Recession

The economy and China: not getting better

Posted on by Gilbert Van Kerckhove

The SCMP reported on 4 March that the mainland’s exports and imports declined further last month after a terrible January.
The trade figures would be weaker than January’s, commerce minister Chen Deming said on the sidelines of a meeting of the Chinese People’s Political Consultative Conference.
Mainland trade with the world took a turn for the worse in January, with exports falling 17.5% year on year to US$ 90.45 billion, much steeper than the 2.8% decline for December. Imports slumped 43.1% to US$51.34 billion, indicating slackening industrial demand.
The magnitude of the declines surprised many economists. Some blamed the drop on fewer working days in January because of the Lunar New Year holiday, which fell in February last year.
On 6 March: SCMP and other media reported that Beijing will run up a record deficit, as Premier Wen Jiabao announced, and he predicted this year would be “the most difficult so far this century”. The government is hoping higher public spending can revive the flagging economy.
Governments at all levels will run a 950 billion yuan deficit this year – seven times more than last year and equal to 3% of 2008 economic output. (not too bad compared to the USA)
“We will significantly increase government spending. This is the most active, direct and efficient way we can expand domestic demand,” Mr. Wen told the 3,000 NPC delegates. Higher public spending would allow the government to aim for economic growth of 8%, he said.


If one looks at the recent charts of the stock markets, we are finally getting at the low levels I was waiting for since months – below the 2002 levels. The concern is that mainland markets are still floating too high in a total disconnect from other main markets. So, fasten your belts.
Now here people start noticing how business slows down, people (many expats) are losing their jobs. Still, people are underestimating the impact of the recession.
The Chinese stimulus plan is still too modest and misses some key industrial segments – the SME. And more needs to be done for education and health care.
Curiously enough, quite a number of the much needed improvements here are similar with the USA – over there infrastructure (road, rail, air traffic, power lines, telecom, etc.), health care and education are also in dire need of improvement. No white elephants, real need to get it all improved.
I agree both the USA and China cannot make the mistake Japan made: not do enough and quickly enough. And avoid the Japanese bridges to nowhere.

Reform of the U.S. financial sector

Posted on by Gilbert Van Kerckhove

The SEC and the Fed have failed in their roles. Slowly the systems are being overhauled. Unfortunately crooks like Bernard Madoff and alike still continue to enjoy their luxury mansions while so many people lost their life savings. Many are driven to despair or worse, commit suicide. Somebody who twice steals a bar of chocolate in a shop can end up in prison for a long time. Call that “justice”. I prefer the Chinese approach, once they act against the swindlers it is “drastic”.
The fake financial guru, Alan Greenspan, last week uttered the following “wise words”: “The real lesson here appears to be that bank regulators cannot fully or accurately forecast whether, for example, subprime mortgages will turn toxic, or whether a particular tranche of collaterized debt obligation will default, or even if the financial system will seize up”.
Like Floyd Norris commented – sounds like a student who failed his exam and says “Dad, nobody could pass the test”. Admitting errors is not the guy’s strong point. The SEC was warned enough about the swindlers but never acted.
So why do all those guys deserve to get so much money for their utter clue-less-ness? Good to cap some salaries in Wall Street. Danger of brain drain in Wall Street? You mean, there were brains over there? I thought it was just pure greed instead.
Bernanke is trying his best to reboot the system.
So much damage has been done, there is little else to do than to come up with a robust stimulus plan. All Americans need to realize there is a price to pay and for some years to come, in view of the past and future deficits. The alternative is to lower taxes for the rich and let the country implode, dragging the world economy further down.
My question is, what will happen to the USD within 2 years. Once the USA is not looked at as “the safe heaven”. And it has debts worse than ever. Now the euro is weakening, but later?
Here in China, no appetite to buy into any of the overseas financial firms. Can’t blame them. Anyway, here we are not yet out of the woods either. Naïve people enough here too, except for the top government people. So, they prepare the police and army for “social disturbances”.

Fed up with (some) U.S. politicians

Posted on by Gilbert Van Kerckhove

Well, at least with those anti-American negativists. With the USA in very deep trouble, affecting the whole world economy, the new team in Washington is facing a tremendous challenge to repair the damage done by the previous team.
I am fed up with all the nonsense and the fact we would not be allowed to express our opinion.
All is well? See this:

“US economic contraction worst since ’82” (SCMP & Agencies)
The world’s biggest economy shrank 3.8% in the fourth quarter of last year – the most in almost three decades and confirmation that the US is in a recession. US President Barack Obama seized on the figures as a “continuing disaster” for American families and further proof that more action was warranted on his US$819 billion economic recovery plan.
and:

“Meltdown prophet warns that much worse is still to come” (Bloomberg in Davos)
At the World Economic Forum two years ago, economist Nouriel Roubini warned that record profits and bonuses were obscuring a “hard landing” to come.
American International Group vice-chairman Jacob Frenkel countered: “I really disagree.”
No more. “Roubini was intellectually courageous, and he called the shots correctly,” said Mr Frenkel, whose AIG survives only on the basis of more than US$100 billion of government loans. “He gained credibility, and he deserves it.”
Even as he wins plaudits for his prescience, Mr Roubini says worse lies ahead. Banks face bigger credit losses than they realise, more financial firms will require state takeovers and the world economy will keep shrinking throughout this year. “The consensus is catching up with me, but it’s still behind,” Mr Roubini said. “I don’t know what some people are smoking.”
He remains pessimistic and sees banks writing down at least US$3.6 trillion, compared with the US$1.1 trillion disclosed so far.
Some neocons stick to fraudulent and cheap attacks. Some now say it’s all because of Soros. On what planet do those people live? Obviously they are just as bad as Red Guards in old China or the regime in North Korea. Only listen to the voice of the party, don’t think, don’t do your homework. The new president is a Muslim, a communist, whatever. He will destroy the U.S., blablabla. Went to check those blogs where people spit out all their attacks. Disheartening. Simply speaking, many people are not ready to have somebody at the helm who dares to THINK and consult others.
At least some people keep our faith up in the USA. About the U.S. stimulus plan, attacked by those negativists, I could not express it better than Paul Krugman:
“Bad Faith Economics”
See attached the pdf version if you can’t find it.
Yes China is full of problems and we have plenty of brainless people too, spitting out nonsense. But overall the central government has a pretty correct analytical view, though sometimes they are clumsy in handling details. Idem for their stimulus plan. Not perfect, not enough, but not that bad either.
I will keep away as from now from those neocon polemics unless China’s economy is concerned. I just needed to get it off the chest. Others things to do.

Economic data and the recession

Posted on by Gilbert Van Kerckhove

Further to my previous blog entry, see here some charts, from the SCMP, IHT (Floyd Norris) and China Daily. Click the images to enlarge!
One can learn a lot from those. I still believe that down the road China should be one of the first to get out of this mess but not without some suffering.
China’s trade figures reflect a downturn in exports but also of imports: as components needed for exports are less in demand and prices for crude oil & raw materials have tumbled.


Remarkable is the jump of China’s world ranking in GDP – but it also always raises doubt on the credibility of its figures…
The downward trend in world exports is anyway still the most ominous – just look for the ripple effect to come.
See also the Japanese consumer confidence sinking.