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Chinese economy slows in Q4

  • Chinese GDP slowed to +7.7% on year in Q4 from +7.8% in Q3 but topped consensus of +7.6%.
  • On quarter, GDP +1.8% vs +2.2% and +2%.
  • 2013 GDP +7.7%, as in 2012.
  • Industrial production +9.7% on year in December vs +10% in November and forecasts of +9.8%.
  • Retail sales +13.6% +13.7% and +13.6%.
  • Urban fixed-asset investment +19.6% vs +19.9% and +19.8%.
  • The value of new homes sold jumped 27% in 2013 to 6.8T yuan ($1.1T), the first time the figure has passed $1T (see also).
  • The slowdown in growth comes as the Chinese government starts to implement a major reform program aimed at rebalancing the economy away from heavy industry and exports more towards economic liberalism and consumption while at the same time trying to cool a sizzling housing sector and reining in soaring debt.
  • "Urbanization and investment demand are leading to rising sales volumes, while prices continue to gain," says economist Dariusz Kowalczyk. "China's growth remains heavily dependent on the real estate market."
  • Growth has been "fairly resilient," says SocGen economist Yao Wei. "It is more of the outlook that we worry about, especially with the financial risk in the system."
  • The Shanghai Composite is -0.7% and the Hang Seng is -0.8%.
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Comments (17)
  • Their debt/leverage arent slowing thats for sure. Theres a reason while the S&P climbed 30% in 13 EM's went other way. Brazilian oil giant PBR is down 40% yr over yr.
    20 Jan, 07:14 AM Reply Like
  • http://on.wsj.com/1f51FdE
    WSJ blog
    Chinese Premier Li Keqiang once said he believed electricity output was a better indicator of economic growth than GDP data. If that were true, the country’s economic outlook might be more positive than official numbers suggest.
    20 Jan, 08:10 AM Reply Like
  • When I grow up I wanna be a Chinese statistician: 1.3 Bn people, 9.3 Mn sq.km and it takes 2 weeks to report GDP numbers. The marvels of socialism!
    The best part is Mr.Market gobbling this at face value,
    So far, that is, until he falls out of bed and wakes up badly.
    20 Jan, 08:40 AM Reply Like
  • I don't know what numbers to trust more-US gov't numbers or Chinese gov't numbers; since the Chinese stock market is not inflated like the US markets, I 'll stick with Chinese numbers since I would lose much less money if invested in China
    20 Jan, 11:44 AM Reply Like
  • Your title is wrong. If you say something "slows" this means it has a negative growth. Here, Chinese GDP clearly has positive growth. If you mean that the rate of growth is decreasing, you can say "Chinese GDP growth slows" or something of the type.

     

    You keep making this mistake when talking about the Chinese economy.
    20 Jan, 12:50 PM Reply Like
  • Philip Marlowe's comment is perceptive. However, this type of reporting is hardly a "mistake." It is habitual and customary. Unless a reporter uses language that conveys west's superiority, that reporter's job might be at risk. Accordingly, a developed country's GDP is always growing -- if it is positive, it is growth; if it is negative, it is negative growth. Conversely, for China, the unstated base line is an annual GDP growth of 8% -- it is "slow" if the growth rate falls below 8%; if the growth rate is higher than 8%, say the retail sales grew by 13.6%, no verb or adjective is included: it is simply +13.6%. Within the last month or so, I read that U.S.'s sales during Christmas of 2013 was up by 0.2%; it was occasion for self-congratulation. When one sees this type of reporting, day in and day out, one becomes immune to it. omooc
    20 Jan, 03:38 PM Reply Like
  • Anybody trust the figures that Chinese govt put out? If things were really bad, would they not fudge the numbers to make them look less bad?
    20 Jan, 05:02 PM Reply Like
  • not sure what market scares me more, theirs or ours.
    20 Jan, 05:19 PM Reply Like
  • BIDU will get punished tomorrow.
    20 Jan, 10:05 PM Reply Like
  • Without growth there would be no upward pressure on asset prices and people would have less incentive to save. For this and other reasons, economies and markets simply will not function properly without growth. Moreover, with debt levels as high as they are, the threat of deflation has even become of increased concern to central bankers. So, everyone is anxious to see growth no matter how it is generated, and how unsustainable it might be. So, if China continues to incur debt to fuel Fixed Asset Investment spending to achieve targeted growth rates, we all sigh with relief even if the projects simply add further to the problem of surplus productive capacity and/or don't generate enough revenue to cover even the interest on the debt.

     

    It is so easy for China to acheive its growth targets when all it needs to do is mandate the level of growth desired and then rely upon local government officials to borrow and spend at levels sufficient to acheive those mandated growth targets. The economic statistics can also be manipulated to cover any shortfalls. And, bad loans can simply be extended or removed from bank balance sheets.

     

    But, while all of the above may facilitate the achievement of growth, it is supply-oriented and accompanied by even higher debt levels. It may help to temporarily reduce the surplus labor problem (in China at least), but what is really needed is increased demand (from more and better paying jobs and higher interest rates on savings accounts) and an orderly deleveraging process, not more surplus production capacity, and more capital fueled by continued money printing. In essence, investors need to start paying more attention to the quality of growth, not just the quantity of growth.
    20 Jan, 10:44 PM Reply Like
  • Sir,

     

    Couldn't have said it better. But oddly enough, no one seems to care. Or very few: Jim Chanos and Patrick Chovanec. So looks like there's at least 4 of us thinking that way.
    I chuckle as I read the Financial Times opining gravely on the 2013 GDP growth rate.
    2 weeks into the new year.
    On the exact number the Plenum of the Central Committee of blah blah told us was planned.
    21 Jan, 12:45 AM Reply Like
  • Tao Jaxx, don't forget Michael Pettis, and George Soros has recently expressed concern in this regard as well. In fact, there are a number of hedge fund managers that understand how dire China's debt problems have become and how difficult it will be to rein in this debt and the continuing Fixed Asset Investment spending that has ballooned to about 50% of China's GDP without triggering a credit crisis in the process.

