In the Financial/Economic News

[Randy W]

Foreign investors have been dumping vast amounts of Chinese assets, and putting money there will only get riskier

• Foreign investors have been selling Chinese securities for the last two years, the Atlantic Council said.
• President Xi Jinping's policies and growing geopolitical tensions have helped spur the retreat.
• "Putting money in China is going to become riskier, and de-risking is only going to become more commonplace."

from Business Insider via Yahoo Finance

Chinese President Xi Jinping attends a meeting at the United Nations European headquarters in Geneva, Switzerland, January 18, 2017. REUTERS/Denis Balibouse

Quote

 

Talk of "de-risking" from China has been trendy lately, especially as geopolitical tensions grow and the economy's post-COVID rebound has started to lose momentum.

"But foreign fund managers have already stolen a march on the policy: They've been selling vast amounts of securities over the past two years in response to Chinese leader Xi Jinping's policies and mounting US-China tensions," wrote Jeremy Mark, a senior fellow with the Atlantic Council's Geoeconomics Center.

In fact, international institutional investors have sold a net $148 billion of China's bonds since early 2022, and Chinese stocks have seen sharp declines, especially on exchanges in New York and Hong Kong, he said.

Separate reports have also shown that foreign investors are selling Chinese stocks at a faster pace. And a former IMF official predicted China's economy is likely headed for a so-called lost decade.

Mark said that this shift in market sentiment underscores how de-risking is as much about the bottom line as it is about diplomacy.

"And it does not bode well for China amid growing anxiety about the country's economic prospects," he added.

In addition to China's weak rebound from zero-COVID policies, Mark listed long-term structural challenges the economy faces, including a rapidly aging workforce, weak productivity, worsening inequality, and a massive property crisis.

 

 

 

[Randy W]

China GDP: disappointing second-quarter growth tests Beijing’s ammunition to fix uneven economic recovery

• China’s economic growth in the second quarter was below market expectations despite Beijing’s effort to boost the post-coronavirus pandemic recovery
• The jobless rate for the 16-24 age group hit a new high of 21.3 per cent in June, up from 20.8 per cent in May.

from the SCMP

Quote

 

The official data released on Monday indicated continued uneven post-pandemic recovery, with faltering private confidence, record high youth unemployment and overhanging risk in the property market.

“This is a worrying result for an economy that’s struggling to gain momentum,” said Harry Murphy Cruise, an economist with Moody’s Analytics.

“After a sugar injection in the opening months of 2023, the pandemic hangover is plaguing China’s recovery.”
The second-quarter figures added pressure on Beijing to ensure more policy support and effective implementation to be able to meet its annual growth target of around 5 per cent.

 

Edited July 23, 2023 by Randy W (see edit history)

[Randy W]

China trade: de-risking, reshoring efforts chip away at exports as July shipments fall at steepest pace since early 2020

• China’s exports fell by 14.5 per cent in July compared with a year earlier, while imports fell by 12.4 per cent last month
• Falling exports will lead to weaker production, while slumping imports highlight lower domestic demand, which is set to test China’s 2023 growth target, analysts said

from the SCMP

Weak exports, caused by falling global demand, have increased the pressure for Beijing to boost domestic consumption in the rest of the year. Photo: AP
 

Quote

 

The slump points to worsening overall prospects, analysts said, with exports expected to contract at a similar scale until the end of the year, meaning growth will take time to rebound.

The broad-based fall also exposes China’s mounting challenges as it struggles to revive domestic demand and reboot business sector confidence amid a sputtering post-pandemic recovery, threatening the annual growth target of around 5 per cent.

Exports fell for the third consecutive month, with the 14.5 per cent drop from a year earlier to US$281.76 billion marking the deepest decline since February 2020, according Chinese customs figures released on Tuesday.

Imports, meanwhile, fell by 12.4 per cent from a year earlier to US$201.16 billion, with China’s total trade surplus rising to US$80.6 billion in July compared to US$70.62 billion in June.

 

 

[Randy W]

Lei discusses China's economic situation - at 1:06:27 long.

