{"id":29746,"date":"2012-05-20T23:44:24","date_gmt":"2012-05-21T03:44:24","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/a-shocking-week-for-chinas-economy\/"},"modified":"2012-05-20T23:44:24","modified_gmt":"2012-05-21T03:44:24","slug":"a-shocking-week-for-chinas-economy","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/20\/a-shocking-week-for-chinas-economy\/","title":{"rendered":"A Shocking Week for China\u2019s Economy"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

A good pal of mine works in Asia for a global investment bank. <\/p>\n

He was over in China on a fact-finding mission recently – talking to miners, commodity traders and buyers. I called him up to see what he could tell me. He said, ‘The news from China wasn’t great… Most people are neutral to slightly bearish within China.’<\/em><\/p>\n

With good reason – there have been some ominous creaks and groans coming out of the good ship China recently.<\/p>\n

We know that China’s economy grew<\/strong> at 8.1% in the first three months of the year – that’s if you believe the numbers – but what about right now? <\/p>\n

<\/span><\/p>\n

There a few things we can look at here and now, so we don’t have to wait months to find out today’s economic growth figure. <\/p>\n

Things like electricity production growth, bank lending, and real estate figures for starters. <\/p>\n

And they don’t look good.<\/em> <\/p>\n

This is probably a big reason the Aussie dollar and resources sector have taken a big hit recently. The Aussie Dollar has fallen 7% in just a few weeks. <\/p>\n

<\/p>\n

What happens to the Aussie Dollar when China hits the skids?<\/div>\n

<\/u><\/p>\n

\"What<\/div>\n

<\/p>\n

Source: Stockcharts<\/div>\n

<\/em><\/p>\n

The Clue From Chinese Power Production<\/h3>\n

<\/center> <\/p>\n

Chinese electricity production may seem like an obscure thing to look at, but if you want to get an up-to-date snapshot of how much economic activity is taking place in a country, just look at the level of electricity the country is producing to meet the economy’s needs.<\/p>\n

Every part of an economy needs power: homes, offices, factories, building sites, trains, airports, and of course government. So if an economy is growing, it needs to produce more power. <\/p>\n

For the last 6 months, Chinese power production has grown between 7 and 12% (year on year). <\/p>\n

But power production has abruptly stopped growing in China<\/u>. The power produced in April was just 0.3% greater than a year earlier. <\/p>\n

<\/p>\n

Chinese power production grinds to a halt<\/div>\n

<\/u><\/p>\n

\"Chinese<\/div>\n

<\/p>\n

Source: National Bureau of Statistics<\/div>\n

<\/em><\/p>\n

This is a worrying sign that the Chinese economy<\/a> may have just ‘dropped anchor’. <\/p>\n

But it’s not just power production. <\/p>\n

Chinese Bank Lending Has Fallen Off a Cliff Too<\/h3>\n

<\/center> <\/p>\n

The China Daily<\/a><\/em> newspaper ran an article on Friday reporting that, ‘China’s big four banks made almost no new loans in the first half of May.’<\/em><\/p>\n

China’s big four are Industrial and Commercial Bank of China [HKG: 1398], China Construction Bank [HKG: 0939], Bank of China [HKG: 3988]<\/strong>, and Agricultural Bank of China [HKG: 1288]<\/strong>.<\/p>\n

Chinese lenders were already slowing down their lending. In April it fell to 681 billion, from 1001 billion yuan in March.<\/p>\n

But still – zero new lending<\/u> from ‘China’s big four’ in the first half of May comes as a shock<\/p>\n

Last weekend’s Chinese financial data fits the same picture. These showed China’s imports grew at just 0.3% in April. <\/p>\n

China’s Real Estate is Also Hitting the Skids<\/h3>\n

<\/center><\/p>\n

Residential construction growth in China has fallen from 16% to 4% in a year.<\/p>\n

And it’s not selling either: sales are down 17.5%, and there is now 47.4% more residential floor space for sale than a year ago. Land sales are down 55% compared to last year.<\/p>\n

This is hitting China’s growth rate<\/a> hard as real estate investment makes up 13% of the GDP figure. <\/p>\n

The evidence is mounting before your eyes that China’s economy is stalling.<\/p>\n

Commodity markets are seeing the effect of this already. The Financial Times<\/em> reports that, <\/p>\n

‘”We have some clients in China asking us this week to defer volumes,” said a senior executive with a global commodities trading house, who warned that consumers were cautious. “China is hand to mouth at the moment”… A senior executive at another large trading house also confirmed there had been defaults and deferrals in both thermal coal and iron ore.’<\/em><\/p>\n<\/blockquote>\n

China’s Slowing Economy – What to Make of It All?<\/h3>\n

<\/center><\/p>\n

If I’m reading these signs right then China’s economy is having a heart attack. <\/p>\n

Commodity prices<\/a> and resource stocks<\/a> have taken a pasting recently, but could it get worse yet? <\/p>\n

As China is Australia’s biggest customer, a China slowdown would be terrible news for the Australian economy<\/a>. <\/p>\n

So I asked my investment banking pal over in Asia what the view looked like from where he’s sitting.<\/p>\n

He reckons that it’s hard to be outright bearish about China as they always seem to find a way…if prices fall far enough they could step in with intervention again. <\/p>\n

I’ve often read that the Chinese political model values stability above almost everything else. They foster social cohesion by keeping growth super-sonic. So if China’s economic growth is stalling<\/a>, they may do something drastic to avoid the social instability they fear. <\/p>\n

China has just dropped its reserve rate requirement (RRR) from 20.5% to 20%. This means banks can lend more to encourage the whole merry-go-round to keep going. <\/p>\n

But it’s going to take many more lollies than that from China’s monetary policy<\/a> makers to stop the crash from the last sugar hit. <\/p>\n

Dr. Alex Cowie
\nEditor, Diggers & Drillers<\/strong><\/p>\n

Related Articles<\/em><\/strong><\/p>\n

The Conference of the Year “After America” DVD<\/a><\/p>\n

APPEA – Day One at the Oil & Gas Show: Sand Dunes, Scuba Diving and Camels<\/a><\/p>\n

Get in Early to Shale Gas<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nA Shocking Week for China\u2019s Economy <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au A good pal of mine works in Asia for a global investment bank. He was over in China on a fact-finding mission recently – talking to miners, commodity traders and buyers. I called him up to see what he could tell me. He said, ‘The news from China wasn’t great… Most people are … <\/p>\n

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