China bulls are in for a multi-year shock because rebalancing from an economy overly dependent on exports is going to be far more painful, and last much longer than most think. Data is coming in much weaker than expected, but I propose this is only the very beginning.
The New York Times reports Data Signal Economic Trouble in China
China announced Thursday that growth in imports had unexpectedly come to a screeching halt in April — rising just 0.3 percent from the same period a year earlier, compared with expectations for an 11 percent increase. Businesses across the country appeared to lose much of their appetite for products as varied as iron ore and computer chips.
Growth in other sectors appears to be slowing, too, particularly in real estate. Soufun Holdings, a Chinese real estate data provider, released figures Monday showing that residential land sales in the country’s 20 largest cities had fallen 92 percent last week from the week before, as declining prices for apartments have left developers short of cash and reluctant to start further projects.
In a series of interviews over the past week, bankers and senior executives from provinces all over China, in a range of light and heavy industries, cited a broad deterioration in business conditions. Two of them said that some tax agencies in smaller cities had been telling companies to inflate their sales and profits to make local economic growth look less weak than it really was, while reassuring the companies that their actual tax bills would be left unchanged.
There are early signs of a credit crunch, at least among private sector companies. Many seem to be asking their suppliers for more time to pay debts and complaining of cash flow problems. Zhang Jinmei, the sales manager at Qitele Group, a company that makes playground equipment in the coastal city of Wenzhou, said that local investment and lending pools there were starting to charge higher interest rates for loans, a sign of worries about creditworthiness.
The Financial Times reports China trade: warning signals.
Whichever way you look at it, China’s latest set of trade figures is bad news. Not only did both exports and imports fall short of expectations, they missed by quite a way.
Although the first half of 2012 was expected to be a tough one, analysts say action is needed soon if the Q3 rebound many have been pinning their hopes on is going to happen at all.
If the large jump in the trade surplus is the symptom, the economic illnesses look multiple.
Exports have fallen to Europe for the second month in a row, which, from a trade perspective, makes this a low-point since the opening depths of economic crisis.
That Chinese imports have fallen even faster is the greater worry. Many had hoped that Chinese shoppers (and builders) would rescue the rest of the world with a voracious appetite for everything. But that seems not to be the case, at least not until the credit taps are turned back on.
All of this was easily predictable yet most did not see this coming and fewer still still see what is ahead. For example please consider this feeble China forecast by PIMCO.
China’s slowdown may deepen as policy makers unwind the excesses of a record credit boom while only gradually increasing stimulus, leaving 2012 growth at the weakest in 13 years, Pacific Investment Management Co. says.
“The economy is unlikely to bottom until the third quarter,” Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management in Singapore, said in e-mailed comments May 13.
Pimco, which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7 percent range,” a pace unseen since 1999. Its call is still lower than that of banks from Citigroup Inc. and JPMorgan Chase & Co. to Bank of America Corp. and UBS AG, which all pared their forecasts after April economic data were released last week.
Note the feeble forecasts by Pimco, Citigroup, JP Morgan, Bank of America, and UBS.
And what's with this bottom call by Pimco in the third quarter? I have to ask, third quarter of what year? 2020?
What a bunch of collective bunk!
I am sticking with 3.5% average growth for the rest of the decade, an idea proposed by Michael Pettis in a bet with The Economist. For details, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?
Mike "Mish" Shedlock