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Posts Tagged ‘chinese economy’

Wealth Destruction On China Stock Markets

March 7th, 2016 Comments off

A recent statistic puts in perspective what has been happening on the major equity exchanges in China, the world’s second largest economy. In June 2015 the capitalization of China’s stock markets attained a peak value equal to ten trillion U.S. dollars. Eight months later, in February 2016, the figure had declined to 5.7 trillion dollars. This massive decline in value of 4.3 trillion dollars, represents a contraction of 43 percent – – close to half of the peak value of Chinese equities..

Losing more than forty percent of the value of the stock markets in the world second biggest economy in only eight months may not be attracting great headlines at present. However, what has been happening represents China’s unique version of the 1929 stock market crash on Wall Street that launched the Great Depression of the 1930s. Food for thought.

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China Stock Markets Open 2016 With Massive Implosion

January 7th, 2016 Comments off

For the second time in three days, China’s major bourses have had to stop trading in the early part of the trading session due to drastic sell-offs. Automatic circuit breakers suspended trading when the herd-like dumping of shares sent equity prices in a downward spiral at dizzying velocity. The Shanghai Composite Index declined by 7.3 percent; China’s other major stock index, the Shenzhen Index , lost 8.3 percent of its opening value.

During the course of 2015, Chinese stock markets suffered a number of devastating single-session declines, signaling problems with the Chinese economy and their inevitable contagion effect on the overall global economy. As I have noted in an earlier blog article (China Stock Market Crashing and Burning Before Our Eyes  http://www.huffingtonpost.com/sheldon-filger/china-stock-market-crashi_b_7752054.html ), the increasing instability of the Chinese equity markets will have profound  and highly negative implications for all major economies.

What are the likely implications for global economics in the light of the wobbly beginning for China’s stock markets in the new year? To begin with, the volatile character of China’s equity markets is a signal by investors of their deep anxiety over declining Chinese manufacturing alongside the weakening economy of the Eurozone, the largest single market for Beijing’s exports. It also may be a clear sign that a new global recession may be just around the corner.

There never was a real recovery to the catastrophic global financial and economic crisis that arose in 2008. For seven years, central banks have scaled back interest rates to just about zero, while sovereigns accumulated unprecedented levels of public debt to sustain extremely marginal levels of GDP growth, while the real unemployment rate among the major advanced economies stagnated at historically high levels. In effect, all the arrows in the policymakers’ quiver have been expended, leaving sovereigns virtually unarmed if forced to confront a new global recession.

The rout  in China’s stock markets may be the first signs of an annus horribilis for the global economy, with a virulent and economically devastating continuation of the Great Recession that never really ended. The one difference between 2008 and 2016 will likely stem from the implosion of China’s equity markets, as opposed to the sub-prime mortgage collapse in the United States, being the enabler of fiscal and economic crisis and germ of global contagion. An important distinction between 2016 and 2008, in addition to China replacing the U.S. as the center of gravity in a new global recession, is the international climate. The world is experiencing far more instability, multilateral tension and flashpoints than transpired during the initial period of the last global recession.  Geopolitical volatility converging with China’s stock market crash may lead to a global economic contraction that will exceed 2008 in its ruinous impact.

 

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China Currency Devaluation Continues–Advantage Donald Trump?

August 12th, 2015 Comments off

 

Yesterday’s devaluation of 1.9 percent in the value of the Yuan was followed today by another cut of one percent by China’s central bank in the national currency’s competitive value. With July’s decline of 8 percent in China’s exports, following in the wake of the collapse in equity values on the Chinese stock markets, Beijing is clearly worried.

A devaluation of three-percent in the value of nation’s currency, particularly when the fall in value is not the result of market forces but of deliberative monetary policy, is a very big deal in global finance. A nation does not willingly sabotage and debase its own currency when its economy is enjoying robust growth. Currency devaluations are specific acts of monetary policy enacted by the sovereign when its economy is in jeopardy. Thus, despite the official statistics emanating from Beijing on GDP growth and other rosy prognostications, the Chinese economy is facing gathering headwinds. With a low rate of domestic consumption as a proportion of its total GDP, Beijing has undertaken a radical monetary devaluation in an act of desperation, hoping to kickstart exports by cheapening its currency.

Now the remaining major economies must also worry, as the People’s Republic of China has declared an all-out currency war, with the major victim–and target–being the American economy. And the repercussions are not only economic; Donald Trump is poised to take full advantage of China’s currency manipulation as he maintains his frontrunner status in the race for the Republican Party’s nomination for President of the United States. Trump has already gotten ahead of his GOP competition by pontificating on the damage to America’s economy by allowing China’s currency devaluation to be spared any meaningful policy response by Washington, ultimately costing American workers their jobs.

