WORLD ECONOMY SLOWS CHINA TO BE THE BIGGER SLOWER 2015
Well in my previous articles I
have writing about a recession factor which is now becoming prominent. In my
research trying to give signal of the financial and economic collapses which
are coming to various economies which are significant threat to the world
economy. The slowdown of the world economy has come off really and the recession phase is going to begin as per the indications of the various indexes across the Globe.
I am having writing very
aggressively about china since 2008 and in between I shared the article about
the transition phase of the economy from export to domestic consumption based
economy. We have been hearing the story that Chinese economy is getting slow
down but we dig further to find out where the slowdown is coming and how even
after such strong stimulus package after
2008 crisis. In this year we find that the economy is turning into a nightmare
for the Asian economy in the long term. The bubble of asset classes is small
now as another round of liquidity might be injected in 2015 to fool the world
market that growth fuel is still left within China.Unsold Inventory shows the picture of the depth of collapse.
- China's HSBC/Markit PMI touching a six-month trough of 50.0. The official version was scarcely better, slipping to 50.3 in November from October's 50.8.
- Brazilian manufacturing activity shrank in November for the seventh time in eight months, with the Markit/HSBC PMI dropping to 48.7 in November from 49.1 in October.
- German manufacturing PMI revised down to 49.5 in November
- US Chicago Fed's national activity index fell to 0.14 in November from 0.47 in October
- US consumer confidence index fell to 88.7 in November from a downwardly revised 94.1 the month before.
- The U.S. manufacturing sector slowed in November to its lowest rate of growth since January, according to Markit, with the final November PMI falling to 54.8 from October's final reading of 55.9.
- The US Institute for Supply Management’s factory index was little changed at 58.7 last month, the second-strongest level since April 2011, compared with 59 in October
- Japan's economy slipped into recession in the third quarter as the impact of a hike in sales taxes lingered longer than anyone expected.
Chinese economy has wasted around
$6.8 trillion in investments in the last 4 years. Well we need to figure out
how big is this? $ 6.8 trillion -which
is two years of output for the entire German economy. It's more than four
times as much as is invested in S&P 500 index funds. Half of the
investments between 2009 and 2013 have created the problem. Well the
investments have been into such projects (infrastructure) that is of no use to
increase the GDP growth of China. The $6.8 trillion calculation was made by Xu
Ce of the National Development and Reform Commission, an economic planning
agency, and Wang Yuan of the Academy of Macroeconomic Research, a think-tank
under the commission. The breakup of the wasted investments stands to be estimated
totalled 7.9 trillion yuan in 2009; 5.4 trillion yuan in 2010; 4.7 trillion
yuan in 2011; 10.6 trillion yuan in 2012; and 13.2 trillion yuan last year.
That amounts to 41.8 trillion yuan over the past five years, or $6.8 trillion
at the current exchange rate.
In one of my recent report I
depicted that China has gone very strong on government corruption and is
chasing the government official’s funds. Well according to the report of National
Development and Reform Commission $ 1 trillion out of this $6.8 trillion have
been pocketed by the various people of the government. Combined employment by
government and party organs, including government agencies and public
institutions as well as party bodies, including those employed at the central,
provincial, and sub-provincial level, is about 40 million. This is greater than
the population of many states.
The $6.8 trillion waist has been
created by developing Ghost cities” lined with empty apartment blocks,
abandoned highways and mothballed steel mills sprawl across China’s landscape.
In short Chinese investments have become less productive for the same. China
economy is not bidding higher prices for crude and this is also one of the
reason behind the fall of crude prices. Further Automobile industry and steel
industry in china is under sever blockage as excess production is hardly being
absorbed. Further India being replaced as the next destination of Investments
china is under severe threat.
A year ago, a Reuters analysis of proprietary data about so-called
trust loans—made by non-bank financiers which do not have to abide by the interest rate
restrictions placed on the state-owned commercial bank reflected that more than 41% of all such debt issued in
2012 went to companies most likely to be using it to roll over old debt. Trust
loans were the largest segment of the so-called shadow banking system in China.
Hence circulation of capital into system has stopped and re-modeling of debt is
the game being played to fool the world economy. Over capacity of production
has resulted in turn increases of deflationary pressure, as too few companies
have the pricing power to increase profits.
This first chart, showing the
investment cycle of China’s main industries which in total are trending down,
says everything.
Currently China is busy in making
a proposal for another round of stimulus and this would create bubble which
will burn Asian markets in the long term.
Export has dried up and outflow of capital from china has increased.
This is quite evident from the numbers where China’s foreign exchange reserves fell by $100bn in the third quarter – the
largest drop ever, despite a trade surplus and foreign direct investment inflows.
China had registered a $51bn outflow beyond the current account in the second
quarter, according to balance of payments data, and September numbers suggest a
$122bn outflow for the third quarter, according to Kevin Lai of Daiwa Capital
Markets in Hong Kong. Injection of liquidity steroids have already began and
recently the PBOC last week confirmed it pumped 769.5 billion yuan into select
banks in the last two months and twice lowered the rate it pays lenders on
14-day repurchase agreements.For the past two years, President Xi Jinping has been
engaged in a wide-ranging anti-corruption inquiry that has engulfed thousands
of officials. This has lead many business houses to move out of China in the form
of JV and Merger and Acquisition.
Well next year the growth
projection would be cut but to fool the world market steroids of liquidity and
higher projection of consumer based consumption might be displayed. First,
although corporate debt is very high by historical and international standards,
household debt is very low at 25% of GDP, while government debt, at 59% of GDP
including central and local government debt.
In the year 2000, real estate
accounted for around 5% of China’s GDP. By 2012 it rose three times to 15%,
according to the IMF's calculations. It certainly did not decline in 2013 and
2014, despite Beijing working overtime in forcing a market correction. Together
with construction, real estate directly accounted for 15% of 2012 GDP, a
quarter of fixed-asset investment,14% of total urban employment, and
nearly 20% of bank loans, according to the IMF. This chart shows in
the 12 months to September housing prices got smoked across all regions –
housing prices across the country have declined.

As I said earlier that Asian markets would
be prepared well to absorb one of the burst of the bubbles. But before bubbles
get smart the size is too small as another rounding of liquidity to be injected
into the system of china.
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