(1) China warns Soros against Shorting the Yuan and HK Dollar (2) Hedge Fund tells Chinese: Sell your shares now (3) Chinese companies borrow in $; external borrowing surged from $200 billion in 2009 to $1.1 trillion in 2014 (4) Bank of Japan Governor says China should impose Capital Controls to defend the Yuan (5) China Outflows Could Reach $500 Billion in 2016, JPMorgan Says (6) Steve Keen: China’s Stock Market Is an ‘Unbelievable Bubble’, about to burst (7) China in trouble because it followed World Bank advice - John Ross (8) Fundamental errors of the World Bank report on China - John Ross (2012) (9) Yuan joins IMF's SDR basket; the price is "finance sector reform", ie Deregulation (10) Yuan joins SDR, but PBoC advised to reduce intervention, allowing market forces (11) IMF SDR represents a claim to foreign currencies for which it may be exchanged (12) IMF SDRs to replace $ as one-world currency (13) China Rebalancing means Chinese consume more, export less; industries move to India, Mexico, Vietnam (14) PBoC Currency Intervention to stop rise of Yuan, then fall of Yuan (15) China's slowdown is hurting countries that export to it (16) Luxury exports from West to China plummet (1) China warns Soros against Shorting the Yuan and HK Dollar http://www.newsmax.com/Finance/Markets/george-soros-china-yuan-hong-kong-dollar/2016/01/26/id/710882/ China's State Media Warns Soros on Betting Against Yuan, HK Dollar Tuesday, 26 Jan 2016 08:24 AM China's state media has warned billionaire investor George Soros against betting on falls in the value of the Chinese yuan and Hong Kong dollar, amid widespread worries over the health of world's second-largest economy. China's fourth-quarter economic growth slowed to the weakest since the global financial crisis, increasing pressure on a government struggling to regain investors' confidence after perceived policy missteps jolted global markets. "Soros' challenge against the renminbi (yuan) and Hong Kong dollar is unlikely to succeed, there is no doubt about that," the People's Daily overseas edition said in a front-page opinion piece on Tuesday. China's economic fundamentals remain sound, despite slower growth, volatility in its stock market and the yuan's depreciation against the U.S. dollar, said the opinion piece, written by a researcher at the commerce ministry. Soros told Bloomberg TV on Thursday he sees a hard landing for China's economy contributing to global deflation. In his comments to Bloomberg, Soros said he had been betting against the S&P 500, commodity-producing countries and Asian currencies, while buying U.S. government bonds. He did not specifically mention the yuan and Hong Kong dollar. China's economic growth slowed to 6.8 percent in the fourth quarter, bringing the full-year growth to 6.9 percent in 2015 - the poorest showing in 25 years. The Xinhua news agency also warned against speculation on China's stocks and currency, saying that smart, far-sighted investors should seize the opportunities from China's economic restructuring. "Some people believe that the Chinese capital market is experiencing a major crisis, of which they try to take advantage with speculative actions and even vicious shorting activities," Xinhua said in a commentary published on Saturday. China has been constantly improving its market regulatory system and legal system, it said. "As a result, reckless speculation and vicious shorting will face higher trading costs and possibly severe legal consequences." China's central bank has pledged to keep the yuan basically stable against a basket of currencies while Hong Kong's central bank has said it had no plans to change the Hong Kong dollar's peg to the U.S. dollar, despite recent market volatility. (2) Hedge Fund tells Chinese: Sell your shares now http://www.newsmax.com/Finance/InvestingAnalysis/China-trader-short-sale/2016/01/25/id/710817/ Trader Who Made 6,200 Percent on China Futures Says Go Short or Get Out Monday, 25 Jan 2016 07:26 PM Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers returned more than 6,200 percent last year, has some advice for investors in 2016: Sell your shares now, before it’s too late. The 45-year-old former worker at a state-owned company, a virtual unknown until last year, has become a star of the Chinese futures market after a slew of timely bets on the direction of share prices propelled his Yourong Fund to the top of the country’s performance rankings. He’s carried the winning streak into 2016, returning 35 percent through Jan. 22 after selling stock-index futures just days before the market’s worst- ever start to a year. Huang, who opened the Yourong Fund in 2014, says China’s benchmark Shanghai Composite Index could drop another 15 percent in the first half as slowing economic growth and a weaker yuan fuel capital outflows. While he’s sticking with bearish futures bets to take advantage of further losses, he says the average Chinese stock investor would be better off shifting into cash. "I’m not optimistic about this year," said Huang, a self- taught trader who manages more than 100 million yuan ($15.2 million) in the Yourong Fund and separate client accounts that use similar strategies. "My advice is to hold cash, wait and watch." Many of China’s 99 million investors appear to be doing just that. Volumes in the nation’s $5.6 trillion cash equities market slumped to the lowest level in three months last week, while trading of stock-index futures has dropped about 99 percent since June. A bungled government attempt to introduce market circuit breakers in the first week of 2016 deepened investor pessimism after the mechanisms sparked panic instead of restoring calm. Huang’s ability to profit from the turbulence has made him a standout in China’s hedge-fund industry, which has struggled to cope with price swings that reached the most extreme levels since 1997 last year. More than 700 funds were forced to liquidate prematurely in 2015, and this year’s 18 percent slump in the Shanghai Composite has left many more on the brink of shutting down. The Yourong Fund was the best performer last year among 310 private Chinese futures funds tracked by Shenzhen Rongzhi Investment Consultant Co. Huang’s closest rival was up just over 1000 percent, while more than a fifth of his peers posted losses, according to Shenzhen Rongzhi, which collects performance figures directly from the financial institutions where funds hold their trading accounts to ensure the data’s authenticity. To make money last year, Huang had to be nimble. He was bullish for much of the first half, building long positions in stocks and equity-index futures as the Shanghai Composite surged to seven-year highs. After trimming his equity exposure in May, he bet against the market in the second half of June as shares tumbled. One-Day Profit When volatility increased at the end of that month, Huang turned to short-term wagers. A short-term bet on Everbright Securities Co. that he sold the following day, for example, produced an 11 percent return on June 30 as the market posted a brief rally, he said in an interview with Bloomberg News last week from China’s southern Fujian province. Huang moved in and out of the market over the next two months, making one of his most profitable bets in late August after positioning for losses in stock-index futures before a rout that sent the Shanghai Composite down as much as 25 percent in just two weeks. "It’s like surfing," said Huang, who became a full-time investor in 2006 after quitting his job at a state-owned company. "You have to dance on top of the waves." Amplifying Returns Aside from good timing, Huang’s outsized returns were made possible by the built-in leverage of futures. The purchase or sale of a futures contract typically requires an initial deposit, known as margin, that’s just a fraction of the value of the underlying assets. That means even small price changes can lead to big profits -- or losses -- for holders of the derivatives. Huang sees China’s stock market coming under pressure this year from both the economic slowdown and a potential surge in the supply of new shares. Gross domestic product growth fell to 6.9 percent in 2015, the weakest pace since 1990, as an estimated $1 trillion of capital flowed out of the country last year and the yuan posted its biggest annual drop in two decades. Despite six interest rate cuts by