Grin & Bear It

Captain Qahn's picture

At China ... via the Washington Post:

"The country’s official growth figures paint a rosy picture that any country would aspire to ...  "But how much should we believe those figures?

“Not a lot,” says Mark Williams, the chief Asia economist at Capital Economics, a research consultancy based in London. “They are absolute make-believe,” says Leland Miller, the president of China Beige Book International, which compiles private surveys on the Chinese economy.

"China’s economy has been gradually slowing from the double-digit rates it recorded in past decades, due to a variety of factors...

"Miller’s firm estimates that China’s current growth is around 4.5 percent, though he calls the focus on GDP “sort of a distraction,” since GDP reflects aggregate growth, rather than the type of real productive economic activity that is sustainable and leads to more growth. “If China wants to generate aggregate growth, all it has to do is build a bridge, tear it down, build a bridge, tear it down, and keep going,” he says.

China denies allegations that it cooks its books.

The question of China's official growth statistics is one of credibility. If the country is overstating growth a bit, then it might mean that the world economy will be a bit weaker in coming years than expected. If it is overstating it a lot, it could mean China's government is really worried about whether it is coming in for a hard landing, with far more serious implications for both the country and the global economy.

Many analysts say political pressure is certainly behind the inflated numbers. Achieving growth targets is a matter of political importance in China, and there's evidence that someone somewhere is fiddling with the numbers...

China’s no. 2 leader, Li Keqiang, admitted as much in 2007 ... Wikileaks quoted Li as saying during a dinner that GDP figures were “man-made” and therefore unreliable. Li said he personally looked at electric consumption, rail cargo and loans disbursed for a clue to how the economy was operating, rather than official growth figures. “All other figures, especially GDP statistics, are ‘for reference only,’ he said smiling,”

"There’s also a lot of numerical evidence that something fishy is going on.

"The culprits are usually thought to be the official growth targets that leaders set for different provinces and the country as a whole. For decades, China has set an official economic growth target as part of its “Five-Year Plan,” which is exactly what it sounds like – a wide-sweeping development plan for the country for the next five years. In order to be promoted, officials at all levels must do their part to meet the goals in the Five-Year Plan.

"Westerners sometimes describe China’s record of satisfying these growth targets as a conspiracy -- as if someone in a back room at China’s statistics bureau is tasked with changing 0s to 7s until all the numbers add up. In reality, the errors may be much more widespread and haphazard than that. When statisticians calculate growth, they have to make a lot of assumptions about missing data. In most countries there are errors in both positive and negative directions.

"Setting a growth target not only distorts China's official statistics, it is also likely bad for its economy, since it can encourage short-sighted policies that boost growth right now and hurt the economy later – like taking out more loans or building wasteful infrastructure – rather than a focus on more sustainable growth.

"Unfortunately for Xi, China’s economy may refuse to cooperate with these political aims. China's economy has been slowing, due to its aging population, wasteful spending, a build-up of debt, and other factors.

"So the setting of a relatively high target of 6.5 percent growth for the next five years – a time in which economic forces are likely to continue to drag on China’s economy – suggests that we could see a lot more fiddled growth figures to come."


Meanwhile from Down Under: via The Age:

"China's enigmatic currency has had a hard time being pegged to a stronger US dollar, and the resulting market panic from its moves away from this peg may have been overblown, economists say.

The yuan fix rate, which the People's Bank of China sets daily against the US dollar, was cut a cumulative 1.4 per cent over four session last week, relatively modest compared to August's shock cut, when it devalued 2 per cent in one day. On Friday and again on Monday, the currency was set higher.

"Many investors feared the drops were an attempt by Beijing to support its slowing economy and could possibly trigger competitive devaluations among emerging markets.

However, the currency moves were not about a currency war, they're about stability, HSBC chief Asia economist Frederic Neumann said."It's not unreasonable for China to say the need to recoup some of their lost competitiveness," National Australia Bank global co-head of FX strategy Ray Attrill said.  "The essential point here is I don't think the Chinese have woken up and said 'we need to weaken our currency'". 

Capital flight, exacerbated by the January 1 rollover of a rule where Chinese citizens can exchange $50,000 a year, was among the concerns.  Everyday Chinese are trading their renminbi for other currencies, for fears the value will drop. This squeeze in liquidity fuels fears of a hard economic landing amid an already slowing economy as it transitions away from manufacturing towards consumption, Dr Neumann said. 

"The country is very dependent on credit growth, if you have capital flight, that adds to the economic drag," he said. But why the rush to the exit? That is partly due to the widening spread between the value of the onshore yuan and the offshore yuan.  China's offshore currency (CNH) is freely traded, whereas its onshore currency (CNY) is highly restricted.

Dr Neumann said most of the trading in renminbi happened domestically, and the volumes in the CNH were relatively small but they still gave an indication of how the international market perceives the value of the Chinese currency. "The CNH is the leading indicator of where the CNY should be heading to," he said. "The wider the gap, the greater the doubts about the currency value of the CNY."  The widening gap in recent weeks led China to intervene in its offshore market as well, dipping into its foreign exchange reserves to prop up the falling CNH, to narrow the widening gap between the two.  This move was also part of the ambition from China to have the yuan included in the IMF's SDR reserve currencies, one of the criteria of which is that the currency must be freely convertible. "In order to show the market the renminbi is convertible, they have to show the onshore and offshore rate is largely the same," Dr Neumann said. These moves should not be cause for panic...

