China, India: A Hard Landing Is Very Unlikely [View article]
Ben Gee when I posted the current account surplus to be 4% of GDP I was drawing upon figures offered by a major investment house based upon results through the second quarter of 2011.
Using the most current data the trade surplus in 2011 was $155 billion on GDP of $7.26 trillion, making for a trade surplus of 2.1% thereby underscoring my point that international trade would likely to be a drag on the Chinese economy.
As to future growth, 6% to 9% is the range of estimates offered by those with the most depth on the subject; nobody knows how quickly the consumer sector will develop; nobody knows what lending and investment will be in coming years; and nobody knows how the real estate bubble will play out. Moreover, statistics coming out of China are highly suspect and China could easily surprise to the upside.
Quoting Barclays: "We try to piece together the true picture of Chinese consumption by examining statistical data:
First, according to one major study (Wang and Woo 2011), China’s household income was underreported by 66% in 2008, which could be translated into underestimation of GDP by 10%. The underreported income was concentrated mainly in high-income households.
Second, the same study suggested that household consumption was probably underreported by 20% in the same year. These meant a much higher household saving ratio but a marginally lower national saving ratio. Therefore, according to the study, both total consumer spending and consumption share of GDP were underestimated.
Third, the widening gap between consumption growth and retail sales growth likely implies that the growth rate of consumption has also been underestimated, at least in recent years. We use a weighted average of retail sales growth and service sales growth to proxy consumption growth.
Application of the above consumption growth suggests that: 1) the consumption share of GDP declined during much of the past decade; but that 2) the consumption share actually picked up forcefully after 2008."
I have no confidence in your precision but if you are confident in your estimates, invest accordingly.
China, India: A Hard Landing Is Very Unlikely [View article]
For myriad reasons, I have invested considerable time in studying China by looking at raw data and reading analyses produced by those with keen insight into the Chinese economy....Pettis and others. Most are looking for growth to slow in the coming years with estimates ranging from 6% to 9% depending upon policy response and transition. Few see a collapse or hard landing.
And while China remains export cenctric, current account surpluses account for only around 4% of their GDP and in the current global environment of slowing global growth exports could further deteriorate and reduce current account balances thereby reducing China's GDP or rate of growth.
Investment, which currently accounts for around 45% of GDP, contributed close to 50% of China's growth in 2010 and through November of this year expanded at a rate of close to 25%. Of this amount, around 20% was directed towards investment in the highly troubled real estate sector. Based upon conflicting data, I believe the financial exposure of SPV's set up by local governments to fund residential and commercial real estate projects is vastly understated and represent a serious financial risk though one manageable at the national level.
Promising a prudent monetary policy in the year ahead, the country is expected to funnel more monetary supplies into the real economy, such as the construction of high speed rail lines, highways, irrigation facilities and other infrastructure instead of the real estate sector.
This will be a key way to prevent the speculation-prone housing market from continuing to hijack the world's second largest economy; the country is expected to remain unwavering in pressing ahead with ongoing regulations of its realty market to ensure that the still unendurably high property prices return to a reasonable level to meet the demand for accommodation.
China has already reaped all the easy growth that comes with starting from a low base, and now it needs to, among other things, encourage consumption and reduce investment, allow the renminbi to float, flatten the social structure, promote democratization, remove restrictions on labor, adopt the rule of law, and strengthen the social safety net to provide the foundation for long-term and sustainable growth.
I tend to agree with most of your points, particularly that a market bottom and subsequent upturn hinges significantly on the belief that monetary policy, along with the massive stimulus effort, will turn the economy around. The problem with both policy initiatives is lag times and the singular problem with the yet to be passed stimulus act is its size and implementation. Once passed and enacted into law, I suspect it will passed down through states, counties and munincipalites........... requiring time. In the meantime, the Conference Board and other organization that measure and track CEO sentiments are predicting dire conditions for the next six months. ISM indicators show no hope as well. And housing, which led us into this mess, must recover before the recession ends if history is torepeat itself. In my mind, this puts the recovery well into the second half of 09 or sometime into 10...........meaning that the real market recovery, at the earliest, will occur sometime in the second half of 09. I have studied past recessions and concurrent bear markets and have observed that the bottoming out process involves three or four tests of market lows and that the last test occurs three months prior to the end of the recession as defined by the NBER.
China, India: A Hard Landing Is Very Unlikely [View article]
Using the most current data the trade surplus in 2011 was $155 billion on GDP of $7.26 trillion, making for a trade surplus of 2.1% thereby underscoring my point that international trade would likely to be a drag on the Chinese economy.
As to future growth, 6% to 9% is the range of estimates offered by those with the most depth on the subject; nobody knows how quickly the consumer sector will develop; nobody knows what lending and investment will be in coming years; and nobody knows how the real estate bubble will play out. Moreover, statistics coming out of China are highly suspect and China could easily surprise to the upside.
Quoting Barclays: "We try to piece together the true picture of Chinese consumption by examining statistical data:
First, according to one major study (Wang and Woo 2011), China’s household income was underreported by 66% in 2008, which could be translated into underestimation of GDP by 10%. The underreported income was concentrated mainly in high-income households.
Second, the same study suggested that household consumption was probably underreported by 20% in the same year. These meant a much higher household saving ratio but a marginally lower national saving ratio. Therefore, according to the study, both total consumer spending and consumption share of GDP were underestimated.
Third, the widening gap between consumption growth and retail sales growth likely implies that the growth rate of consumption has also been underestimated, at least in recent years. We use a weighted average of retail sales growth and service sales growth to proxy consumption growth.
Application of the above consumption growth suggests that: 1) the consumption share of GDP declined during much of the past decade; but that 2) the consumption share actually picked up forcefully after 2008."
I have no confidence in your precision but if you are confident in your estimates, invest accordingly.
China, India: A Hard Landing Is Very Unlikely [View article]
And while China remains export cenctric, current account surpluses account for only around 4% of their GDP and in the current global environment of slowing global growth exports could further deteriorate and reduce current account balances thereby reducing China's GDP or rate of growth.
Investment, which currently accounts for around 45% of GDP, contributed close to 50% of China's growth in 2010 and through November of this year expanded at a rate of close to 25%. Of this amount, around 20% was directed towards investment in the highly troubled real estate sector. Based upon conflicting data, I believe the financial exposure of SPV's set up by local governments to fund residential and commercial real estate projects is vastly understated and represent a serious financial risk though one manageable at the national level.
Promising a prudent monetary policy in the year ahead, the country is expected to funnel more monetary supplies into the real economy, such as the construction of high speed rail lines, highways, irrigation facilities and other infrastructure instead of the real estate sector.
This will be a key way to prevent the speculation-prone housing market from continuing to hijack the world's second largest economy; the country is expected to remain unwavering in pressing ahead with ongoing regulations of its realty market to ensure that the still unendurably high property prices return to a reasonable level to meet the demand for accommodation.
China has already reaped all the easy growth that comes with starting from a low base, and now it needs to, among other things, encourage consumption and reduce investment, allow the renminbi to float, flatten the social structure, promote democratization, remove restrictions on labor, adopt the rule of law, and strengthen the social safety net to provide the foundation for long-term and sustainable growth.
Those Illusory Stimulus Packages [View article]