Thursday, April 16, 2015

Less Bang-Per-Yuan (excerpt)

Over the past couple of decades, China’s growth was supercharged by lots of debt that was used to expand industrial capacity to employ the huge influx of new workers into the labor market resulting from the demographic dividend. The Chinese have a very high saving rate. As some of them prospered, they poured their savings into properties; many built in the country’s “ghost cities.” Now China has a glut of industrial capacity spewing out life-shortening pollution and a speculative bubble in real estate that is quickly losing air. The government continues to provide lots of easy credit, but it has lost its bang-per-yuan for stimulating growth, and instead is fueling a speculative bubble in stocks.

Real GDP rose 7.0% y/y through Q1-2015, the weakest growth rate since Q1-2009. Haver Analytics calculates that the seasonally adjusted and annualized quarterly growth rate was 5.3%, also the weakest since Q1-2009. Industrial production was up only 5.6% y/y in March. It’s very unusual to see production growing below real GDP.

Over the past three months through March, bank loans are up at an annual rate of 16.9 trillion yuan ($2.7 trillion dollars), the highest since March 2009! Yet despite all that liquidity, real GDP growth continued to move lower.

Today's Morning Briefing: Live Long & Prosper. (1) Spock and China’s future. (2) “China will get old before it gets rich.” (3) The downside of China’s demographic dividend. (4) Chinese speculating in stocks rather than real estate. (5) Q1 real GDP up just 5.3% (saar). (6) Big declines in exports, imports, and railways freight traffic. (7) Plenty of credit, and lots of deflation. (8) More easing coming. (9) Premier is alarmed. (10) US consumer getting squeezed. (11) Focus on market-weight-rated S&P 500 IT. (More for subscribers.)

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