It may be that the monetary policy measure executed by the People’s Bank of China will have its greatest impact and consequences on domestic American politics, with long-term results that may be the opposite of what Beijing desires.

 

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China Devalues Currency as Chinese Economy Hits Headwind

August 11th, 2015 Comments off

 

The People’s Bank of China, Beijing’s central bank, imposed a surprise devaluation of 1.9 percent in the value of the nation’s currency, the Yuan or Renminbi. This sudden move by the economic central planners in the People’s Republic of China was in response to a cascade of worrying trends confronting the leadership of the world’s second largest economy.

A country devalues its currency in response to bad economic trends, and never for positive reasons. The negative news emerging from China’s manufacturing sector, in combination with the collapse in the Chinese stock market, has led to the decision to devalue the Yuan, hoping that this policy move will boost Chinese exports. The problem is that this move hurts everyone else, especially the United States. What the financial commentator James Rickards described in his book as “Currency Wars” just got a massive dose of escalation from Beijing, which will likely trigger counter-moves by other major economies that will ultimately damage the global economy as a whole.

 

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China Stock Market Continues To Tumble

July 28th, 2015 Comments off

Monday, July 27 witnessed the largest fall in share prices in major Chinese stock markets, especially the Shanghai Composite Index, in a decade. The fall of more than eight percent was followed on July 28 by a further drop in China’s stock market by 1.6 percent. These declines come after the massive intervention in the stock market by Beijing, following significant losses in equity values a few weeks ago.

Having frozen much of the market, and injected massive cash allotments into listed shares, amplified by the China authorities compelling companies to purchases stocks, while forbidding the sell-off of shares in many cases, Beijing had thought the problem had been solved. As the past days show, however, central government intervention in the equity markets only temporarily stalled the deflating of this large Chinese asset bubble.

The volatility now existing in China’s stock markets illustrates the overall fragility of much of the Chinese economic model and its opaque financial underpinnings.

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China Stock Market Crashing and Burning Before Our Eyes

July 8th, 2015 Comments off

While the world has been sidetracked by the never-ending Greek Debt Crisis, another economy with a GDP that is 40 times the size of Greece is giving signs of serious, even critical financial weakness. The world’s second largest economy, and supposedly most-powerful “communist” nation, has seen its stock market enter a downward spiral that Beijing seems helpless to retard.

As the Chinese economy slowed down over the past year, China’s equity market soared by 100 percent or more, creating the largest bubble in the Far East. Now, for the past three weeks, the Shanghai index has been witnessing a massive sell-off that has contracted its value by more than 30 percent. The government, fearing a financial panic and social instability as tens of millions of Chinese investors rush for the exits, has been trying every stratagem known to man to halt and reverse this slide, including compelling government companies to buy massive blocks of shares , cutting interest rates and temporarily halting trading in some companies. All to no avail.

As the implosion in Chinese equity markets continues, the rest of the world is starting to take notice. It should. If what is occurring in China is no mere correction but an actual financial panic, the resulting  damage to China’s economy and fiscal health will impact Chinese imports for its massive industrial sector, negatively impacting global commodity prices at an already fragile moment for the global economy. All this will only heighten the already elevated level of volatility among the world’s financial markets.

The world may be about to discover the true significance of China’s emergence as one of the two largest economies on the planet. During the past several years, many business analysts have warned of the proliferation of signs that much of China’s spectacular economic growth was based on bubbles financed by the central government. There have been numerous  accounts of new cities built with virtually no inhabitants, of vacant office complexes and condominiums. In effect, a trail of pump-priming that has artificially boosted GDP growth in an economy that is still characterized by a very low level of internal consumption, especially in comparison with Western economies, has been the primary driver of China’s economic expansion. There have been earlier signs of an unsustainable real estate bubble and a flood tide of debt by municipal governments and economic enterprises that defy rationality . What is now occurring on the Chinese stock market may be a leading indicator that all is not well with Beijing’s still highly-centralized economic model. Should things unravel beyond the capacity of the government to control, it may be that China in 2015, as with the United States in 2008, will become the primary catalyst of a severe global recession.

 

 

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China’s Economic Growth Slows To Lowest Level Since 1990

January 20th, 2015 Comments off

China’s National Bureau of Statistics released GDP growth figures for 2014, indicating that the world’s second largest economy grew that year by 7.4 percent (http://www.stats.gov.cn/english/PressRelease/201501/t20150120_671038.html), below the planned rate of 7.5 percent but exceeding expectations of 7.2 percent. Even if the figures released by Beijing’s NBS are accurate, they reflect a continuing trend of diminishing rates of growth over the past several years, and are the lowest level of GDP growth in 24 years.

