sharpe_mind

11 Comments

    • ON: Mon May 26th 07:20 AM
      Commented on:
      The Informal China Banking Sector is Growing
      China's reserves grew by nearly 75 Billion USD in April. Not a month you can attribute much to mark to market on FX or bond positions. This was three times the trade surplus plus FDI.

      The yuan barely moved in April as authorities capped the exchange rate around 7 in order to "stabilize expectations of further yuan appreciation"; clearly noone was convinced by this gesture.
      View article »
    • ON: Fri May 23rd 02:24 AM
      Commented on:
      China: Lots of Oil Price Speculation
      Not raising oil prices means no demand destruction and can be fiscally dangerous. This is turning into a major issue across Asia. China has the luxury (so far) of a solid fiscal situation, but you have to realize that China is effectively shorting crude oil. With China subsidizing levels here this also promotes a mis-allocation of resources, as areas of the economy which are least efficient are allowed to continue wasting oil. One can also argue that part of crude oil's rise is the fact that half the world subsidizes oil prices- preventing demand destruction- and with China as the world's fastest growing importer, subsidizing crude exacerbates this.
      View article »
    • ON: Wed May 14th 20:37 PM
      Commented on:
      China's Devastating Earthquake: Bad For Monetary Policy, Too
      Not only does it complicate things, but from the bureacratic point of view it's likely to make the policy stance even more accomodative, and less likely to act.
      View article »
    • ON: Fri May 9th 21:32 PM
      Commented on:
      China: Latest Indexes Indicate Inflation
      You're right- CPI will come in 8.5% barring an last-minute revisions. CPI has been leaked a few days to a week beforehand for the last 6 months or more, and has been spot-on every time. I strongly suspect the non-food component will show a significant rise from last month's 1.8% yoy.

      Also, without including the boring details, using some data just released out of the Ministry of Commerce, in combination with previous months' export and import figures, you can deduce that the April trade surplus will come in at roughly $16.8 B (could be some rounding errors related to the imprecision of the inputs). Still strong, up from March, and above $15.5 B consensus (though clearly past its end-2007 peak). Export growth will be about 21.8% vs April 2007, and the dollar value of exports will be about $118.7 B, a new high for any individual month.
      View article »
    • ON: Sun May 4th 08:30 AM
      Commented on:
      China: Caught in a Monetary Trap
      Mr. Pettis, this is a rather small point, but it seems to me that you could have the SWF invest in China- it would have to be for a project that uses primarily imported parts or labor though- such as buying oil (of which there is already speculation), stocking up Boeing airplanes or outsourcing the construction of a nuclear power plant to GE, etc.

      In effect this would be like increasing China's consumption metrics, by the state instead of the private sector.
      View article »
    • ON: Sat May 3rd 18:15 PM
      Commented on:
      Why China's Exporters Are Complaining Loudly
      One other thing to mention about the recent noise made by China's exporters- it has all been from the very low end (textiles and toy producers) and all been in the Guangdong area. Considering that Shenzhen, just north of Hong Kong, was the very first Special Economic Zone (SEZ), and has been tremendously successful, it makes perfect sense that it should be the first one where wages rise to the point where the very low end is priced out (as higher value exports open up and take over). My suspicion is that part of the recent fervour has been Shenzhen's proximity to the Hong Kong press (which means the press has easy access to those complaining as well as a wide forum for airing their complaints), as well as the fact that many of the early established lower value added factories in Shenzhen are owned by Hong Kongers.

      I'm in complete agreement with Mr. Pettis- the interior is picking up the lower end exports as the coast/south moves up the value chain. For example, China is starting to come up in heavier industry and capital goods, such as shipbuilding and autos, and the tertiary industry is growing strongly. Even so, exporter complaints may be beside the point and exactly what is needed. At this level of inflation, there _needs_ to be pain somewhere to bring inflation lower. If anything China has wanted to have its cake and eat it too. The very best thing for China would be pain concentrated in the export sector, as opposed to pain spread throughout the entire economy.
      View article »
    • ON: Sat May 3rd 18:00 PM
      Commented on:
      Why China's Exporters Are Complaining Loudly
      bill stenner- the Euro is so overvalued precisely because the RMB is so undervalued. China is forced to buy so many dollars because it keeps RMB undervalued, but it doesn't want to hold all its currency reserves in USD, so it buys enormous quantities of EUR every day. The reason EUR has been able to raise to what by any valuation indicator are ridiculous levels is because it is the best alternative to the USD for the reserves of Asian and Middle Eastern central banks. In fact the same goes for pretty much every flexible currency that doesn't face massive intervention, including GBP, CAD, AUD....the one exception being JPY, which nonetheless has been rising signficantly lately.

