End of the China bull?

[ithatheekret]

There has to be a move brought about by the imbalance soon .

The capitalization is not really a revenue party , more an investment by-product .

Inflation , they're importing it daily , we're exporting it . There has to be a development somewhere due to this .

What is a mystery is whether they have enough domestic consumer revenues to sustain growth levels , whilst someone ...... anyone tries to cool inflation .

China has been feeding a stagflated US economy since 1999 in real terms , the inflation monster has just about eaten one sector ( housing ) , just like fire , if it finds new fuel .........

The benefit I see in China is all the land , loads of it . But land needs time to be developed into something .

The decoupling theories , well , I'm more incline to think they can't escape damage , nobody can . The amount of damage in the short to medium term that can be sustained is probably what all the analysts are waiting to see , I don't think they're going to be down and out though , just a slower , but with a direction still .

The markets , they look ripe for a clean up , new shop , must be time for their first fire sale .............

 

[Uncle Festivus]

Just as they had a cultural purge, I would envisage a financial purge to expunge all the dead wood ie bank non conformers etc before going on to be the sustainable force of the future. In fact, a global recession would help their internal economy as it would lower their costs. After the purge - now that would be a bull worth getting in on the ground floor.

 

[Uncle Festivus]

Inflation importing gathers pace....

CHINA'S Pearl River Delta - the southern coastal area that in the past two decades has become the world's factory floor for low-end goods -- is losing thousands of factories.

Rising costs and tighter regulations are making the region less competitive than other Asian manufacturing hubs, including other parts of China.
New labour laws and higher taxes for foreign-invested companies, combined with tougher environmental rules and a strengthening Chinese currency, are squeezing Chinese companies that make labor-intensive products such as toys, clothing and furniture.


This year "will likely mark the year (China) manufacturers were finally forced to take a general hit on profitability", UBS economist Jonathan Anderson said in a note.


The Federation of Hong Kong Industries estimates 10 per cent of the 60,000 to 70,000 Hong Kong-owned factories in the delta region will close this year - likely the highest rate of closures in 20 years, deputy chairman Stanley Lau says.


Some of these operations have been closed for good, some moved inland, and some relocated outside China.



http://www.theaustralian.news.com.au/story/0,25197,23273438-36375,00.html

The shift in China's light-manufacturing sector is sending ripples around the world. Factory owners are looking beyond Guangdong and the Delta - where the cost of living, and hence, wages, has become relatively high - to new locations deeper inside China, where they can enjoy lower costs and investment incentives from local governments eager to attract businesses.

In some cases, they are also turning to poorer countries with lower wage levels. That means new investment and assembly-line jobs in countries such as Vietnam and Bangladesh - and possibly longer, more-complex supply chains for big buyers such as Wal-Mart.

Those changes are being driven by fierce pressure to keep prices low for overseas buyers. Prices for Chinese exports have already been rising at a quickened pace in recent years, and the new increases in labor and other costs could translate into even more expensive products for consumers and companies in the US and Europe - just as economists are worried about a possible recession in the US.

 

[Knobby22]

True Unc.
We have exported our inflation and now we will be importing it instead.

I am scared we are entering a high inflation, low growth environment. The investments people will need to own to survive this will be somewhat different to the recent bull market we have enjoyed.

 

[Trembling Hand]

No slow down in the China bubble yet

Railway Builder Draws $420 Billion in Shanghai IPO, People Say

By Bei Hu

Feb. 27 (Bloomberg) -- China Railway Construction Corp., builder of more than half of the country's rail links since 1949, drew about 3 trillion yuan ($420 billion) for a Shanghai initial public offering, two people with direct knowledge said.

Demand for the sale was 135 times the offering, which may raise as much as 22.25 billion yuan, said the people, who declined to be identified before an announcement tonight. The amount of money the IPO locked in is believed to be the fourth largest for first-time domestic stock offerings in history, they said.

