Monday, April 27, 2009
According to PBOC internal report, the 4.58 trillion went mainly to construction and, surprise!, to SOEs in the electricity equipment, coal, concrete, non-ferrious and machinery sectors. Folks, these are the sectors that will see prolonged over-capacity!
来源：南方日报 2009-04-27 08:43:26 作者：
事实上,第一季度经济数据就已经让祝宝良感到十分奇怪。4月16日,国家统计局公布的数据显示:一季度,全社会固定资产投资28129亿元,同比增长 28.8%。从产业看,第一、二、三产业(下面分别简称为一产、二产、三产)投资分别为332亿元、10180亿元和13050亿元,同比分别增长 85.0%、26.8%和29.1%。
If you are willing to sacrifice upfront, doesn’t a system that favors growth, primarily, and education, secondarily, make sense over concern for the elderly?
From purely a GDP/capita and employment and income growth perspective, whose stimulus do you think will create a larger effect, China or the US?
Won’t the similarly-sized stimulus programs in the developed world have even more waste in them or less of an impact on future growth?
Thursday, April 23, 2009
Dear All, my latest blog post on RGE Monitor
Victor Shih | Apr 23, 2009
I have been getting a wave of bullish sell side reports about how the stimulus program launched late last year is having an unexpectedly good impact on leading indicators in China. Before we draw quick conclusions about how rosy everything will be, let's step back and examine what these figures are actually telling us. In essence, most of the benefits of pumping 5 trillion into the economy are temporary. When this pace of lending slows, many benefits will reverse into major problems.
First of all, I am more or less repeating some points that Mike Pettis raised in earlier notes. Also, unlike many sell side analysts, Stephen Green at Standard Chartered has issued several reports that give a more comprehensive view. Let's look at the latest figures. In conjunction with the stimulus program, the banks issued nearly 5 trillion RMB in new loans in the first quarter, a historically high level. Because there was basically no share issuance or new corporate bond issuance, the 5 trillion from the banks was really the main engine for 1Q 2009. The 5 trillion is almost the size of the US fiscal stimulus package and basically 1/6 of China's 2008 GDP. As far as I know, this is the largest monetary easing in this period of time as a share of a country's GDP (that didn't go into writing off bad debt, that is). Impressive indeed, but what did China get in return?
1. To be sure, fixed asset investment grew by 25+%, which was one of the intended effects of monetary easing of this magnitude.
2. Official PMI, which mainly reflects sentiment among SOEs or state corporation, went back into positive territory, but private sector PMI was still in negative territory at the end of March.
3. There has been a pretty impressive stock market rebound in the A share.
4. The housing market is showing some sign of life after a long winter. Sales in many major cities are going up significantly, even driving up prices in some cases.
So far so good, BUT...
When we look at figures for non-investment economic activities, things do not look good at all. In fact, it is down right disappointing after pumping 5 trillion into the economy.
1. First of all, export and FDI continue to fall at a pretty fast pace, which can't be helped.
2. More alarming, inventory for many industrial goods continue to build UP! According to a recent note by Stephen Green's team, refined oil inventory is up over 35% YoY as of the end of February.
3. Coal inventory seems to have gone down, but that's because many coal mines have ceased to operate. The 21st Century Business Herald reported that 50-70% of mines are "resting" for the moment. Iron ore mines are facing the same problem as international iron ore now costs less than domestic ore.
4. Electricity usage continues to be in negative territory.
Steel consumption has picked up somewhat from a collapse late last year. However, I think the problem there is continual over-capacity. The central government didn't want any major steel firms to go under, so they are spending billions to "merge" a bunch of steel firms. For example, Bao Steel based in Shanghai will buy up several steel producers in the Jiangsu/Zhejiang area. This maintains the over-capacity in the sector and will put upward pressure on inventory.
In electricity generation, there is rumor of a ,CIC2, a mega company that will buy up distressed electricity producers and coal mines from across China, boosting the on-going consolidation financed by bank loans. In the airline industry, billions have been injected into airlines to keep them afloat amidst disastrous bets on world oil prices.
There is then the widely cited figures of 12% increase in urban income at the end of 2008 and increase in car sales in first quarter. In the first instance, I have no idea how the income figures were produced, but they almost always miss migrant workers, who are also urban residents. On the car sales, China Economist already points to a recent FT article which questions whether sales of minivans will help car company profitability. Finally, employment, which supposedly was the main point of the stimulus, was only marginally improved by the 5 trillion. Most large projects haven't gotten going yet as land still needs to be procured. The biggest employment impact was that the 5 trillion prevented the mass bankruptcy of hundreds and perhaps thousands of firms. However, some firms are staying alive by laying off or furloughing workers, like the coal mines.