China’s central bank, the latest economic indicators for December showed growth is still slowing. "When you add a lot of cold water into the pot, the firewood we have is for sure not enough,’’ Huang said. Recovery Signals With 660 Chinese companies waiting to sell shares via initial public offerings, Huang said the additional supply could divert funds from existing shares. The impact could be even bigger if policy makers follow through on plans for a registration system, which would reduce the government’s ability to control the pace of offerings. There are signs that Chinese shares are poised for a rally. The Shanghai Composite’s relative strength index was 33 on Friday, near the threshold of 30 that some traders use as a signal of recovery. Li Yuanchao, China’s vice president, said in an interview in Davos last week that the government is willing to keep intervening in the stock market to make sure a few speculators don’t benefit at the expense of regular investors. The government’s intervention has made life more difficult for Huang. He had to pare back his positions last year, particularly in bearish contracts, after authorities cracked down on what they saw as excessive speculation in the stock- index futures market and vowed to go after "malicious" short sellers. Grateful Investors Still, none of that seems to have hurt Huang’s knack for calling the markets. Cai Zhongyu, a retired electronics institute worker in Shanghai who’s been following the trade recommendations dispensed by Huang in online chat groups since 2009, said she made a 300 percent return last year "all thanks to him." "He always got it right on the market direction," Cai, 55, said by phone. "You have to admit that." Cai was among more than 90 admirers of Huang who traveled to the coastal city of Xiamen to hear him give trading tips and his market forecasts in December. After an extraordinary 2015, his outlook for this year was decidedly more modest. "I’ll just be following the market and do a few trades as it falls, like ants biting on a bone," Huang said. "If I get 5 to 6 percent each time and end the year with 50 percent to 60 percent, I’d be happy." (3) Chinese companies borrow in $; external borrowing surged from $200 billion in 2009 to $1.1 trillion in 2014 http://www.theepochtimes.com/n3/1947856-new-data-shows-how-chinas-massive-carry-trade-is-unwinding/ New Data Shows How China’s Massive Carry Trade Is Unwinding By Valentin Schmid, Epoch Times | January 22, 2016 Last Updated: January 24, 2016 2:36 am China’s currency and the capital outflows behind it have dominated headlines and market analysis in the last half year. One of the causes for the outflows ($676 billion in 2015) is the repayment of foreign currency debt or the unwind of the carry trade. In the windup of the carry trade, investors borrowed in a country with a low interest rate (the United States) and invested in a country with a high interest rate (China). The Bank of International Settlements (BIS) tracks this data and just released its findings for the third quarter of 2015, the period before, during, and after China’s shock devaluation of last August. This BIS finds China’s total cross boarder foreign currency liabilities decreased $130 billion to $877 billion from the second quarter to the third quarter of 2015. "This represents the sharpest single quarter drawdown since data were made available in the first quarter of 1978 and a 20.9 percent fall from its peak of $1109 billion in the third quarter of 2014," the investment bank Nomura writes in a note to clients. Chinese banks owe most of the foreign currency debt ($530 billion) with other corporations owing the balance, although banks mostly facilitate these transactions for corporations. (Nomura) After the financial crisis of 2008, Chinese corporations found it more lucrative to borrow in dollars for a very low single digit rate and invest it in China for a low double digit rate. Because the Chinese central bank guaranteed the Chinese currency to go up, they would make money through the exchange rate as well. As a result, Chinese external borrowing surged from less than $200 billion in 2009 to $1.1 trillion in 2014. Why would Chinese corporations engage in financial speculation? Some say because there were fewer opportunities on the ground, others say Chinese companies just like to take any opportunity to make easy money, like investing in property even if it has nothing to do with the core business. "Companies in the chemical, steel, textile, and shoe industries have started up property divisions too: The chance of a quick return is much higher than in their primary business," Bloomberg Business reporter Dexter Roberts wrote in 2009 when the property boom was in full swing. When property started to cool down in 2013, the carry trade was the next best alternative. This is not the case anymore. Because the Chinese central bank stopped supporting a strong yuan policy and the U.S. central bank has started raising rates, Chinese banks and corporates reversed the trade in the third quarter of 2014 and accelerated it in the third quarter of 2015. This helped the better connected companies and individuals get out even before the shock devaluation of August 2015. "China’s private sector was better prepared for the renminbi weakness, given the fall in foreign-currency liabilities and foreign exchange hedging since 11 August 2015. In our view, this is an important factor why Chinese authorities have allowed for a more market-determined renminbi from early December to early January," writes Nomura. (4) Bank of Japan Governor says China should impose Capital Controls to defend the Yuan http://www.bloomberg.com/news/articles/2016-01-23/kuroda-advises-china-to-impose-capital-controls-to-defend-yuan Kuroda Advises China to Impose Capital Controls to Defend Yuan Simon Kennedy and Jeff Black January 23, 2016 — 10:34 PM AEST Bank of Japan Governor Haruhiko Kuroda said China should impose capital controls to defend the yuan rather than keep burning through currency reserves. As he and other international policy makers expressed confidence that the world’s second largest economy will avoid a hard landing, Kuroda made his proposal on the final day of the World Economic Forum’s annual meeting in Davos, Switzerland. China is struggling to hold up the yuan as a slowing economy forces it to loosen monetary policy and prompts capital to flee. It now faces questions from investors over just how long it can keep deploying reserves to calm the yuan’s volatility. "This is my personal view, and it may not be shared by the Chinese authorities, but in this kind of somewhat contradictory situation capital controls could be useful to manage the exchange rate as regards domestic monetary policy in a consistent and appropriate way," Kuroda said on Saturday. Deploying Reserves China is burning through its reserves as it tries to prop up the currency. China’s stockpile plunged $513 billion last year to $3.33 trillion, the first annual decline since 1992 and the holdings will drop to $3 trillion or less by the end of this year, according to the median of 12 forecasts in a Bloomberg News survey this month. They were projected to tumble further, to $2.66 trillion by the end of next year. "The massive use of reserves would not be a particularly good idea," said International Monetary Fund Managing Director Christine Lagarde, who suggested China better clarify how it manages the yuan. China has already tightened some capital controls, requiring lenders in offshore yuan-trading centers to lock away more funds in their latest efforts to combat capital outflows. It also suspended some foreign lenders from conducting some cross-border yuan operations and cracked down on illegal money transfers. Market Jitters China’s economic slowdown -- and the subsequent financial turmoil it helped to spark --- were among the most-discussed topics in Davos this week. For all the market jitters, most delegates bet that the economy will soon stabilize as officials pivot from debt-fueled investment and exports toward consumption and services. "We’re not seeing a hard landing," said Lagarde. "We’re seeing an evolution, a big transition which is going to be bumpy, which will offer some turbulence." U.K. Chancellor of the Exchequer George Osborne said that even at the current growth rate, China would add the equivalent