Institutions, whose bids helped set the price range for the sale, demanded more than 340 billion yuan of stock, said the people, citing preliminary numbers. Investors, including individuals and institutions, ordered about 2.67 trillion yuan of shares through the portion of the offering open to all buyers, they added.

Li Tingzhu, board secretary of China Railway Construction, and Raymond Tang, a Beijing-based spokes for Citic Securities Co., which is managing the sale, couldn't be reached in their Beijing offices.

http://www.bloomberg.com/apps/news?pid=20601087&sid=az._lZa5plJA&refer=home

 

[Stormin_Norman]

Most people forget that the Chinese currency has been undervalued and there is a massive domestic market that will pick up excess supply of goods that the US now cannot afford.

BEIJING (XFN-ASIA) - The State Information Center (SIC), a government think-tank, estimates China's first quarter GDP growth at 10.6 pct, with CPI growth at around 6.9 pct.

In a report published in the official China Securities Journal, the SIC said it expects overall fixed-asset investment to rise by 22 pct year-on-year in the first quarter and urban fixed-asset investment to rise by 23.5 pct.

The SIC sees imports rising by 23 pct year-on-year in the first quarter and exports rising by 20.5 pct, with the trade surplus at the end of the first quarter at 50.8 bln usd.

The think-tank projects first-quarter growth in industrial value-added output at 16.4 pct year-on-year and retail sales growth at 18 pct.

Broad M2 money supply growth is seen at 17.5 pct in the first quarter, with M0 and M1 rising about 19.5 pct and 13 pct, respectively, the SIC said.

 

[Uncle Festivus]

Most people forget that the Chinese currency has been undervalued and there is a massive domestic market that will pick up excess supply of goods that the US now cannot afford.

If only it were that simple. The data coming out of China is pointing to several 'runaway' spirals - large wage rises to offset larger cost of living increases. Food & energy prices are rising faster than wages, so they are net worse off eg price inflation is eroding any offset by higher wages.

But the problem then becomes the lot of the employer, as they have to either trim their already low profit margins or pass costs on. Some manufacturers have already started to move their operations to cheaper parts of China, and even to Vietnam & Africa.

I'd like to see how they are going to pass on the recent steel price increases of the order of 65%. Pass it on to the rest of the worlds consumers as inflation or reduce their own profits. A tight squeeze indeed!

Normal financial rules assume that to stay in business a company must be at least profitable. This does not apply in China as it it common for marginal or even loss making industries and companies to be subsidised by the State via the banking system. This will have to be addressed if the China model is to be sustainable. The days of reckoning are getting closer.

So the idea of having all these millions of new consumers just waiting at the gates of commo capitalism is a bit of a furphy, as the main advantage up till now has been cheap labour, but prices are effectively rising faster than wages can keep up, that is, if many of these formerly rural workers can even find work after migrating to the big manufacturing centres.

So while they may be getting paid more, it's not the sort of wage that will sustain any sort of discretionary consumerism of the type of goods that western society takes for granted. The majority are doing their best just to survive.

This could lead to far bigger social consequences as the lifestyle gap between peasant rural regions and cities becomes bigger. They are faced with huge problems, not only financial but social unrest, that may end in violence and maybe the end of communism in it's present form.

 

[Uncle Festivus]

China is wrestling with consumer inflation that accelerated to 7.1% in January, up from a 6.5% rise in December, the National Bureau of Statistics reported last week. See full story.

As an example of higher prices, McDonald Corp.'s China stores recently raised the chain's Big Mac price to 12 yuan ($1.7), up 14% from just seven months ago, reflecting higher meat and wheat prices.

In December, Kentucky Fried Chicken, owned by Yum! Brands Inc. also raised prices in its China stores for the first time in more than three years.

China's dilemma

Since last year, Chinese residents have seen prices of food and other staples increase more than their pay checks, a factor analysts said could potentially unleash social unrest. In light of that, some fear the minimum wage increase came too late.

"It's a dilemma for China," said David Riedel, president of overseas-stock specialist Riedel Research Group. "The reality of higher food and fuel prices has to be offset with higher wages. This is more wages catching up to where the market is today."