In the aftermath of the typhoon and flooding, China’s financial sector has been hard hit, particularly the insurance industry, which has been in trouble for years. “When bad folks are in trouble, they do bad things.” Joe Biden said this last week when describing the consequences of China’s economic problems. He called China a ticking time bomb. What’s the status of this ticking time bomb? In less than 2 weeks, China’s financial troubles are coming to the surface one after another daily.

 

[Randy W]

China’s economy shows no bright spots in July, calls for stronger action to ease property woes and boost spending

• Retail sales, industrial output and investment also all posted weaker than expected growth in July, while property investment also fell
• Officials also said they would pause publishing monthly jobless rate breakdowns, including for the 16-24 and 25-59 age groups

from the SCMP

Is youth joblessness worsening in China? Beijing’s official figures offering fewer clues

Quote

 

China’s across-the-board weakening of its economy in July, particularly the further decline of private investment and a deepening property crisis, displayed “no bright spots” but only “downside surprises”, serving the latest wake-up call for Beijing’s policymakers.

Property investment fell by 8.5 per cent, year on year, from January to July, after dropping by 7.9 per cent in the first half of the year, marking the lowest growth rate this year.

Retail sales, industrial output and investment also all posted weaker than expected growth in July, data released by the National Bureau of Statistics (NBS) on Tuesday showed.

 

 

 

 

[Randy W]

China’s military academies enrol ‘record 17,000 high school graduates’ as youth joblessness soars

• Total intake is the highest since 2017 and 2,000 more than last year, official military newspaper PLA Daily reports
• Specialisations combining command and technical training introduced to satisfy ‘urgent need for new types of military talent’, report adds

from the SCMP

Chinese soldiers learn how to keep their guns steady during training at a base in southwest China. Photo: AFP
 

Quote

 

As the academies took in more high school graduates, they enrolled fewer serving military personnel, the defence ministry notice in June said, without providing numbers.

Most of the service members were enrolled for science and engineering-centred places, to focus on “war preparation”, it said.

The PLA Daily said 135,000 high school graduates countrywide had applied for “political inspection”, the first stage of the academies’ screening process requiring them to declare personal details including their religion, ethnicity, family background, travel history and criminal record.

More than 50,000 of them then went through the interviews and medical examination processes.

 

 

[Randy W]

Lei cuts to the chase here about China's ecconomic situation and its dependency on the real estate industry

China's real estate developers are faltering as they face dwindling sales, massive losses, and mountains of debt. Will they bring down the local governments who have been the force behind China's decades of real estate boom? How dependent are China's local governments on the real estate industry in terms of value and percentage? Lei provides her analysis, and the numbers are shocking. In anticipation of a fallout of the real estate sector, what are the finance directors of the local governments busy with now? 
0:00 The quantification of local government's dependence on real estate
16:14  How are the local governments dealing with the crisis?
35:13 Q&A

 

 

Edited August 25, 2023 by Randy W (see edit history)

[Randy W]

An analysis of China's automotive supply chain issues from the SCMP.

Title of top car exporter won’t make China’s auto industry No 1 in the world. Here’s what will

• China’s dominance in global sales and exports and early lead in the EV market are big advantages, but they’re not enough
• To shape the global auto industry, Chinese companies must invest in R&D to move up the global supply chain, and transform their business models to become world-class brands

In a 2023 ranking of top auto brands, China’s flag-bearer BYD is ranked 12th, the only Chinese carmaker in the top 20. Photo: Reuters
 

Quote

 

In the first half of 2023, Chinese carmakers exported 2.14 million vehicles, according to the China Association of Automobile Manufacturers, surpassing their Japanese counterparts (2.02 million). It’s the first time China has captured the crown as the world’s largest car exporter.

While a noteworthy achievement, this does not mean China is ready to dominate the global auto industry. To lead the pack, it must secure a better foothold in the global supply chain and create more valuable brands.

 . . . 