So, really, when it comes down to it, the 5 trillion bought:
1. some psychological relief
2. some more sales of real estate, thus delaying the bankruptcies of many developers
3. an upbeat stock market, for a while
4. prevented the bankruptcy of numerous state firms, especially in the airline, coal, electricity, and steel sector
The most alarming thing is that these "positive" effects of pumping money into the economy lasts only as long as the money keeps flowing. If for whatever reason, the central government decides to slow down the pace of lending (and there are signs they are thinking of doing so), ALL of the above benefits will collapse relatively quickly. Imagine; if the flow of funds slows significantly, the psychological relief will disappear quickly, as will short-term loans to developers; the upbeat market sentiment will follow as speculative funds withdraw suddenly from the market. SOEs, which are building UP their capacity and inventory as we speak, will face growing losses from depreciation and deflationary pressure on output. Without free flow of bank loans, they will begin to default on their previous loans. Speculative demand for real estate will also collapse, given that inventory is expected to reach over 1 billion sqmtr some time in 2009 (again citing SCB report by Green et al.).
What does this mean? The central government cannot stop or even significantly slow this pace of lending until export picks up in a significant way, else the bubble will burst. This is a race against time. At some point, this pace of lending will lead to a serious NPL problem or inflation, or both. If by that point, export and domestic household consumption remain anemic, I am not sure what options the central government will have.
Friday, April 17, 2009
So, a good friend of mine notified me of more dramatic movement in the Huang Guangyu money laundering case. Huang of course is the Guangdong native consumer electronics tycoon, who was arrested in November 2008 for market manipulation, money laundering, and bribery. His arrest led to the successive arrests of Public Security Ministry officials Zheng Shaodong and Xiang Huaizhu, as well as State Administration of Foreign Exchange official Xu Mangang, we now further have the arrests of former Guangdong Discipline Committee secretary Wang Huayuan and former Guangdong police chief Chen Shaoji. What's going on here??? Is this an attempt to undermine or even to uproot former Guangdong party secretaries Zhang Dejiang or Li Changchun??
My suspicion is that this is actually a play by Zhou Yongkang to gain absolute power in the law and politics system. Wang was a client of Chen, and Chen, as well as the other police officers arrested, were clients of former supreme court justice Xiao Hua, a Guangdong native who had a huge network of people in the court and police system. When Xiao retired last year from the court, Zhou likely saw a good chance to clean house and to make an example of Xiao's faction. After this, I don't think anyone else in the law and politics system would dare to challenge Zhou. This house-cleaning,however, creates huge problems for Hu Jintao and even his successor because they become completely reliant on Zhou to maintain stability in China.
本文来源于《财经网》 2009年04月16日 16:30 共有66条点评
【《财经网》广州专稿/记者 罗洁琪 罗昌平】 现任广东省政协主席陈绍基，因涉嫌经济问题，目前正在接受组织调查。《财经》记者经多个渠道
本文来源于《财经网》 2009年04月16日 19:03 共有55条点评
【《财经网》上海专稿/记者 陈中小路 罗昌平】受黄光裕、郑少东系列案件的牵连，现任浙江省纪委书记王华元于4月12日左右被中央纪委“带走”
Wednesday, April 08, 2009
For those of you who like to use facebook and are thinking about the commercial applications of Facebook, read my sister Clara Shih's new book on the topic. She has worked at Oracle, Microsoft, Google, and is now working on a joint project between Salesforce.com and Facebook. It's an awesome read, and it only costs 17.99 (NOT 80 dollar like my book!). To buy, the book, follow this link.
Friday, April 03, 2009
Here it is, comments welcomed:
Asian Wall Street Journal,
April 3, 2009
Legless Stimulus in China
China's 'Legless' Stimulus
China touted the effects of its $588 billion economic stimulus package at the Group of 20 meeting this week in London. Chinese policy makers, including President Hu Jintao, argued that the stimulus package proves Beijing is playing its part in jumpstarting the global economy. Some investors have been swept up in a wave of optimism about the package's positive impact.
There is considerable evidence, however, that even if the stimulus manages to produce some positive headline numbers, it is likely to fall short on its ultimate aim of creating employment and jump-starting private consumption. This result is the outcome of a political system dominated by state planners, large state corporations and local officials.