The wage increases could feed inflation, he said, explaining that companies absorbing higher wages have to pass those costs onto their customers.

http://www.marketwatch.com/news/sto...14-3C01-468A-9C11-B7596BCE1A35}&dist=hplatest

 

[Stormin_Norman]

I agree with everything said

An over pegged currency is causing china internal inflation too. this keeps internally produced goods at a higher price then natural. this fuels inflation as external revenues come in.

the reduction in the peg price of the chinese currency would make chinese produced products cheaper by the % of the reduction to the local market.

so far in china's development they have overpriced their currency, in effect raising the price of chinese goods in china. and lowering the price of chinese goods in america.

ripping their own people off while allowing walmart cheap crap to sell. hence the massive trade balances china is holding. theyre goods are artificially cheap in the world market, and artificially high in their domestic market.

im sure their central bank would be close to holding as much USD as american banks themselves given the trade surpluses a lower currency allows them to run.

 

[Uncle Festivus]

mmm...

While China has held up well so far, there is mounting evidence that tighter credit rules are starting to bite.
The Xinhua Finance index of business confidence fell from 67.7 to 60.3 in February and production index tumbled from 61.1 to 51.3. "Over coming months, we expect this deteriorating outlook to becoming increasingly evident in industrial production," said Barclays Capital.
China's yuan has risen 2.6pc against the dollar this year alone as Beijing attempts to head off an inflationary crisis. Prices rose 7.1pc in January, with clear signs of knock-on effects into pay demands. The minimum wage in Guangdong is to rise 18pc in April. The triple effects of tight credit, inflation, and a rising yuan are squeezing export margins, tipping hundreds of companies into the red.

 

[Uncle Festivus]

China's trade surplus narrowed 63 percent in February, to $8.7 billion, as exports rose 6.5 percent””the slowest pace in six years.

The unexpected decline was attributed largely to the effects of the new year holiday and winter storms that closed some factories and delayed shipping.

"We think the sharp slowdown in China's export growth in February is temporary," Mingchun Sun, an economist with Lehman Brothers, said in a report to clients, according to the Associated Press.

More troubling is another report that shows that Beijing is struggling to keep inflation under control.

The National Bureau of Statistics says producer prices for manufactured goods rose 6.6 percent in February from a year ago, while prices for raw materials, fuel, and power rose 9.7 percent from a year ago.

The government has been wrestling with an acceleration in consumer inflation, driven largely by higher food prices as a result of shortages of pork and other foodstuffs.

But the producer price report indicates that the price pressures are being felt throughout the economy, potentially raising the costs of goods sent to the United States.

"Virtually everything is on the rise””not just fuel, but coal and iron ore””all these things are growing much stronger than fuel, plus labor costs are going up too," Jun Ma, chief China economist at Deutsche Bank in Hong Kong

 

[Uncle Festivus]

.........China's Shanghai Composite took the biggest hit, slumping 5.4% to 3,411.49, a level it hasn't seen since April. The Shanghai index, which nearly doubled in 2007, has lost more than 35% to date in 2008, ranking as one of the worst performers among Asian benchmarks.........

.........Shares of Baoshan Iron & Steel, the mainland's largest steelmaker, tumbled 9%, after it reported a 3% decline in 2007 net income on higher costs, disappointing the market.
Shares of other steelmakers also dropped, with Wuhan Iron & Steel Co. sinking 8.9% and Maanshan Iron & Steel Co. losing 5.4%..........

Increases in raw material costs are flowing through = lower profits + inflation. How can I short China?

 

[explod]

.........China's Shanghai Composite took the biggest hit, slumping 5.4% to 3,411.49, a level it hasn't seen since April. The Shanghai index, which nearly doubled in 2007, has lost more than 35% to date in 2008, ranking as one of the worst performers among Asian benchmarks.........