of Germany to global output by the end of this decade. "We actually believe that China will have a soft landing," said Credit Suisse Group AG Chief Executive Officer Tidjane Thiam. More broadly, Thiam said global banks are in a much stronger position now and praised the work of regulators in forcing them to strengthen their balance sheets. He also said it’s high time that the U.S. Federal Reserve raised rates even though it means that global monetary policy is now going out of sync. "A normalization is necessary because I don’t like periods where the price of risk is distorted for a long period of time," said Thiam. (5) China Outflows Could Reach $500 Billion in 2016, JPMorgan Says http://www.newsmax.com/Finance/StreetTalk/China-currency-reserves-outflow/2016/01/26/id/710924/ Tuesday, 26 Jan 2016 11:33 AM China could see capital outflows of $500 billion this year, posing a challenge to policy makers trying to defend the yuan in the midst of an economic slowdown and a plunge in equities, according to JPMorgan & Chase Co.’s chief Asia strategist. While the People’s Bank of China would like to control the yuan’s decline, those holding assets denominated in the currency could sell to avoid losses, Adrian Mowat said in an interview in Manila on Tuesday. The nation is estimated to have seen withdrawals of $650 billion last year, he said. "You are going to have this tension around the renminbi and it will continue to drive volatility," said Mowat, referring to the yuan by its official name. "Another area where you have tension is that the markets aren’t allowed to find their levels in the A-share market." China’s stockpile of foreign-currency reserves plunged $513 billion last year to $3.33 trillion, the first annual drop since 1992, as the nation propped up the yuan. The Shanghai Composite is the worst performer in January among 93 primary equity gauges tracked by Bloomberg, while the economy grew last year at the slowest pace in a quarter century. Mowat’s forecast for last year’s capital outflows from China compares with a figure of $1 trillion estimated by Bloomberg Intelligence. While outflows surged in December after the central bank unnerved markets by saying it would refocus the yuan’s moves against a wider basket of currencies, rather than the dollar alone, exporters are holding funds in dollars instead of the yuan, according to Tom Orlik, Bloomberg’s chief Asia economist in Beijing. Special: The Best Credit Cards of 2016 The MSCI China Index, a gauge of mainland companies listed in Hong Kong and other overseas markets, would still be able to erase losses recorded so far this month and end 2016 with a gain, Mowat said. The gauge, whose members include U.S.-listed Internet services companies Alibaba Group Holding Ltd. and Baidu Inc., is expected to report earnings growth of 15 percent this year, he said. (6) Steve Keen: China’s Stock Market Is an ‘Unbelievable Bubble’, about to burst http://www.theepochtimes.com/n3/1942610-steve-keen-chinas-stock-market-is-an-unbelievable-bubble/ Steve Keen: China’s Stock Market Is an ‘Unbelievable Bubble’ The most famous unconventional economist talks about debt in China and why it's a problem By Valentin Schmid, Epoch Times | January 17, 2016 Last Updated: January 19, 2016 4:55 am     Steve Keen, a professor at London's Kingston University, thinks China's stock market is a big bubble and is about to burst. (Samira Bouaou/Epoch Times) It’s the debt, stupid. This is what professor Steve Keen of London’s Kingston University has been saying all along: Private debt is responsible for financial crises. He’s also been saying that conventional economists are wrong, and even wrote a book about it: "Debunking Economics." Apart from his razor-sharp logic and witty style, Keen was one of the few analysts who predicted the financial crisis in the West in 2008. Now he sees another crisis looming in the East. The Epoch Times spoke to Steve Keen about why private debt is again responsible for China’s economic problems and why the debt fueling China’s stock market is the most ridiculous thing ever. A private person can’t direct the central bank to pay that debt. Epoch Times: How did China avoid the financial crisis of 2008? Steve Keen: The crisis in 2008 destroyed their export policies. There was a 45 percent fall in Chinese exports in one year. The response at that time was to dramatically boost private lending, trying to cause a boom domestically, to take the place of exports which they have relied on. So you had an enormous increase in private debt in China. Professor Steve Keen, an unconventional economist, in every way. (Steve Keen) Professor Steve Keen, an unconventional economist. (Steve Keen) Epoch Times: Some people say that doesn’t matter because in China the debtors are mostly related to the government. Mr. Keen: It’s state-owned banks and state-directed banks that lent to private institutions. The liabilities are private. State-owned banks have loaned to private companies. Almost all of the increase in debt is to private organizations, and almost all of that has gone to Chinese property developments. It’s not like the debt in the West where private banks lend to private organizations. What matters is, who owes the money. It’s still owed by private individuals and companies. If they can’t pay, they are bankrupt and they want to run away and get out of their liabilities. This is going to cause the usual downturn in the economy, even though the debt is owned by state-owned banks. It comes down to who the liabilities are owed by. If the federal government has a debt, it can direct the central bank to pay that debt. A private person can’t direct the central bank to pay that debt. Total demand will fall, and that’s the situation we find in China now. Epoch Times: Give us some numbers please. Mr. Keen: Seven years ago private debt was about 120 percent of GDP, according to the Bank of International Settlements (BIS). Now it’s 201 percent. The American level peaked at 170 percent before the financial crisis. The level of demand coming into the economy is relying on continually increasing that debt ratio. But once you reach a peak level of debt, people will not be borrowing beyond that point. The change in debt goes from 20 percent growth to zero. As a result, 20 percent of GDP disappears. (Macquarie) Epoch Times: Please explain how that works. Mr. Keen: Total demand in the economy is demand generated from existing money plus the change in debt. Let’s say GDP is running at a trillion and debt increases 20 percent, then total demand is $1.2 trillion in year one. So GDP is growing at let’s say 10 percent. So next year’s GDP is $1.1 trillion, but if the change in debt goes to zero, total demand will fall from $1.2 trillion to $1.1 trillion. So even if GDP keeps growing at the same rate—which won’t happen—total demand will fall, and that’s the situation we find in China now. That affects all asset markets. This is an unbelievable bubble. Epoch Times: What about debt and the Chinese stock market? Mr. Keen: I have never seen anything quite as ridiculous as margin debt in China. The level of leverage per asset market is crazy. The Shanghai Composite Index had a bubble and a crash in 2008, but there was no margin debt after that crash. It continued down until June 2014, then it took off and hit a peak of about 5,100. What had happened in the meantime, they had deregulated and allowed margin debt to be brought in 2010. The level of margin debt began in March 2010 at 0.00014 percent of China’s GDP. You fast-forward to 2014, it was 0.3 percent of GDP. In July of 2014, it was 0.5 percent of GDP, by 2015 it was 1 percent of GDP, by July 2015 it was 2.16 percent of GDP. It has since fallen to 0.84 percent of GDP. This is an unbelievable bubble. It’s the most volatile level of margin debt anywhere in the world—ever. So you have got this insane level of debt finance and speculation at the same time. Epoch Times: What can the Chinese do? Mr. Keen: The property market was the original way to boost demand in the Chinese economy. That has come to an end; the share market has come to an end. So you have this enormous hole in demand. The 20 percent in debt growth per year was all financing the building boom; suddenly that’s over. All those workers are losing their jobs, and they are going back to the countryside. There is not going to be