GMO, in a compelling analysis, not only confirms the skeptics’ case but provides reasons why the Chinese growth model faces an end game. While it may not be nigh, it seems to be closer than most people think.
Read more...You have to give a fund manager points for admitting to having a “history of contentious posturing.” Hugh You have to give a fund manager points for admitting to having a “history of contentious posturing.” Hugh Hendry’s also a reformed gold bug, which shows an unusual flexibility of thinking (once people join the gold cult, they seldom leave). Even if you don’t necessarily agree, his talk will serve as a useful grist for thought (hat tip Ian Fraser). Hendry discusses the end of an broadly adopted national strategy, mercantilism, and what he sees as the implications.
Read more...Nobody has wanted to heed the lesson of post bubble Japan until way too late.
Read more...Tonight’s Financial Times has a eye-popping story, that the survival of Sharp, one of Japan’s top consumer products manufacturers, is in doubt:
Read more...Sober Look has an intriguing little post up on how expats are leaving China and why that is a bearish portent.
Read more...Even in the cases where the outsourcing cost savings were significant, the idea that American wages were way out of line with Chinese wages and the only future for American workers was grinding wages lower and lower to compete with China has been oversold.
Read more...By Zarathustra, who is the founder of Hong Kong blog Also sprach Analyst. He was educated at the London School of Economics and the Chinese University of Hong Kong and was once a Hong Kong-based equity research analyst focusing on Hong Kong real estate (which he did not really like), with a secondary coverage on China real estate sector (which he actually hated). Cross posted from MacroBusiness
To this date, there remains a lot of confusion about the ability of People’s Bank of China (PBOC) to ease monetary policy.
Read more...Cross posted from MacroBusiness
Exclusively from Michael Pettis’ newsletter:
While analysts are still arguing over whether or not growth in the first half of 2012 was lower than the already-low reported numbers (I think it was, and for reasons see Kate Mackenzie’s quick summary in the Financial Times), I expect, as I discussed in the previous issue of this newsletter, that over the next three months we will see a rebound in Chinese GDP growth as investment expands. The leadership transition, after all, is in October, and no one in power wants to see the ten-year period under the leadership of President Hu and Premier Wen end with an economic whimper, especially after the very distressing political scandals we have lived through this year.
I don’t think, however, that any rebound or recovery will last more than one or two quarters, and even then it is going to be a very tedious and lop-sided recovery.
Read more...
By Leith van Onselen, Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. You can follow him on Twitter at @leithvo. Cross posted from MacroBusiness
Yesterday, Houses & Holes stated that he was a long-term China bull, largely because of its status as an industrial powerhouse. Today I want to outline the reason why I am a long-term China bear: China’s rapidly ageing population.
Read more...Although various commentators (including our Marshall Auerback) have raised warning flags about the long-term viability of China’s growth model, the middle kingdom’s performance during the crisis seemed to prove skeptics wrong. Never mind that creditors like China tend to suffer most in the aftermath of major financial crises, or that no country has ever sustained such a high combination of exports plus investment (over 50% of GDP) for very long. And the ongoing reports of all those vacant cities seemed to be irrelevant.
The critics have been looking less off base of late.
Read more...By Zarathustra, who is the founder of Hong Kong blog Also sprach Analyst. He was educated at the London School of Economics and the Chinese University of Hong Kong and was once a Hong Kong-based equity research analyst focusing on Hong Kong real estate (which he did not really like), with a secondary coverage on China real estate sector (which he actually hated). Cross posted from MacroBusiness
hile the mistrust of the political class of China continues in Hong Kong (and will certainly continue for much longer), the doubts on the strength of the Chinese economy and the doubts on the ability of the political class
to manage the economy have more or less evaporated after 15 years of Chinese rule.
No one would ever dispute the achievement of the Chinese economy….the extraordinary bull market and the seemingly unstoppable economic growth has created a China cult, a cult among the investing community that China is the best place to invest.
Read more...By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
Jonathan Fenby (2012) Tiger Head, Snake Tails: China Today, How It Got There and Where It is Heading
Robert Frank (2011) Who Repo’d My Jet: the manic millionaires, and why they’ll lead us to the next boom and bust
John Coates (2012) The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust
Personal – relating to an individual or what serves the interest of that individual. Personality – distinctive assemblage of qualities which defines an individual, frequently in modern life conflated with celebrity. These three books deal with the ‘personal’ and ‘personality’ in the financial world.
Read more...A serious simmering dispute involves China versus the rest of the world on rare earths. As most readers know, rare earths are essential to the manufacture of many high tech, defense, and “green energy” products, such as smartphones, lasers, and hybrid batteries. Even though rare earths are not rare, their extraction is an environmentally nasty business, and China, which has less than 30% of world reserves, now accounts for over 90% of global production. That is a stranglehold that China has decided to exploit.
Read more...Yves here. I particularly like this post because Michael Pettis takes some boundary conditions about China and works through their implications. One quibble I have is that he talks of “debt capacity limits.” That depends who the issuer is. The national government could in theory “print,” it has no need to issue debt to fund its activities. But the constraint on that sort of approach is inflation, and China is trying to cool off inflation without crimping growth too much. So China is pretty much in the conundrum Pettis describes, but for slightly more complicated reasons.
Cross posted from MacroBusiness
An exclusive excerpt from Michael Pettis’ most recent newsletter:
Last week’s news was dominated by the sudden but not wholly unexpected removal of Bo Xilai as mayor of Chongqing.
After the initial shock wore off, much of the speculation within China has moved on to what his ousting says about the evolution of power and, for economists, how it will affect the reform and rebalancing of the Chinese economy. More importantly, it seems to me that too many analysts over emphasize the intentions of the Chinese leadership when projecting China’s future.
Read more...
The latest success—I suppose you could call it that, at least for those involved on the financial end—was the Kiekert deal last week. The company was founded in 1857 near Düsseldorf, Germany, and became the largest manufacturer of automotive door-lock systems. Its customers are GM, Ford, VW, BMW, and other automakers around the world. But now a Chinese company bought Kiekert, the sign of a sea change.
Read more...