.........Shares of Baoshan Iron & Steel, the mainland's largest steelmaker, tumbled 9%, after it reported a 3% decline in 2007 net income on higher costs, disappointing the market.
Shares of other steelmakers also dropped, with Wuhan Iron & Steel Co. sinking 8.9% and Maanshan Iron & Steel Co. losing 5.4%..........

Increases in raw material costs are flowing through = lower profits + inflation. How can I short China?

By going long Aussie Manufacture.


cheers

 

[Uncle Festivus]

By going long Aussie Manufacture.


cheers

Yes, but do we still have one of those?

 

[explod]

Yes, but do we still have one of those?

Yeh a bit early yet but as China's labor costs rise secondary industries will emerge off our resources, like smelting then rolling our own steel. Penny with this approach will soon drop with the new government IMHO. But will take years and huge investment.

 

[kransky]

is it labour costs that are responsible for the rising costs or the 65% rise in iron ore prices?

 

[Uncle Festivus]

Some wealth destruction capitalist style for the communists?

----------------------------

SAN FRANCISCO (MarketWatch) -- Frustrated mainland Chinese investors, who have watched the country's main stock market in Shanghai plummet more than 40% since October, have been wondering when their typically hands-on government will move to reverse the fall.


The word from Beijing: It just might not.

Repeated calls for China's financial authorities to prop up the country's sharply deflated stock market have gone largely unanswered as the government directs its focus on combating inflation. That's a surprise to many Chinese investors, who are used to government control of everything from the price of gasoline to how many children they can have.

To make matters worse, they've also seen the Federal Reserve cut interest rates and rescue Wall Street investment banks to keep the U.S. financial system running smoothly, which has perked up stocks.
"The U.S. government is intervening to boost the markets, why can't China?" said Xu Xiaonian, professor of economics and finance at China Europe International Business School, in a telephone interview.

Chinese financial authorities have taken smaller steps to make it easier for new money to come into the market, but those actions have failed to diminish the deep decline in China's benchmark indexes. The government has so far resisted making a bigger move by cutting trading taxes.
To a high degree, its reluctance to intervene in the country's stock market stems from having a more urgent priority, tackling the highest inflation China has experienced in nearly a dozen years. Plus, there's no agreement among the financial arms of the central government on how to handle the stock crash. The central bank, which reports directly to the top authorities, has no direct authority over the stock market.
Nevertheless, China's new class of individual investors is clamoring for changes. Enticed by the rapid gains in the benchmark Shanghai Composite Index, which vaulted more than five times in less than two years, millions of individuals ploughed their family savings into the stock market.
They've already lost a lot. The Shanghai Composite has tumbled to below 3,500 from October's all-time high of nearly 6,100. Company stock valuations have cratered to about 40 times earnings per share from about 70 times. Household fortunes have evaporated, sparking calls for the government to step in.

http://www.marketwatch.com/news/sto...x?guid={3C72D2E9-E9BC-43FB-97BA-261701D15D96}

 

[numbercruncher]

. Company stock valuations have cratered to about 40 times earnings per share from about 70 times.

Seriously build these people some Casinos, Odds are better.

 

[Sean K]

Perhaps the chinese sharemarket isn't a good representation of whether the bull is still alive, or not. Will the punters on the exchange bring down their economy? Is that possible?


Will be more interesting to see the next quarters results as it may be a better indication of any fallout from global slow down over the past few months.

China's economy expands 10.6%
April 16, 2008 - 6:13PM

China's economy expanded 10.6% in the first quarter, underlining the strength of the nation's expansion as a slump in the US drags down global growth.

Gross domestic product rose more than the 10.4% median estimate of 24 economists surveyed by Bloomberg News after gaining 11.2% in the previous three months. The statistics bureau released the figures in Beijing today.

 

[Kauri]

CHINA'S economic growth is cooling as a result of the global slowdown, but production costs are climbing, with producer price inflation hitting 8 per cent in March, up from 6.6 per cent in February.

http://www.theaustralian.news.com.au/story/0,25197,23551239-643,00.html