More than three-quarters of the stimulus package will be spent on construction, including transportation infrastructure, earthquake reconstruction, welfare housing and rural infrastructure. Much of the money spent on earthquake reconstruction may prove productive. After more than a decade of intensive infrastructure building elsewhere in China, however, it is dubious that additional construction on such a massive scale can generate economic returns beyond boosting short-term employment for a few months.
Furthermore, the central budget finances only around one-quarter of the stimulus package. At least half of the remainder will be financed by banks in China. Banks are eager to finance these government-sponsored projects because they come with implicit government guarantees and thus pose less risk than private borrowers do. In addition to $588 billion in central projects, local governments have also proposed more than $3 trillion in additional investment projects. Not all of these projects can be financed, but local plans could potentially double the size of the central stimulus. Banks may end up financing as much as three-quarters of these local projects because local governments are typically cash-strapped, thus further crowding out private consumption and investment.
Local and central governments are in some cases at an impasse over how much land should be allocated to central projects. Land sales to developers and land mortgaging have been major sources of local discretionary spending in recent years, but the stimulus projects will demand large tracts of land from the local land banks at little compensation. Thus, local governments do not want to "waste" this land on public projects, especially when the central government has set a strict limit on the amount of farmland that can be developed. The Chinese press reports that sometimes local governments are simply stalling on central projects, especially when it comes to welfare housing. In other cases, local governments are resettling residents with little compensation to reduce the cost of obtaining land. The Ministry of Land and Resources apparently deems these problems serious enough that it has organized an internal work group to monitor them.
Of the remainder of the money, the government announced at the March National People's Congress a $54 billion fund for enterprise "innovation and restructuring." Most of this money will go to state-owned corporations. A significant portion of the $31 billion allocated to pollution reduction will also end up in state firms.
These firms may not use the cash effectively. Large state firms' profitability fell 25% at the end of 2008 from the end of 2007. Some state-owned corporations, such as China Eastern Airlines, stay afloat only due to central subsidies after botching deals on commodities futures. In addition, subsidies embedded in the stimulus and bank loans will be used by state firms in the steel, automobile, electricity, and coal industries to buy state-owned and even private competitors, which contradicts at least the spirit if not the letter of the antimonopoly law by creating oligopolies.
From the perspective of building behemoth national champions, rescuing ailing state firms and subsidizing sector consolidation may be a fine strategy. However, from the perspective of generating employment and private consumption, it may not be particularly effective. To be sure, state-owned corporations have been ordered to not fire anyone, but with overcapacity looming over them, they are certainly not doing much hiring. In addition, it is unclear whether the no-firing rule applies to newly acquired subsidiaries of these state behemoths.
The stimulus is thus legless: It looks impressive at the top, full of grandiose plans and ample financing from state banks, but lacks a solid foundation. The epic scale of central expenditure and state bank lending will generate some positive investment and GDP figures. Its impact at the grassroots level, however, is dubious. Beyond the short-term boost in employment and relatively small sums spent on social welfare and health, ordinary Chinese will see few benefits, limiting their capacity to spend.
Already, the People's Bank of China's fourth-quarter monetary report indicates that household propensity to consume declined yet again. Given horrendous export figures in the first quarter of 2009, household propensity to consume is likely to decline again. The central leadership in Beijing has voiced its intention to boost domestic consumption. If they seek to maximize society's welfare over the long term, these leaders may be relied upon to carry out the right policies to boost consumption.
But these are heroic assumptions. In an autocratic regime, generating employment is not the only means of holding on to power. State corporations and local officials demand their large slices of the stimulus package. Even if the current leadership is sincere about its desire to reorient the economy, they are under pressure to address the concerns of powerful rent-seeking interests, who directly influence the leadership's ability to stay in power. Ordinary citizens and small firms are largely absent from the political process, and exert no direct influence on the implementation of the package.
This is not to say the American stimulus will perform any better, but the Chinese political system certainly diminishes the effectiveness of the stimulus. When China claims that it has done enough to jump-start domestic demand, G-20 leaders should take that message with a large grain of salt.
From what statistics do you at the above conclusion? I couldn't find a direct reference to declining consumer spending in PBoC's monetary policy report.
I asked because the PMI index rose for the third consecutive month, the exports are declining, and so is the consumer spending propensity. I would have to assume that the government is now the primary driving force behind consumption. Otherwise, the overcapacity has not been alleviated, and could lead to dangerously high inventory.