The global auto supply chain is highly competitive. In Automotive News’ 2023 rankings of the world’s biggest original equipment suppliers, only one Chinese company made it to the top 10 – battery maker CATL, in fifth place, with revenue of US$33.5 billion.

Twelve mainland Chinese vendors with a combined revenue of US$83.8 billion are in the top 100, lagging behind their counterparts from Germany (US$217.2 billion), Japan (US$215.3 billion), the US (US$122.9 billion) and South Korea (US$90.2 billion).

 

 

[Randy W]

Foreign investors flee China’s stock markets at record pace in US$900 billion wipeout with near term return unlikely

• Overseas investors have sold an aggregate US$10.7 billion of Chinese stocks in 13 consecutive trading sessions, the longest selling streak since records began in 2016
• Foreign investor favourites bore the brunt of the selling -liquor distiller Kweichow Moutai, retail lender China Merchants Bank, solar panel manufacturer LONGi Green

Published: 5:00pm, 24 Aug, 2023

Updated: 5:01pm, 24 Aug, 2023

from the SCMP

 

Quote

 

The bout of selling is the latest sign of the lack of confidence among foreign investors that are fleeing on worries over China’s gloomy growth outlook. Top policymakers have refrained from introducing more forceful pro-growth packages after a late July Politburo meeting hinted at more policy easing. This flight has sent both the onshore and offshore yuan to the weakest level against the US dollar since November despite the intervention by China’s central bank.

“The cause is the concerns about China’s policies and economy,” said Yang Qinqin, an analyst at China Fortune Securities. “Northbound capitals are the barometer of the A-share [onshore] market. A massive exodus will keep weighing on market sentiment and liquidity.”

The pressure has been mounting with the three-year old property crisis continuing to reverberate, as the latest bout of defaults threaten to trigger a contagion effect on the sector.

 

 

[Randy W]

OPINION

PAUL KRUGMAN

Why Is China in So Much Trouble?

Aug. 31, 2023

from the New York Times

Quote

 

Since the late 2000s, however, China seems to have lost a lot of its dynamism. The International Monetary Fund estimates that total factor productivity — a measure of the efficiency with which resources are used — has grown only half as fast since 2008 as it did in the decade before. You should take such estimates with large handfuls of salt, but there has been a clear slowdown in the rate of technological progress.

And China no longer has the demography to support torrid growth: Its working-age population topped out around 2015 and has been declining since.

Many analysts attribute China’s loss of dynamism to Xi, who took power in 2012 and has been consistently more hostile to private enterprise than his predecessors. This seems to me to be too glib. Certainly Xi’s focus on state control and arbitrariness haven’t helped. But China’s slowdown began even before Xi took power.

And in general nobody is very good at explaining long-run growth rates. The great M.I.T. economist Robert Solow famously quipped that attempts to explain why some countries grow more slowly than others always end up in “a blaze of amateur sociology.” There were probably deep reasons China couldn’t continue to grow the way it had before 2008.

In any case, China clearly can’t sustain anything like the high growth rates of the past.

However, slower growth needn’t translate into economic crisis. As I’ve pointed out, even Japan, often held up as the ultimate cautionary tale, has done fairly decently since its slowdown in the early 1990s. Why do things look so ominous in China?

 . . .

The obvious answer is to boost consumer spending. Get state-owned enterprises to share more of their profits with workers. Strengthen the safety net. And in the short run, the government could just give people money — sending out checks, the way America has done.

So why isn’t this happening? Several reports suggest that there are ideological reasons China won’t do the obvious. As best I can tell, the country’s leadership suffers from a strange mix of hostility to the private sector (just giving people the ability to spend more would dilute the party’s control); unrealistic ambition (China is supposed to be investing in the future, not enjoying life right now); and a sort of puritanical opposition to a strong social safety net, with Xi condemning “welfarism” that might erode the work ethic.

The result is policy paralysis, with China making halfhearted efforts to push the same kinds of investment-led stimulus that it used in the past.

Should we write China off? Of course not. China is a bona fide superpower, with enormous capacity to get its act together. Sooner or later it will probably get past the prejudices that are undermining its policy response.