But are the official figures on China’s GDP growth believable? Many elements of China’s macroeconomic performance are shrouded in opacity. The architecture of this vast economy  is formulated from a fundamentally contradictory hybrid mix of private sector capitalism and still overwhelming and largely inefficient state controlled sector, especially in heavy industry. Much of China’s growth in the past, impressive as it seems by overall world standards, was based on massive government spending on underutilized infrastructure; the accounts of entire blocks of apartment buildings that remain unoccupied are well known. There are the dangerous property bubbles, early signs of deflation, and rising debt levels in both the public and private arenas, with growing signs of a future explosion in bad debts held by Chinese financial institutions.

Officially, China’s leadership has resorted to what they call the “new normal,” a more sustainable rate of economic growth. The reality is likely a lot more murkier and volatile than the official statistics and pronouncements would indicate.

The clear trend of diminishing rates of GDP growth in China, whether extrapolated from official figures or derived from a more nuanced assessments of China’s economic performance, are already having an effect on the entire global economy. As with the United States, the massive size of the Chinese economy means that lower GDP growth rates create a head wind for the global economy as a whole. It is therefore no surprise that the International Monetary Fund has just revised its forecast of global economic growth downward by the most substantial margin in three years, to 3.5 percent from the 3.8 percent projected only  three months ago by the IMF (http://www.imf.org/external/pubs/ft/survey/so/2015/NEW012015A.htm). This is a harbinger of what lies in store for the global economy as the formerly massive rates of Chinese economic expansion continue to recede.

 

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Conflicting Views On China’s Slowing Economic Growth

April 16th, 2014 Comments off

Amid growing indications that China’s rapidly expanding public and private debt foreshadows a major economic and financial upheaval in the future, the latest official GDP quarterly data is stimulating divergent views from analysts. According to Beijing, GDP grew by a “better than expected”  7.4 percent in Q1 of 2014. However, this is a further indicator that official growth in China is slowing, as Q4 of 2013 revealed GDP growth of 7.7 percent.

Two things to keep in mind; China’s statistics, as in many other economies, are opaque, perhaps much more so with Beijing. Additionally, the Chinese economy functions with far different dynamics than is the case with a Western advanced economy. Official GDP growth reflects massive infrastructure spending funded by credit expansion, alongside export-based manufacturing growth, with consumer spending a low component of economic activity in comparison with Western countries.

What does seem clear is that the economy’s double digit growth rates of the past are over, the trend in GDP growth is a slowdown, supposedly engineered by Beijing to lay the foundation for more sustainable growth in the future. However, declining GDP growth  rates combined with increasing signs of a looming debt crisis add further doubts about the future health of the world’s second largest economy

 

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Hillary Clinton Nude

Hillary Clinton Nude

 

Rising Concern On China Debt

April 9th, 2014 Comments off

There is increasing concern at the rise in public and private debt in China relative to GDP. This concern is across the board: internal and external, public policymakers and private financial interests and investors. Some commentators are following the path of false optimism; no matter the size of China’s debt, the second largest economy in the world has the capacity to contain the problem-so they claim. That remains to be seen.

By some estimates,  Chinese financial institutions are holding up to $3 trillion is bad or at least questionable debt, equivalent to America’s subprime mortgages that exploded in 2008, ushering in the global economic crisis. If Beijing is unable to contain the growing debt problem and it were to explode, the contagion would be at least as virulent as the impact on the global economy due to the subprime meltdown in the United States.

Of all the somber economic trends underway-and there are many-China’s accumulating public and private debt problems are the most vexatious.

 

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Hillary Clinton Nude

Hillary Clinton Nude

 

China Economic Growth Is Stagnating

January 23rd, 2014 Comments off

According to China’s National Bureau of Statistics, the nation’s GDP in 2013 grew by 7.7 percent over the prior year, beating the original forecast of 7.5 percent, albeit by a small margin. On the surface, this is an impressive performance that the U.S. and Eurozone can only dream of emulating. However, a caveat is always required in assessing official Chinese economic data. Not only is Beijing suspect and at times manipulative in compiling the nation’s economic statistics (as are many other countries), it must be remembered that China’s GDP growth is seeded with massive borrowing by local governments, which in turn invest in vast infrastructure projects, which often have little real economic utility, such as uninhabited housing projects.

The truly important news with the 2013 GDP numbers from China is that they represent a marked slowdown in economic growth, when relying on just official government economic data. The current level of GDP growth is far removed from the brighter days when China achieved double digit growth year after year, for a decade or more. It is clear that China’s remarkable economic growth is slowing down, and that could be a preview for a period of much higher unemployment with concomitant political instability.

 

 

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Hillary Clinton Nude

 

Hillary Clinton Nude

HILLARY CLINTON NUDE

Hillary Clinton Nude