      continuum, trade balances aren't the only factor one can use to explain a currency's value. Numerous other factors are important, including relative interest rates and structural savings/investment vs consumption levels. But the bottom line is that if the PBOC stopped buying USD tomorrow, CNY would rise tremendously. It would take a serious appreciation before China's private sector started sending its money abroad, as the lackluster reception of QDII and the small outward FDI show. Besides you probably need that very large appreciation to occur in the first place before corporate China would feel like sending money aboard was even worth fighting the CNY's continual appreciation.

      paultaut- I agree 100%. Just look at the stock price of WMT, which accounts for an astounding 30% of foreign purchases in China and 10% of all US imports from China: ipezone.blogspot.com/2...
      View article »
    • ON: Sat May 3rd 17:42 PM
      Commented on:
      China's PMI Numbers Are Too Strong
      openminded, I completely disagree. Though I can see where you picked up this argument- there have been those in China which have used the same argument to push for slower appreciation. Yet this is a complete misreading of the economic facts (as an aside, I believe it is either Wen Jiabao or Zhou Xiaochuan who has hinted at discounting this argument as China needs to "accurately read from historical lessons", or something to this effect). Firstly, the yen appreciated tremendously in the 1970s, and yet Japan continued to have some of the strongest growth in the world in the 70s and 80s. USD had two episodes of strong appreciation in the first half of the 80s and second half of the 90s, neither of which led to prolonged economic slump. And even if we focus specifically on the period in question, starting with the Plaza Accords in 1985, the Deutchemark appreciated significantly along with the yen, but Germany avoided the decade long slump of Japan. Even its slower growth in the 90s is much more attributable to the costs of integrating East Germany.

      No, the currency is ancillary to Japan's problems in the 90s. They stem from too lax monetary policy in the late 80s, and then a series of blunders in the 90s including too tight monetary policy (as evidence by the continued strong appreciation of the yen after the Louvre accord). In addition, Japan began suffering as their exports were cut into by the rising Asian tigers, and behind them China.

      In the case of China, there really is no other China to threaten Chinese exports. No other places have the one-stop shop quality and the infrastructure. Vietnam and Cambodia are far too small, India has far too much red tape, poor infrastructure, and is much more union-friendly, and Africa continues to be a basket case. Latin America and Russia are far too expensive. The era of disinflationary prices of imports from the developing world is over.
      View article »
    • ON: Tue Apr 29th 22:26 PM
      Commented on:
      China: Stagflation Revisited
      Looking through the data, the best explanation I can come up with was that at the time bank lending and money supply growth were well below what they've been running at now (at the time the banks were dealing with a large number of NPLs and getting recapitalized I believe). In contrast, M2 has been running in the mid-teens for nearly three years now. Any thoughts?
      View article »
    • ON: Tue Apr 29th 06:25 AM
      Commented on:
      China: Stagflation Revisited
      One thing that is a bit puzzling, given the monetary angle for interpreting China's inflation- why is it that back in 2004, when China also had a rise in inflation, a cheap currency, and negative real rates was it able to contain that inflationary outbreak? That experience was also due to inflation primarily in food, yet non-food inflation stayed well contained and CPI managed to come down significantly.
      View article »
    • ON: Mon Apr 28th 01:22 AM
      Commented on:
      China: Stagflation Revisited
      Mr. Pettis, always find your analysis interesting. It seems like yuan appreciation has slowed significantly lately, and there's some talk that China might reconsider allowing yuan gains because it fuels hot money inflows and hurts exports. At the same time, Stephen Roach today is coming out saying China needs to hike by at least 100 basis points to address inflation. Given persistantly negative real rates and a reluctance to either let the currency appreciate or hike rates (as both fuel inflows, though it is pretty clear already even at currency CNY rates that yuan interest rates will be higher than USD rates for the foreseeable future) how do you see the situation playing out?

      It seems like China is basically praying that the inflation situation goes away, with "temporary" price controls and other band aids such as export curbs (or high taxes in the case of fertilizer). A number of economists predict inflation will come off in the second half of the year due to base effects, but this theory's timeline continues to be pushed further out as inflation continues to be stronger than expected. I am skeptical of it especially given the broadening out of inflation pressures, the inflation in the pipeline due to price controls and the continued rise of PPI, and negative real rates. Could anything finally force China to move?
      View article »
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»