JORDAN CALINOFF | SEPTEMBER 3, 2009



In February, local Chinese Labor Ministry officials came to "help" with massive layoffs at an electronics factory in Guangdong province, China. The owner of the factory felt nervous having government officials there, but kept his mouth shut. Who was he to complain that the officials were breaking the law by interfering with the firings, he added. They were the law! And they ordered him to offer his workers what seemed like a pretty good deal: Accept the layoff and receive the legal severance package, or "resign" and get an even larger upfront payment.


"I would estimate around 70 percent of workers took the resignation deal. This is happening all over Guangdong," the factory owner said. "I help the Department of Labor, and they'll help me later on down the line."

Such open-secret programs, writ large, help China manipulate its unemployment rate, because workers who "resign" don't count toward that number. The government estimates that roughly 20 million migrant factory workers have lost their jobs since the downturn started. But, with "resignations" included, the number is likely closer to 40 million or 50 million, according to estimates made by Yiping Huang, chief Asia economist for Citigroup. That is the same size as Germany's entire work force. China similarly distorts everything from its GDP to retail sales figures to production activity. This sort of number-padding isn't just unethical, it's also dangerous: The push to develop rosy economic data could actually lead China's economy over the cliff.

Western media outlets often portray Chinese book-cooking as part and parcel of a monolithic central government and omnipotent Beijing bureaucrats. But the problem is manifold, a product of centralized government as well as decentralized officials.

Pressure to distort or fudge statistics likely comes from up high -- and it's intense. "China announces its annual objective of GDP growth rate each year. In Chinese culture, the government has to reach the objective; otherwise, they will 'lose face,'" said Gary Liu, deputy director of the China Europe International Business School's Lujiazui International Financial Research Center. "For instance, the government announced that it wanted to ensure a GDP growth rate of 8 percent in 2009, and it has become the priority for government officials to meet that objective."

But local and provincial governmental officials are the ones who actually fiddle with the numbers. They retain considerable autonomy and power, and have a self-interested reason to manipulate economic statistics. When they reach or exceed the central government's economic goals, they get rewarded with better jobs or more money. "The higher [their] GDP [figures], the higher the chance will be for local officials to get promoted," explained Liu.

Such statistical creativity is nothing new in China. In 1958, Chairman Mao proclaimed that China would surpass Britain in steel production within 15 years. He mobilized villages throughout China to establish backyard steel furnaces, where in a futile attempt to reach outrageous production goals, villagers could melt down pots and pans and even burn their own furniture for furnace fuel. This effort produced worthless pig iron and diverted enough labor away from agriculture to be a main driver in the devastating famine of the Great Leap Forward.

Last October, Vice Premier Li Keqiang said in a speech after inspecting China's Statistics Bureau, "China's foundation for statistics is still very weak, and the quality of statistics is to be further improved" -- a brutally harsh assessment coming from a top state official.

Indeed, China has predicated its very claim of being the healthiest large economy in the world on faulty statistics. The government insists that even though China's all-important export sector has been devastated -- contracting about 25 percent in the past year -- a massive uptick in domestic consumption has kept factories producing and growth churning along. A close examination of retail sales and GDP growth, however, tells a different story. China's domestic retail sales have risen about 15 percent year on year, but that does not really translate into Chinese consumers purchasing 15 percent more televisions and T-shirts. The country tabulates sales when a factory ships units to a retailer, meaning China includes unused or warehoused inventory in its consumption data. There is ample evidence that state-owned enterprises buy goods from one another, simply shifting products back and forth, and that those transactions count as retail sales in national statistics.

China's retail statistics seem implausible for other reasons, too. They would imply an increase in salaries among Chinese people, allowing them to purchase that extra 15 percent. To be sure, the Statistics Bureau reported salaries had increased 12.9 percent in the first half of 2009. But Chinese netizens complained such numbers were hard to believe -- as did the bureau's chief.

A look at GDP growth also raises serious questions. China's economy grew at an annualized 6.1 percent rate in the first quarter, and 7.9 percent in the second. Yet electricity usage, a key indicator in industrial growth and a harder metric to manipulate, declined 2.2 percent in the first six months of the year. How could an economy largely dependent on manufacturing grow while its industrial sector shrank?

It couldn't; the numbers don't add up. China announced a $600 billion stimulus package (equal to about 14 percent of GDP) last fall. At that point, local governments started counting the dedicated stimulus funds in GDP statistics -- before finding projects to use the funds, and therefore far before the trillions of yuan started trickling into the economy. Local governments keen to raise their growth and production numbers said they spent stimulus money while still deciding on what to spend it, one economist explained. Thus, China's provincial GDP tabulations add up to far more than the countrywide estimate.

Alternative macroeconomic metrics, such as the purchasing managers' index (PMI), which measures output, offer a no more accurate reflection. One private brokerage house, CLSA, compiles its own PMI, suggesting a sharp contraction in industrial output between December 2008 and March 2009. Beijing's PMI data, on the other hand, indicated that industrial output was expanding during that period.

Unfortunately, such obfuscation means China's real economic health is difficult to assess. Most indicators that would help an intrepid economist correct the government numbers -- progress on infrastructure projects, end-user purchases, and the number of "resigned" workers -- are not public.

Still, it is possible to infer the severity of the gap between economic reality and China-on-paper by looking closely at monetary policy. China's state-owned banks dramatically increased lending in the first half of 2009 -- by 34.5 percent year on year, to more than $1 trillion. This move seems intended to keep growth artificially high until exports bounce back. Most analysts agree that it is leading to large bubbles in the stock, real estate, and commodity markets. And the Chinese government recently announced plans to raise capital requirements -- an apparent sign it sees the need to reign in the expansion.

For the long term, China is banking on its main export markets -- in the United States, Europe, and Japan -- recovering and starting to consume again. The hope is that in the meantime, rosy economic figures will placate the masses and stop unrest. But, if the rest of the world does not rebound, China risks the bursting of asset bubbles in property and stocks, declining domestic consumption, and rising unemployment.

That's when the Wile E. Coyote moment could happen. Once Chinese citizens no longer believe that the economy is doing well, social unrest and more widespread worker riots -- already increasing in scope and severity -- are likely. That's something that China will have a harder time hiding. And then we'll know whether China's statistical manipulation was a smart move or a disastrous mistake.