While China's high debt levels and structural growth problems were well known, less known was its fundamental strengths – its excess savings, which are trapped behind tight capital controls, and the Chinese authorities own all the banks that allocate these savings. But he said these strengths were being undermined by the capital flight, the amount of which last year was "unprecedented".  The problem with this is that every move made is taken with panic by the market, concerned about the Chinese economy, being the second largest in the world.

Dr Neumann said the market panic last week was overdone, and China's slowdown was more comparable to Japan in 1989, which was the same share of global GDP as China is now, than the 2008 crash in the US. "Chinese authorities have a much stronger ability to control financial developments than people really understand. People underestimate China's ability to control its own economy." That lack of understanding led to uncertainty, breeding fear and a sell first make sense of it later mentality, he said. 

Societe Generale chief economist Michala Marcussen said the key issue for China was the sequence and the dosage of its reform measures.  "While China is willing to spend some of its FX reserves to manage the pace of its currency depreciation, we believe that authorities would step in with further capital controls should this be deemed necessary," she said.  Some of this was evident last week as the rules of converting $50,000 were tightening to a maximum of $5000 a day unless an appointment was made.  "The irony is that expectations of further tightening of capital controls could add to outflow pressure," she said.

"Bottom line, expect further bumpiness ahead."


Fascinating Muddles. Brown when a currency devalues, commodity & assets rise,  sharpe exchanges in liquid for hard assets. eg 

Wtfdik - tis all Greek. No mud in Wales:

Ergo, Rats on sinking ships ...   "a new subsidiary to hunt for even more opportunities...  

“Obviously the collapse in the oil price helped to galvanise our enthusiasm but we have been thinking about it before that because we have quite a lot of tentacles that go upstream in one way or another,” said Mr Ratcliffe. Mr Ratcliff declined to say how much his firm might invest in further assets.  We are not going to spend beyond our means,” he said. “But when you are in the world of making acquisitions it is impossible to predict where you will finish up.”

Shop til you Drop ...

The Legend:

(re-edited to inc the hero that is Bowie :


Mortal Mindy's picture

Dark Room

Morning Sheps - Cheers ;-) Courtesy of Philwad on III

With Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) down 42% year-to-date, investors are likely ready to look forward into the new year. Fortunately, there is much more reason for optimism in 2016.

The fact of the matter is, potash demand is in a secular uptrend. In the year 2000, global demand was 40 million tonnes. By 2005, it moved up to 50 million tonnes before hitting about 60 million tonnes the past few years. Now, Potash Corp. and many analyst groups are projecting demand of 70 million tonnes by 2020.

Potash demand typically does not decline because farmers realize the economic benefits of increased crop yields, and as a result demand is expected to head upwards in 2016. For Potash Corp.—the largest player by capacity—this is a positive as Potash Corp. has the capacity to meet growing demand and boost its volumes.

Why demand is headed upwards in 2016

It was widely publicized that 2015 was a weak year for potash demand, but this is not entirely true. Potash hit all-time record demand levels in 2014 (62.7 million tonnes), and while 2015’s drop to 58-59 million tonnes was widely seen as bearish, it is not as bearish as meets the eye.

This year’s shipment levels are actually the second highest on record, and many analysts believe that the significant drop off in shipments this year was not due to a major collapse in actual consumption, but rather to a drawdown of inventories, which were built up enormously in 2014 in response to low prices and strong demand from farmers.

In 2016, most analysts are expecting a rebound. Mosaic, for example, is predicting demand of 61-63 million tonnes, and the high end of this range would represent a new record. Potash Corp. is slightly less optimistic; it is expecting 60-62 million tonnes (which would be the second highest on record), and the International Fertilizer Association is expecting demand of 65 million tonnes, which would significantly exceed 2014’s record.

Are these forecasts reasonable? They seem to be. Potash still remains very affordable for farmers, as well as necessary, and farmers will need to apply potash to replenish potash that was lost due to recent record harvests as well as to meet growing demand for crops.

Currently, potash costs are 1.9% of crop revenue for farmers in China (which is less than the five-year average of about 2.5%), and in other key markets (such as Brazil and the U.S.) potash costs are only slightly above the five-year average, making it very affordable.

In addition to this, potash producer Mosaic estimates that inventories in key markets such as Brazil and the U.S. are low this year, which in turn could lead to some inventory building"

The Puppy Look?


Mortal Mindy's picture

The Man Who Fell to Earth


The departure means that sadly it is the world that looks very different today.

He leaves behind a substantial body of work, including several autobiographical albums about the experience of being something more than human amongst mere mortals.

The singer’s home is believed to be somewhere in the constellation of Sirius but, like so much about him, this was left extremely ambiguous.

Bowie took up residence on this planet after falling to Earth, but it was generally accepted that no one planet could sufficiently contain him for long.

Fans are comforted with the knowledge that life continues somewhere, if not necessarily on Mars.

In response to the news, people worldwide are politely requesting that Tom Waits and David Attenborough go to bed early and take care of themselves, as there’s only so much of this we can stand.

Jodrell Bank have confirmed ground control will continue to call for him into the silent, eternal void, hoping for a signal."