But the next few years may be quite ugly.

 

 

 

 

 

[Randy W]

Can China learn lessons from Japan’s ‘lost 30 years’?

More on China's economy: https://sc.mp/6qnt 

 

[Randy W]

A history from Lei's Real Talk

How costly is the Wall Street-China breakup after a 40-year relationship?

Wall Street has an intense interest in the Chinese market because it’s the largest emerging market. However, the 40-year love affair is coming to an end. The Wall Street-China breakup will be costly. We have many burning questions to ask. How much money has Wall Street invested in Chinese securities over the past decades? Did the money help boost China’s economy? The Chinese stock markets aren’t doing well. Are American investors able to get their money back in the current US-China competition and de-risking?  

 

[Randy W]

Anger mounts as China's property debt crisis leaves flats unfinished

Dozens of homebuyers in Tongchuan, a city in northwestern China's Shaanxi province, are demanding police action as the presale flats they bought years ago remain unfinished shells. The so-called "rotting" or unfinished homes in China have become more common since a property slump in 2021, which has seen some property developers go bankrupt, and others left in massive debt.
 

 

 

[Randy W]

China’s capital exodus prompts Beijing city to reassure foreign investors who make ‘authentic and compliant’ transactions

• Local-level authorities in the nation’s capital say that revenue earned by foreigners, Hongkongers, Macanese and Taiwanese will be allowed to freely flow in or out, without delays
• Move comes as cross-border capital flows have depreciated the yuan and contributed to an unpredictable business environment in China

from the SCMP  

Beijing city authorities have moved to reassure foreign investors that their investment-related funds will be allowed to freely flow in and out of China. Photo: Reuters

Quote

 

n the latest bid by local-level authorities in China to retain foreign investors and lure more of them to the world’s second-largest economy, Beijing city intends to ease up on strict capital controls and establish a fast-track mechanism to review cross-border data flows.

Foreign investment-related funds will be allowed to freely flow in or out, and without delay, if such transactions are “authentic and compliant [with Chinese regulations]”, according to a draft regulation released by the Beijing Municipal Commerce Bureau on Wednesday.

Meanwhile, the legitimately earned revenue of foreign, Hong Kong, Taiwan and Macau employees, including salaries and other income, would be allowed to be transferred overseas.

 . . .

The move comes as China is trying to curb an exodus of capital – seen both in equity markets and greenfield investment – amid a slumping domestic economy and rising geopolitical tensions.

But Ding Shuang, chief Greater China economist at Standard Chartered Bank, described the move as “just a reassurance”.

“If China wants to keep or further attract more foreign investment, it needs to give investors more certainty – including more transparent policies and fulfilling the promises it has made in the past,” Ding said.

 

 

 

 

[Randy W]

Hong Kong stocks plumb 10-month lows on soaring US Treasury yields with an intensifying China Evergrande crisis adding to the gloom

• Troubled property developer China Evergrande slid further after its unit Hengda Real Estate defaulted on a 4 billion yuan ($547 million) principal and interest payment
• The 10-year US Treasury yield rose to a 16-year high of 4.56 per cent during Asian trading hours on Tuesday and the US dollar index struck its highest since November

from the SCMP

A traffic light is seen near the headquarters of China Evergrande Group in Shenzhen, Guangdong province, China. Photo: Reuters
 

Quote

 

Troubled property developer China Evergrande sank 8.1 per cent to HK$0.395 after its subsidiary Hengda Real Estate Group defaulted on a 4 billion yuan ($547.2 million) principal and interest payment due Monday, adding to its 22 per cent slump a day earlier, spurred by the cancellation of planned creditor meetings.

 . . .

Traders kept their positions light ahead of the weeklong Mid-autumn and National Day holidays that start on Friday. Mainland markets will remain shut on Friday and the whole of next week, and traders want to minimise the risk of being unable to trade during the closure. Trading volumes on the Hong Kong market were a quarter below the 30-day average on Tuesday, while those on the Shanghai and Shenzhen exchanges were more than a fifth lower, according to Bloomberg data.