demand for new housing in China for 10 years. For example: China is still a major buyer of Australian concrete. A huge part they are buying they can’t use it anymore. So it has been used by China as foreign aid in Africa. A big part of the political shifts we are seeing are reactions to the slowdown and they are desperately trying to soften the slowdown, and that’s where all the crazy policy choices are coming from out of the Politburo. Most of the infrastructure projects, they can’t keep on doing. The only thing that’s needed is to replace coal with solar. They have huge excess capacity, there is no new export market to go into anymore, and they can’t boost domestically. (7) China in trouble because it followed World Bank advice - John Ross http://ablog.typepad.com/keytrendsinglobalisation/2016/01/how-the-influence-of-world-bank-policies-damaged-chinas-economy.html How the influence of World Bank policies damaged China's economy John Ross 08 January 2016 Present negative trends in China's financial system and economy were accurately predicted by me three years ago as occurring if there was any influence of policies of the World Bank Report on China. While China has made major steps forward in areas such as the Asian Infrastructure Investment Bank and New Silk Road ('One Belt One Road') unfortunately in some areas World Bank policies did acquire influence. As predicted they led to present negative trends. There should also be clarity. China has the world's strongest macroeconomic structure so these trends will not lead to a China 'hard landing'. But they are a confirmation that no country, including China, can escape the laws of economics. As long as there is any influence of World Bank type policies, which are also advocated by Western writers such as George Magnus and Patrick Chovanec, there will be problems in China's financial system and economy. The article I wrote in September 2012 which was published under the original title 'Fundamental errors of the World Bank report on China' is republished without alteration. (8) Fundamental errors of the World Bank report on China - John Ross (2012) http://ablog.typepad.com/keytrendsinglobalisation/2012/09/fundamental-errors-of-the-world-bank-report-on-china.html 18 September 2012 Fundamental errors of the World Bank report on China The World Bank's report China 2030 has, unsurprisingly, provoked major criticism and protest. I have read World Bank reports on China for more than 20 years and this is undoubtedly the worst. So glaring are its factual errors, and economic non-sequiturs, that it is difficult to believe it was intended as an objective analysis of China's economy. It appears to be driven by the political objective of supporting current US policies, embodied in proposals such as the Trans-Pacific Partnership. Listing merely the factual errors in the report, of both commission and omission, as well as the elementary economic howlers, would take up more column inches than are available to me. So what follows is just a small selection, leaving space to consider the possible purpose of such a strange report. The report has no serious factual analysis of the present stage of China's economic development. On the one hand it is behind the times and "pessimistic", saying China may become "the world's largest economy before 2030". This is extremely peculiar as, by the most elementary economic calculations, (the Economist magazine now even provides a ready reckoner!) China will become the world's largest economy before 2020. On the other hand, the report greatly exaggerates the rate at which China will enter the highest form of value added production. As such, the report calls for various changes in China, and bases its calls on the rationale of "when a developing country reaches the technology frontier'. But China's economy, unfortunately, is not yet approaching the international technology frontier, except in specialized defence-related areas. Even when China's GDP equals that of the US, China's per capita GDP, a good measure of technology's spread across its economy, will be less than one quarter of the US's. Even making optimistic assumptions, China's per capita GDP will not equal the US's until around 2040, by which time China's economy would be more than four times the size of the US's! Put another way, China will not reach the technology frontier, in a generalized way, for around three decades, so this rationale can't be used to justify changes now. The report appears to envisage China's development path differing from that of every other country on the planet. It claims that in China "the continued accumulation of capital… will inevitably contribute less to growth". But one of the most established trends of economic development, first outlined by Adam Smith and econometrically confirmed to the present day, is that capital's contribution to growth increases with development. Deng Xiaoping certainly argued that economic policy must have "Chinese characteristics", i.e. be adapted to China's specific conditions. However, he never argued that China was exempt from economic laws, which is what this report appears to envisage! The report makes elementary economic mistakes, such as confusing the consequences of high export shares with trade surpluses. It argues: "If China's current export growth persists, its projected global market share could rise to 20 percent by 2030, which is almost double the peak of Japan's global market share in the mid-1980s when it faced fierce protectionist sentiments… China's current trajectory… could cause unmanageable trade frictions." But if China increases its import share at the same rate as exports, this would not create major trade frictions. Japan's problem was trade surpluses, not export share. It is almost impossible to believe, given such elementary mistakes, that this report was intended as a serious objective analysis of China's economy. What, then, is its goal? , The report spells out its goal clearly enough in calling for China to abandon the policies launched by Deng Xiaoping which brought such success. It says: "Reforms that launched China on its current growth trajectory were inspired by Deng Xiaoping… China has reached another turning point in its development path when a second strategic, and no less fundamental, shift is called for." What is this new "non-Dengite" economic policy? Deng Xiaoping's most famous economic statement was "it doesn't matter whether a cat is black or white provided it catches mice". Effectively, this means, in economic terms, that a company should not be judged by whether it is private or state owned but by how it performs. The proposed new economic policy overturns Deng's dictum by saying: "Reintroduce judging cats by colour, promote the private sector cat." The consequences of this are clearly seen in the report's financial proposals. During the international financial crisis, China was protected by its state-owned banking system. The US and European privately-owned banks simultaneously created the financial crisis and were flattened by it, throwing their economies into crisis. China, however, suffered no significant setback. The reasons for the US and European banking crisis are well understood. Modern banks are necessarily very large, both in order to undertake international operations and because of the inherent risk of large investment projects. They are literally "too large to fail", as the failure of any large bank creates an unacceptable economic crisis. This theoretical point was rammed home by the devastating consequences of Lehman's collapse, following which no government will allow a large bank to fail. But a situation in which the state is blocking the bankruptcy of a large bank, whose profits are being privately retained, creates disastrous risk. If large private banks are state guaranteed against crippling losses, but retain profits, they are incentivized to undertake potentially profitable but highly risky operations. The disastrous results of this scenario were seen during the financial crisis. Extraordinarily, this report proposes that China abandon the financial system which brought it successfully through the financial crisis and instead adopt the one which led the US and Europe to disaster. This is the real significance of "privatization would be the best way to make SFIs [State Financial Institutions] more commercially oriented". This ties in with US TransPacific Partnership pressure for the elimination of China's state-owned companies, which are seen as giving China a completive advantage over the US. The US, of course, does not possess such companies. If the US is worried about the competitive disadvantage created by not having state-owned companies, it should create some, not call for China to abandon its own. The last World Bank report of this type was published in February 1991 and its Study of the Soviet Economy provided the basis for Russia's economic policies of the 1990s. The result was that Russia suffered the greatest peacetime economic disaster to befall any country. GDP declined by more than half. Russian male life expectancy fell by four years and we saw the beginning of a population decline, which continues to this day. The USSR subsequently disintegrated, in what Vladimir Putin called the greatest geopolitical catastrophe of the 20th century. Russia has not recovered. This type of economic program is therefore not simply a "theoretical" model. It has been thoroughly and demonstrably discredited on account of the catastrophes it has produced. Russia was ill advised enough to adopt this type of economic program. It is to be hoped, then, that China does not follow the same course *  *  * This article originally appeared on China.org.cn. (9) Yuan joins IMF's SDR basket; the price is "finance sector reform", ie Deregulation http://atimes.com/2015/11/chinas-slippery-sdr-sanctification/ China’s slippery SDR sanctification By Gary Kleiman on November 19, 2015 in Chinese financial markets continued their comeback as the IMF staff set the stage for yuan inclusion in the Special Drawing Rights artificial basket. The inclusion comes with a technical "freely usable" finding for international currency and trade transactions, despite capital controls due to last through end-decade under the latest 5-year economic plan. Managing Director Lagarde endorsed the report, and IMF board acceptance at end-month will be a formality with US support triggering an entry timetable for late 2016. The Treasury Department decision came in the face of its semi-annual assessment that the RMB was "below appropriate medium-term valuation," as it acknowledged incremental flexibility and cross-border opening and moved to repair strained relations from Congress’ failure to pass IMF governance reform. The preliminary SDR weighting should be ahead of the Japanese yen at around 15%, but foreign central bank reserve and investor capital market allocation will remain paltry for years without access and trading breakthroughs as in all other emerging economies that have historically been outside the synthetic "global currency." China’s central bank launched the admission campaign in the wake of the 2008-09 crisis to diversify dollar reliance, but with persistent GDP slowdown and foreign exchange outflows it is no longer in such a strong implementation position. The logic has shifted to financial sector reform impetus for overcoming current trade, investment and debt squeezes, and laying a foundation for modern banking and securities markets as in the rest of the region. According to the SWIFT payments network, the yuan is only used for 2.5% of international commerce, and the BIS puts it behind the Mexican peso and other units as fractional components in foreign exchange dealing. The local stock and bond markets are valued at multiple trillions of dollars, but foreign investor participation is limited by quotas and operational and regulatory hurdles. Index provider MSCI just raised China’s portion with Hong Kong of the core developing market benchmark to 26% from the previous 23% with the addition of overseas-listed firms like internet giant Alibaba. However, the mainland exchange has experienced widespread suspensions and official intervention the past three months to further deter international players. The debt market in contrast has been partially liberalized for non-resident institutions, but their share is stuck under 2% as state-owned banks and enterprises dominate both buying and issuance with minimal secondary trading. The main near-term post-SDR yuan inflow may come from central banks and sovereign wealth funds realigning holdings, with estimates in the $100 billion range annually. Yet this amount is negligible against the over $10 trillion in global reserves and China’s own $3.5 trillion stash. Managers also consider liquidity, safety and economic policy and performance factors outside the Fund’s basket formula for placement. The Japanese yen has an 8% weighting but draws only half that allocation in the IMF’s regular survey of central bank preference, while the Swiss Franc is a major choice outside the SDR. Domestic banking system health is paramount and October figures showed a sharp credit drop as the understated non-performing loan ratio drifted toward 2%, despite interest rate and reserve requirement cuts. Under supply and demand constraints money supply expansion may be only single digits in 2016, as the GDP growth forecast was already pared to 6.5% in 2016. Debt defaults at both private and state firms in the energy, steel and cement industries reflect lingering overcapacity and deflation worries that cap the manufacturing PMI under 50, as the services sector is pressed to absorb the slack. Exchange rate direction can now go both ways and basic stability cannot be assumed despite the SDR move. The RMB has recovered ground against the dollar but may slip again with a Fed rate nudge in December, and onshore and offshore rates continue to diverge. The authorities have begun to disclose limited reserve data but not interventions reportedly concentrated on the murky forward market. They are also studying the old standby of a Tobin tax to discourage "speculative" trading, when the emphasis should be on new convincing steps toward routine commercial dealing within established emerging market practice if the Fund’s conceptual maneuver is to inspire actual mainland makeover. Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C. (10) Yuan joins SDR, but PBoC advised to reduce intervention, allowing market forces http://www.reuters.com/article/2015/11/14/us-imf-china-yuan-idUSKCN0T22OC20151114 China's yuan takes leap toward joining IMF currency basket WASHINGTON | BY KRISTA HUGHES China's yuan moved closer to joining other top global currencies in the International Monetary Fund's benchmark foreign exchange basket on Friday after Fund staff and IMF chief Christine Lagarde gave the move the thumbs up. The recommendation paves the way for the Fund's executive board, which has the final say, to place the yuan CNY=CFXS CNY= on a par with the U.S. dollar .DXY, Japanese yen JPY=, British pound GBP= and euro EUR= at a meeting scheduled for Nov. 30. Joining the Special Drawing Rights (SDR) basket would be a victory for Beijing, which has campaigned hard for the move, and could increase demand for the yuan among reserve managers as well as marking a symbolic coming of age for the world's second-largest economy. Staff had found the yuan, also known as the renminbi (RMB), met the criteria of being "freely usable," or widely used for international transactions and widely traded in major foreign exchange markets, Lagarde said. "I support the staff’s findings," she said in a statement immediately welcomed by China's central bank, which said it hoped the international community would also back the yuan's inclusion. Staff also gave the green light to Beijing's efforts to address operational issues identified in a report in July, Lagarde said. The executive board, which represents the Fund's 188 members, is seen as unlikely to go against a staff recommendation and countries including France and Britain have already pledged their support for the change. This would take effect in October 2016, during China's leadership of the Group of 20 bloc of advanced and emerging economies. China has rolled out a flurry of reforms recently to liberalize its markets and also help the yuan meet the IMF's checklist, including scrapping a ceiling on deposit rates, issuing three-month Treasury bills weekly and improving the transparency of Chinese data. Economists said with the yuan's inclusion in the IMF basket as a reserve currency now looking like a formality, China should step up efforts to build trust between global investors and its policy makers. China's heavy-handed intervention to stem a stock market rout over the summer, and an unexpected devaluation of the yuan in August, had raised some doubts about Beijing's commitment to reforms. Singapore-based Commerzbank economist Zhou Hao said China needs to further accelerate domestic reforms and improve policy transparency. "The PBOC should reduce the frequency of market intervention, allowing market forces to really play a critical role." The United States, the Fund's biggest shareholder, has said it would back the yuan's inclusion if it met the IMF's criteria, a U.S. Treasury spokesperson said, adding: "We will review the IMF’s paper in that light." If the yuan's addition wins 70 percent or more of IMF board votes, it will be the first time the number of currencies in the SDR basket - which determines the composition of loans made to countries such as Greece - has been expanded. "I would say that the likelihood of China's yuan joining the IMF currency basket this year is very high," said Hong Kong-based Shen Jianguang, chief economist at Mizuho Securities Asia. "The only thing that could deter this is if the U.S. led a group rejecting the yuan's inclusion, which could complicate things. But the United States' current official stance doesn't reflect such an attitude," he said. Some currency analysts say making the yuan the fifth currency in the basket could eventually lead to global demand for the currency worth more than $500 billion. But China's extensive capital controls mean it would take a while before the yuan rivals the dollar's dominant role in international trade and finance, analysts say. Its closed capital account still limits foreigners from buying yuan-denominated assets and places caps on how much cash residents can take out of the country. These restrictions, along with concerns that the yuan is set to come under steady depreciation pressure, may cause corporates to back off from holding yuan. Nonetheless, the People's Bank of China said the IMF statement was an acknowledgment of the progress China had made in reforms and opening up its economy. "The inclusion of the RMB in the SDR basket would increase the representativeness and attractiveness of the SDR, and help improve the current international monetary system, which would benefit both China and the rest of the world," the PBOC said in a statement. China would respect the board's decision and continue to deepen economic reforms, the PBOC said. (Additional reporting by Timothy Ahmann in Washington, Jason Subler in Beijing and Brenda Goh in Shanghai; Editing by James Dalgleish & Shri Navaratnam) (11) IMF SDR represents a claim to foreign currencies for which it may be exchanged http://news.xinhuanet.com/english/2015-04/19/c_134162891.htm China's Zhou says IMF members frustrated with quota reform delay 19 Apr 2015 WASHINGTON, April 18 (Xinhua) -- China's central bank governor Zhou Xiaochuan has said that members of the International Monetary Fund (IMF) are frustrated with the long-delayed 2010 quota reform of the fund and called for early passage of the reform. "The 2010 quota reform has been delayed for so long. IMF members are not simply disappointed but frustrated," Zhou told Xinhua on the sidelines of the World Bank-IMF Spring Meetings on Friday. To reflect the growing and underrepresented influence of emerging economies, the IMF called for a 6 percent shift in quota share to the emerging economies in 2010. However, the reform has been delayed for five years due to blocking by U.S. Congress as the United States retains a de facto veto. The IMF members are discussing an interim solution which does not need the U.S. congressional approval. "The interim plan should not be an alternative to the original reform program. We are pushing for fully implementing the 2010 quota reform," he said. Commenting on the IMF's review of including the Chinese currency, the yuan, into the basket of the Special Drawing Rights (SDRs), Zhou said that the evaluation process of the RMB's inclusion is proceeding in order, and China would speed up relevant reforms to promote the process. Christine Lagarde, managing director of the IMF, said on Thursday that China knew quite well what is desirable, what needs to be changed and improved in the monetary policy and in the financial sector in China. "I believe what the Chinese authorities have actually indicated...will naturally be conducive to an assessment of whether or nor the RMB is freely usable, which is as you know one of the key criteria," she said at a press briefing on the sidelines of the Spring Meetings. SDRs are international foreign exchange reserve assets. Allocated to nations by the IMF, an SDR represents a claim to foreign currencies for which it may be exchanged in times of need. Although denominated in the U.S. dollar, the nominal value of an SDR is derived from a basket of currencies, with a fixed amount of Japanese yen, U.S. dollars, British pounds and euros. According to the IMF, the selections of currencies for the SDR basket are based on two criteria -- the size of the country's exports and whether its currency is freely useable. In the IMF's last review in 2010, the RMB met the export criteria, but was assessed to not meet the freely useable criteria. WASHINGTON, April 18 (Xinhua) -- China will take a series of reforms to further increase the capital account convertibility of Renminbi (RMB), and make RMB, or yuan, a more freely usable currency, governor of the People's Bank of China (PBOC) Zhou Xiaochuan said on Saturday. In a statement at the 31st meeting of the International Monetary and Financial Committee meeting held in Washington, Zhou said that China will further expand cross-border investment channels for individual investors, such as via pilot program of Qualified Domestic Individual Investor. (12) IMF SDRs to replace $ as one-world currency http://www.wnd.com/2015/11/global-currency-plan-gets-boost-from-imf/ Global-currency plan gets boost from IMF U.N. backs effort to replace U.S. dollar as choice of trade Jerome R. Corsi November 16, 2015 NEW YORK – A decision last week by the International Monetary Fund to accept reserve-currency status for China’s yuan advances a developing plan backed by the United Nations to replace the dollar as the world’s reserve currency. Last Friday, IMF Managing Director Christine Lagarde endorsed a staff recommendation to include China’s yuan in the basket of four currencies that currently make up the IMF Special Drawing Rights, or SDRs: the U.S. dollar, the euro, the British pound and the Japanese yen. The SDRs play the role of an alternative to the use of the U.S. dollar to settle transactions in international trade. In a reversal of policy from policy of previous presidents, President Obama has indicated the United States plans to drop opposition to the inclusion of the Chinese yuan in the IMF basket of currencies, giving a green light to anticipated IMF approval of the plan at a meeting of the IMF board Nov. 30. In 2013, the Society for Worldwide Interbank Financial Telecommunication, a provider of international payments services, announced the Chinese yuan had advanced to overtake the euro to become the second-most used currency in global trade finance after the dollar. A meeting between U.S. Treasury Secretary Jack Lew with Chinese Vice Premier Wang Yang and Finance Minister Lou Jiwei at the G-20 leaders summit in Antalya, Turkey, provided an opportunity for the Obama administration to make clear to China that the U.S. intends to support the inclusion of the yuan in the SDRs, provided the currency meets the IMF’s existing criteria. Reuters noted the irony of the IMF decision following the unexpected devaluation of the yuan in August. The move by the Chinese government triggered a global stock market selloff amid objections by World Trade Organization free-trade advocates that it created an unfair price advantage for China’s exports while raising questions about Beijing’s commitments to financial reforms. Advantages of a reserve currency William T. Wilson, Ph.D., a senior research fellow at the Heritage Foundation, in a research report published Aug. 17 titled "Washington, China, and the Rise of the Renmimbi: Are the Dollar’s Days as the Global Reserve Currency Numbered?" argues the fall of the dollar has been accelerated by the relatively slow growth of the U.S. economy since 2009 and the accumulation of a sovereign debt set to double in the eight years Obama is in office. Among the advantages of being a reserve currency, Wilson notes "the reserve-currency countries have the ability to run up fiscal debts denominated in their own currency at relatively low interest rates." Wilson lists as additional advantages the convenience for the exporters and importers of dealing in the country’s own currency rather than in foreign currencies, reducing the transaction costs as well as the foreign exchange reserves. Bob McTeer, a former president of the Dallas Federal Reserve Bank, noted in a 2013 article published by Forbes that being the world’s reserve currency of choice for the past 70 years has boosted the U.S. standard of living "by others’ willingness to hold our currency without ‘cashing it in’ for goods and services, or, before 1971, gold." (13) China Rebalancing means Chinese consume more, export less; industries move to India, Mexico, Vietnam http://www.taipeitimes.com/News/editorials/archives/2015/01/04/2003608411 Sun, Jan 04, 2015 China's economic rebalancing act By Zhang Monan After more than 30 years of extraordinary growth, the Chinese economy is shifting onto a more conventional development path — and a difficult rebalancing is under way, affecting nearly every aspect of the economy. China's current-account surplus has shrunk from its 2007 peak of 10 percent of GDP to just over 2 percent last year — its lowest level in nine years. In the third quarter of last year, China's external surplus stood at US$81.5 billion and its capital and financial account deficits amounted to US$81.6 billion, reflecting a more stable balance of payments. This shift can partly be explained by the fact that, over the past two years, developed nations have been pursuing reindustrialization to boost their trade competitiveness. For example, in the US manufacturing grew at an annual rate of 4.3 percent, on average, in 2011 and 2012, and growth in durable-goods manufacturing reached 8 percent — having risen from 4.1 percent in 2002 and 5.7 percent in 2007. Indeed, the US' manufacturing industry has helped to drive its macroeconomic recovery. Meanwhile, as China's wage costs rise, its labor-intensive manufacturing industries are facing increasingly intense competition, with the likes of India, Mexico, Vietnam and some Eastern European economies acting as new, more cost-effective bases for industrial transfer from developed nations. As a result, the recovery in advanced economies is not returning Chinese export demand to pre-crisis levels. These trends — together with the continued appreciation of the yuan — have contributed to the decline of Chinese goods' market share in developed nations. Indeed, Chinese exports have lost about 2.3 percent of market share in the developed world since 2013, and about 2 percent in the US since 2011. Incipient trade agreements, such as the Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and the Plurilateral Services Agreement, are set to accelerate this process further, as they eliminate tariffs among certain nations and implement labor and environmental criteria. Add to that furtive protectionism, in the form of state assistance and government procurement, and Chinese exports are facing serious challenges. China is also undergoing an internal rebalancing of investment and consumption. As it stands, declining growth in fixed-asset investment — from 33 percent in 2009 to 16 percent this year — is placing significant downward pressure on output growth. Investment's contribution to GDP growth fell from 8.1 percent in 2009 to 4.2 percent last year. One reason for the decline is that China has yet to absorb the production capacity created by large-scale investment in 2010 and 2011. Aside from traditional industries, inlcuding steel, non-ferrous metals, construction materials, chemical engineering and shipbuilding, excess capacity is now affecting emerging industries, such as wind power, photovoltaics and carbon fiber, with many using less than 75 percent of their production capacity. However, the decline in investment is also directly correlated with that of capital formation. From 1996 to 2012, China's average incremental capital-output ratio — the marginal capital investment needed to increase overall output by one unit — was a relatively high 3.9, meaning that capital investment in China was less efficient than in developing nations experiencing similar levels of growth. Moreover, the cyclical increase in financing rates and factor costs has brought a gradual restoration of the price scissors of industrial and agricultural goods. As a result, industrial firms' profits are likely to continue to fall, making it difficult to sustain high investment. Meanwhile, the expansion of China's middle class is having a major impact on consumption. Last year, China surpassed Japan to become the second-largest consumer market in the world, after the US. Chinese imports remain focused on intermediate goods, with imports of raw materials like iron ore having surged over the past decade. However, in the past few years, the share of imported consumption goods and mixed-use (consumption and investment) finished products, such as automobiles and computers, has increased considerably. This trend is set to contribute to a more balanced global environment. The final piece of China's rebalancing puzzle is technology. As it stands, a lag in technological adoption and innovation is contributing to the growing divide between China and the Western developed nations, stifling economic transformation and upgrading, and hampering China's ability to move up global value chains. However, as China's per capita income increases, its consumer market matures, and its industrial structure is transformed, demand for capital equipment and commercial services is likely to increase considerably. Indeed, over the next decade, China's high-tech market is expected to reach annual growth rates of 20 to 40 percent. If the US loosens restrictions on exports to China and maintains its 18.3 percent share of China's total imports, US exports of high-tech products to China stand to reach more than US$60 billion over this period. This would accelerate industrial upgrading and innovation in China, while improving global technological transmission and expanding related investment in developed nations. China's economy might be decelerating, but its prospects remain strong. Its GDP might have reached US$10 trillion last year. Once it weathers the current rebalancing, it could well be stronger than ever. Zhang Monan is a fellow of the China Information Center and the China Foundation for International Studies, and a researcher at the China Macroeconomic Research Platform. (14) PBoC Currency Intervention to stop rise of Yuan, then fall of Yuan http://qz.com/386421/why-chinas-economy-is-slowing-and-what-it-means-for-everything/ Why China's economy is slowing and what it means for everything Matt Phillips April 19, 2015 It's really happening. China, an increasingly important engine of global economic growth, is slowing fast. [É] Does the fact that it's losing steam mean we're doomed to another global slump? Well, no. Thankfully, developed market economies such as the US seem to be in decent shape and set to pick up a bit of slack. The world economy grew by 3.4% in 2014, according to the IMF. And it's projected to expand by 3.5% and 3.8% in 2015 and 2016. [É] In the aftermath of the Great Recession, when some of China's most important export markets, such as the US were mired in the deepest recession since the Great Depression, China embarked on a massive investment binge. But that, too, is now slowing. Investment growth declined to 13.5% in the first quarter, the slowest in since 2000. In an ideal world, Chinese consumers would pick up some of the slack. But retail sales growth also continues to slump, it fell to 10.2% in March, worse than expected. In other words, its unclear what will fuel China's economic engine. Capital outflow So, it's far from clear that China will be able to easily pull off such a transition. And there are indications that the foreign investors that have pumped billions into the Chinese economy in recent years aren't waiting around to find out. How do we know? Well, we can look at Chinese foreign exchange reserves. As part of its policy of keeping its currency cheap to boost exports, China has amassed nearly $4 trillion dollars in reserves in recent years. Here's how it worked. Essentially, when China's currency, the yuan or RMB, would strengthen against the dollar, the government printed fresh yuan and used them to buy dollars. That increased the supply of Chinese currency floating around in the market, and shrunk the supply of dollars—because the Chinese government bought them and pulled them out of circulation. Increased yuan supply and smaller dollar supply weakened the Chinese currency. But it recent months, the opposite seems to be happening. The governments pile of dollars is shrinking a bit, suggesting it has been selling dollars to try to keep the yuan from weakening too much. The yuan isn't strengthening the way it has been in recent years, which suggests investors aren't as eager to invest in the country. And since China's pile of dollars has stopped growing, the country hasn't needed to buy as many US government bonds. (Treasuries are traditionally a key place where China would stash its cash.) Lo and behold, China this week lost the crown of the largest foreign creditor to the US, as Japan overtook it. Trade winds So, China's slowdown doesn't doom the world to recession. But its path forward is far from clear. And investors seem to be a bit jittery. The biggest economic impact tied to the China slowdown could well be outside of China, particularly among the suppliers of the raw materials China has used to fuel its industrial and investment binge in recent years. For example, China consumes roughly 47% of the world's base metals, up from 13% in 2000, according to the IMF. So it shouldn't be a surprise that metal prices are now roughly 44% below their 2011 peak. China's slowdown has weighed on copper prices, for instance. And that's weighed on copper exporters, such as Peru. Likewise, iron ore prices have hammered Australia's revenue from exports of the raw material to Chinese steel mills. The fact that Brazil is being battered by a similar trend only adds to the dour outlook for the South American giant. The IMF projects the Brazilian economy will fall into recession in 2015 and contract by about 1%. What is to be done? That's the trillion-dollar question. Will China be able to pull off a transition to a different economic model without a hiccup? Probably not. That doesn't mean the economic miracle in the People's Republic is over. But it does open the door for a bit of volatility over the next few years. Can the government pull it off? [É] (15) China's slowdown is hurting countries that export to it http://www.businessinsider.com.au/us-industrial-impact-chinese-slowdown-2015-6 China's slowdown is bad news for the world's big industrial exporters Bob Bryan Jul 4, 2015, 4:09 AM China's slowing economy is a serious concern for the economies of the nearly 50 nations that count China as their top export destination. According to economists at UBS, not only will it impact the countries where the goods are coming from, but individual industries will also be hit harder than others. China's flow of imports increased by only 0.7% in 2014. This represents the lowest growth rate in five years for the country. In terms of growth for particular global industries, four out of nine tracked by UBS exported less to China than in 2013. Imports of minerals and fuels, electronics, textiles, and instruments all decreased. Two other industries, chemicals and plastics, increased imports by less than 1%. US manufacturers were hit similarly hard. Census Bureau data shows that China is the third-largest export destination for US goods, after the NAFTA partners of Canada and Mexico, with $US122 billion heading across the Pacific in 2014. Trade with China grew 1.9% last year according to the UBS report. This is above the global average, but drastically below average 9.9% year-over-year growth for the three years preceding based analysis of Census Bureau data. Textiles and minerals and fuels decreases in exports of over 10%, while only agriculture had double-digit growth. UBS notes that while commodities took the biggest hits, the slowdowns are starting to reach processed items as well. "With China's property construction deceleration set to deepen this year in a multi-year slowdown, we may see a longer-term decline in China's appetite for foreign industrial imports," said the report. This is especially troubling to vehicle and machinery producers, as around 30% of all exports from the US in those industries go to China. Globally, Germany and the EU send nearly 50% of their goods in these industries to China. Over the first four months of 2015, exports have decreased by 6.3% from the same period last year, though labour disputes at the West Coast ports contributed to the problems. China's slowdown has already started to reach American manufacturers. (16) Luxury exports from West to China plummet http://qz.com/429127/western-companies-are-reporting-plummeting-sales-in-china/ Western companies are being forced to figure China out all over again Richard Macauley Heather Timmons June 22, 2015 Foreign companies have long known that China's economic slowdown—now upon us—could hit their earnings hard. They just didn't expect they'd be hit by changing consumer buying habits and a rise in Chinese competitors at the same time. Suddenly, foreign brands are finding it a lot harder to convince consumers in the world's most populous country to part with their cash. The net result has been a string of miserable earnings reports, company reorganizations, and cost-cutting announcements in recent weeks, particularly for the world's biggest luxury and auto brands. Italian luxury goods maker Prada reported a 44% drop in net profit to Û59 million ($67 million) for the three months through April, well below expectations of Û85 million. Executives pointed to weakness in mainland China and a drop in the number of shoppers heading to Hong Kong and Macau as a major driver for Prada's poor performance, and warned that it is a trend showing Òno signs of abating.Ó Luxury companies have long charged mainland Chinese shoppers a premium of between 25% and 40% (paywall) compared to other markets, for the simple fact that consumers were willing to pay inflated prices for status symbols. Some of those companies are now slashing prices to keep consumers interested. Auto makers are suffering too. Last week, BMW reported its first monthly year-on-year drop in sales in China, its largest market, in a decade. Earlier this year executives said they were surprised by the speed of China's slowdown. Jaguar Land Rover's profit fell 33% in the first quarter and this was also, it said, thanks to a China slowdown. The steepest drop in two years pushed the company to appoint a new China sales boss from Porsche to turn things around. It has been no secret that the Chinese economy has been slowing in recent years, and a corruption crackdown has squeezed high-end spenders in particular. But an economy still growing at around 7% shouldn't create the kinds of sales drop-offs reported by some Western brands, and the fact that many of these earnings drops were surprises for analysts and investors shows just how difficult some Western companies are finding the Chinese market to navigate. Better domestic competition is part of the issue. The quality of Chinese brands is improving, as are their marketing chops (paywall) and domestic brands often predict Chinese consumers' changing desires better than foreign brands can. In fact, some of the fastest-growing luxury brands in the world are now Chinese companies like jewelers Lao Feng Xiang and Chow Sang Sang. Chinese consumer habits are another. Unilever, which owns brands from Dove soap to Magnum ice creams, saw sales in China fall 20% in the fourth quarter last year. Nestl_ has been burning the coffee it couldn't sell in China, according to the Wall Street Journal (paywall). Unilever's chief financial officer Jean-Marc Hu‘t told the newspaper that it had failed to anticipate how quickly and thoroughly Chinese consumers would make the switch to buying online. Putting it bluntly, he said Western consumer goods companies were just Òtoo slow to react to the changes in the marketplace. -- Peter Myers Australia website: http://mailstar.net/index.html |
Archives‎ > ‎