     

    Long investors outnumber short investors, however, and everyone tends to talk their own book, so arguably that is why many tend to gloss over the situation in China, and focus instead primarily on the Federal Reserve that has come to be known as a friend to investors. But, I've come to realize that many simply don't understand what's going on, and are content to simply go along with the familiar narrative that the Federal Reserve is in the driver's seat, and China "doesn't matter." China's successful efforts to stifle any media reporting of their debt problems and their potential significance does little to awaken many investors to the incompleteness of their overly narrow, geocentric views.

     

    Often when I ask investment "experts" from conventional firms why they place so much emphasis on the significance of potential changes to the Fed's QE program and so little attention to the money printing by the PBOC that dwarfs the activites of the Fed, it quickly becomes apparent that they have a very poor understanding of this topic.

     

    I did at least receive a response to this question from a prominent investment manager earlier today: she indicated that Treasury securities are widely held throughout the world, while Chinese debt is generally not held by foreignors. As such, she argued that actions by the PBOC are less impactful than those of the Federal Reserve because she believes that implications of activities by the PBOC would largely be contained within China. However, while there is obviously truth to her point that few investors outside China hold large investments in Chinese debt, Russell Napier argues that actions by the PBOC have had a profound impact on global capital markets, helping to explain why interest rates on US Treasuries and bonds priced relative to Treasuries have remained so low, and I also think its important to note that China is the world's largest creditor as well as the largest foreign holder of US Treasuries. Still, her comment may at least serve to explain why so many investors seem to overlook the significance of deteriorating credit conditions in China and the potential impact of the massive amounts of money that have been printed by the PBOC and how capital markets could be impacted if the PBOC was to put the brakes on its money printing activities.

     

    Perhaps the best advice would be to pay attention to both: Niall Ferguson recently wrote an Op-Ed piece for the NY Times explaining that it would not be possible for the Federal Reserve and the PBOC to tighten their monetary policies at the same time, even though both seem intent on doing exactly that.
    21 Jan, 02:25 AM Reply Like
  • Thanks for the detailed response. I'll check Soros and Pettis. Agree by and large. Two points:
    1) Didn't read Ferguson's piece but my take is that PBOC doesn't have a monetary policy as it has a fixed exchange rate. Its (quite literally) out of control money printing is a mirror image of QE. What China does have is a command and control (C&C) economy masquerading as markets and, post 2008, it used the directed lending lever to maintain growth rates by building bridges to nowhere and empty shopping malls. The financial sector now sits on Tn of yuans of non performing loans but in a C&C economy, you can paper over this for a while, which they do now. For that reason I don't expect global financial sector contagion from China, in particular for the reasons mentioned by the investment manager you talked to. What I do expect though is a Chinese growth slowdown (started already) and a major impact on the global real economy (see miners, Brazil etc)
    2) All this has been fine and dandy for years as, since 2008, QE and Chinese debt explosion were rowing in the same direction, with the Brazils, Chiles and Indonesias of this world benefiting. Now that QE winds down, chickens come home to roost for China and EMs.
    As ol' Warren Buffett famously said, "when the tide will turn, we'll see who's been swimming without bathing trunks"...
    21 Jan, 09:21 AM Reply Like
  • Tao, having a fixed exchange rate, or targeting a range of exchange rates within a narrow band, does not preclude monetary policy. In fact, it is simply another monetary policy objective that may constrain the ability to achieve other monetary policy objectives such as stimulating economic growth or warding off inflation.

     

    The PBOC created the equivalent of about US $2 trillion of new money in 2013, and China's US dollar denominated foreign exchange reserves have continued to grow. If the PBOC slows money supply growth in order to rein in undesirable lending activities, or if it reduces its conversion of newly printed money into dollars, this could have a greater impact than any tapering of the Fed's more modest (less extreme) QE program.

     

    But [an increase in] capital flight from China is also a possibility (some claim capital flight could quickly reach up to $5 trillion) and that would result in capital flowing in the opposite direction, so its not clear what to expect. But the magnitude of potential developments leading to capital flows in either direction could be very large and are therefore worth monitoring.
    22 Jan, 12:34 AM Reply Like
  • Hopefully the Congress doesn't mess up this "practically free" cash inflow into the USA economy and better entices growth by investment, not lackluster consumption.
    22 Jan, 12:37 AM Reply Like
  • AFP China's elite hiding billions overseas, US report says
    South China Morning Post - ‎3 hours ago‎
    Relatives of at least five current and former members of China's top leadership are shareholders in many offshore companies, allowing them to conceal their assets, according to a report from the International Consortium of Investigative Journalists (ICIJ).
    23 Jan, 12:10 AM Reply Like
  • The outlook for the US economy is better than many believe or expected. Capital is flowing to the US as a result, despite Congress.
    22 Jan, 04:01 PM Reply Like
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