China Continues to Prop Up Its Ailing Factories

[Kusje]

 

bro, its monthly million matrix tons produced by US and China lah. Info from World Steel Organisation. But compare to your source of million times more... :XD:

 

My concept is simple, If you are not efficient  to produce and someone is subsidising your purchase and that someone you are buying from is your enemy and you know you dont need to pay for what you buy. Then buy until his pants drop....

 

But of course, you can still keep your concept of continue to process at higher price because of whatever strategic reason. :secret-laugh:. 

 

 

 

You wrote MT leh. That is more commonly a measure (at least to my knowledge) to describe metric tons and not millions of tons.

 

Anyway, we live in Singapore so we don't really know how a country should be self-sufficient. If USA or any other power starts to allow their key industries to decline so they can make profits on "comparative advantage" then this hollowing out of knowledge will come back to bite them in the butt in the future.

 

Like I said, China can sell them cheap steel today, tomorrow and the day after but this is only so that they can crush the us steel producers. Once that is done, they might not be as inclined to sell for such low prices anymore and USA might find it difficult to restart production.

[Goldbug]

 "Authority" figure says China economy L shape landing

 

 

 

[Goldbug]

[Lala81]

You wrote MT leh. That is more commonly a measure (at least to my knowledge) to describe metric tons and not millions of tons.

 

Anyway, we live in Singapore so we don't really know how a country should be self-sufficient. If USA or any other power starts to allow their key industries to decline so they can make profits on "comparative advantage" then this hollowing out of knowledge will come back to bite them in the butt in the future.

 

Like I said, China can sell them cheap steel today, tomorrow and the day after but this is only so that they can crush the us steel producers. Once that is done, they might not be as inclined to sell for such low prices anymore and USA might find it difficult to restart production.

 

yeah we live in a country where we don't mind selling our national assets or are already owned by temasek/GLC.

For a major power, not having a steel industry is a major weakness if it ever comes to war.

[Goldbug]

 

Is Liu He the authority figure?

 

[Wyfitms]

China Trip Notes

Nouriel Roubini, Roubini Macro Associates

July 6th, 2016

 

I recently visited China: Beijing and Tianjin for the WEF “Summer Davos”.

 

Actual growth – as opposed to the officially stated one of 6.7% - is closer to 5.5-6% (as half of GDP is now the rapidly growing service sector), a proof of a bumpy landing rather than a hard landing. Recent macro stimulus has stabilized growth in Q1-Q2 2016 even if the stimulus impact may fizzle out by Q4 or Q1-2017. Brexit is not perceived as a serious risk to the Chinese economy and its market impact has been limited.

 

Capital flight has slowed down as the realization that a bumpy landing doesn’t require a step devaluation has sunk in the minds of investors. Still, the informal basket peg is likely to show a gradual and modest nominal trade weighted depreciation.

 

China faces a policy dilemma and contradiction between it GDP growth target (6.5% average over the current 5 year plan) and its structural reforms and rebalancing goals (reduce over-capacity, reduce leverage, lower over-investment, clean-up bad asset and bad debts, market discipline, clean-up of zombie firms and financial institutions).

 

The official rhetoric is about supply side structural reforms but the reality is that there is a political imperative to keep growth at 6.5% to show a doubling of GDP within the current decade.

 

Also President Xi is distracted by issues and goals other than economic reforms: still cracking down on corruption, consolidating and concentrating his powers, reducing civil freedoms, ramping up neo-Maoist rhetoric, pursuing foreign policy and security goals including in the seas around China, planning to replace with his loyalists the remaining members of the Standing Committee in the fall of 2017.

 

Thus, structural reforms are taking a back seat. The reduction in over-capacity will be modest – relative to its size and mostly in two sectors, steel and coal. The leverage ratio will rise as growth slowdowns lead to a doubling down of credit fueled investment: credit growth this year will exceed again nominal GDP growth with the fig leaf being a plan to convert bad debts into bad equity, not a real solution to the leverage problem. True SOE reform would require not only dealing with over-capacity by shutting down zombie firms and factories but also dealing with the resulting surplus labor (that resists downsizing as the social safety net is limited) and dealing with the bad debts of zombie firms and of local governments (that requires a clean-up of the financial system and imposition of true market discipline on corporates and financial firms).

 

There is also still wishful hope that the over-capacity in many sectors may be dealt by exporting such excess-capacity to other countries accepting the infrastructure projects that the One Belt One Road and the new Silk Road are aiming at.

 

Thus, the stabilization of growth in the short term – that reassures investors that a hard landing will not occur – is at the cost of greater financial imbalances and fragilities in the medium term that will over time increase the risk of a harder landing: rise in bad assets and bad debt; rising NPLs of the bank and shadow banks; greater SOE and corporate fragility where debt servicing is increasingly higher than corporate profits.

 

The recent much hyped People’s Daily strong message from a senior policy maker (most likely the Liu He, the head of the Leading Group and the closest economic advisor of President Xi) that suggested the need to accept L-shaped growth and deal with over-capacity and over-leverage was followed the next daily with a front page speech by President Xi where the emphasis was on growth rather than reforms.

 

More than just a conflict between reformist groups (PBOC, Finance Ministry, Leading Group) and forces favoring GDP growth (State Council, Party apparatus, SOEs, local governments) the mixed policy signaling is a symptom of the leadership to fudge the contradiction between growth and reforms/rebalancing. The monetary and credit easing that led to the strengthening of growth in Q1-Q2 led to a surge of credit growth and housing price inflation that rekindled the concerns about financial stability; thus, the senior policy maker message that such credit boom should be restrained.

 

But, in a matter of a day, a more senior signal – from President Xi – came that maintaining growth to target levels – is paramount. The Chinese are trying to square a circle that increasingly cannot be squared. But growth and its related social stability takes precedence over front loaded structural reform.

 

Also, the botching by the PBoC of the transition to a more flexible exchange rate that triggered massive capital flight damaged the reformers’ goals of more exchange rate flexibility, capital account liberalization, less FX intervention and financial reforms.

 

Even after 2017 when President Xi will have achieved his political goals, a rapid acceleration of structural reforms is unlikely. Xi is not a Deng; he is a moderate reformer with neo-Maoist tendencies. Thus, even after 2017 reforms will occur only very gradually at a time when financial imbalances are becoming greater.

 

Thus, while unlike the summer of 2015 and the first two months of 2016 concerns about a China hard landing led to two massive global risk-off episode the current growth stabilization reduces the market concerns about a Chinese hard landing, China will become again over time a source of investors’ risk off as: a) the current policy stimulus may fizzle out in the next couple of months re-triggering concerns about Chinese growth that will trigger another policy stimulus; b) repeated credit and monetary easing that supports short-run growth increases financial fragilities over the medium term.