Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

A Few Chinese Bad News Bears To Spoil A Happy New Year

Economics / China Economy Dec 26, 2011 - 12:47 PM GMT

By: EconMatters

Economics Best Financial Markets Analysis ArticleGoldman's Jim O'Neill noted in a recent interview that the world's future prosperity depends on China's growth. While we don't totally agree with that assessment as we see China as one of the many contributory factors towards world's future, there are some recent bad news bears coming out of China that could spell troubles for markets, at least in 2012.


Export Growth Could Drop to Zero in 2012 

The General Administration of Customs released November trade figures showing export growth continued to decelerate and was at their most sluggish in two years.  At a news conference, China's Commerce Ministry spokesperson warned,
"The overall trade environment next year for China will be complicated, partly due to the economic uncertainties in the European countries, and I should say that the export situation in the first quarter of next year will be very severe."

Wang Tao, an economist at UBS Securities noted China's export growth is expected to "drop to zero in 2012," which will have a "sizable negative impact on the economy," and that the export figures underline "shifts in the export structure - some traditional lower-end and labor-intensive sectors may be losing market share to cheaper producers." (See Chart Below)


FDI Sees Its First YoY Drop in 28 Months 

Part of China's recent explosive growth has to do with foreign investments pouring into the country to capitalize on the expected burgeoning middle class income growth. But in November, China experienced its first year-on-year dip of 9.76%  in Foreign Direct Investment (FDI) in 28 months primarily from a sharp drop in inflows from the United States, while investments from the European Union -- China's single largest trading partner -- were essentially flat.  (See Chart Below).

Moreover, this drop came on top of the first net capital outflow from China in four years in October, as investors fled emerging markets due to Europe's festering debt crisis.

Chart Source: ChinaDaily.com, 16 Dec. 2011

Manufacturing Tanks To Near Three-Year Low

China’s manufacturing contracted for the first time since February 2009 with the Purchasing Managers’ Index (PMI) fell to 49.0 in November from 50.4 in October. (Read: China Manufacturing Tanks To Near 3-year Low)

The December number did not bode well either as the HSBC flash manufacturing PMI, an early indicator of China's industrial activity, showed China's factory output shrank again in December after new orders fell. (See Chart Below)
Chart Source: HSBC, 15 Dec. 2011

PBOC Reversing Course - How Bad Is The Economy? 

In early December, PBOC (The People's Bank of China), China's central bank, announced the first cut in banks’ reserve requirements since 2008, just two hours before the U.S. Federal Reserve led a global dollar liquidity injection to ease Europe’s sovereign debt crisis.  And there could be more easing on the way, as Reuters reported that data showed Chinese banks made 562 billion yuan of new loans in November, a shade more than forecast as Beijing gently eases tight credit conditions.

China has made controlling prices a top priority this year and implemented a series of tightening measures.   Inflation fell from a three-year high of 6.5% in July to 4.2% in November, which is still above Beijing's current inflation target of 4%.  And China's inflation battle is far from over as rising labor costs and higher input prices are among the factors that will continue to push up consumer price levels.

So the more interesting question is:
How bad is the real economy for China to reverse course taking on the risk of re-surging inflation pressures?
Escalating Social Unrest

Inflation and social unrest goes hand-in-hand and has toppled quite a few governments in the history book.  Judging from the recent Wukan Siege, the social unrest in China (due to disputes in wages, land grab, etc.) seems to have escalated in both scale and duration.  This could suggest a more serious mid-to-long-term undercurrent that would be challenging and delicate to handle for the central government.

Conclusion

From what we discussed so far, it is evident a pronounced China slowdown in the next year or so is inevitable with the nation's export-centric economy struggling with waning global demand, while undergoing domestic structural economic and demographic shifts.  Moreover, there could be some hidden debt bombs as a recent Bloomberg finding suggests that China's banks may be understating their exposure to runaway local borrowing by possibly billions of dollars that is raising fears of a government bailout.

How Beijing steers its economic and monetary policies in the next 2-3 years will be key to balance the country's inflation, growth and stability.  While we see a very low probability of a hard landing case for China, but based on the rationale of Jim O'Neill about how much the world depends on China's growth, then don't count on that much world prosperity, at least in 2012.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2011 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules