LyrArc Article Gist
China's July 2012 exports were up barely by 1%, over the same month prior year. Exports to the European Union declined by 16.2%. A big problem is cost increases for land, labor and electricity. By 2004 China's exports were growing at a peak rate of 35%. Since then prices of inputs have increased- wages by 150%, land by 70%, and electricity prices by 30%, according to Dragonomics. The yuan appreciated by 30%. Productivity is increasing by about 8% a year, according to the World Bank. As a result of the price increases of inputs the competitiveness of China, with products exported mainly on the basis of price, is deteriorating.

LyrArc Article Gist
Hon Hai, a Chinese company which makes IPads and IPhones for Apple has grown by doing high quality work for lower prices than anyone else. In the process Hon Hai has generated a culture that is tough even by Chinese standards. About 250,000 workers are employed in its factories in Shenzen alone. A series of suicides at the plant has attracted attention to the tough conditions. One worker says conversation on the production line is banned, bathroom breaks are limited to 10 minutes for every 2 hours, and the discipline is strict. Hon Hai won Apple's order says one supply-chain search expert, by pricing low. Its CEO Gou was willing to sell some components at zero profit according to people familiar with his actions. Workers come from rural areas, are very young, the first time they are away from their families, and live in dormitories, eight to ten people to a room. Hon Hai's response is to increase wages 30%. But a report about a college graduate who was asked about conditions reflects the general feeling. This graduate makes twice as much in product development, at 2000 yuan a month, or $293 a month. But the monotonous life and the feeling of no future affects this worker and may be a sign of something changing in China's factories. The unwillingness to accept the conditions that existed in the past....

LyrArc Article Gist
This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

LyrArc Article Gist
Aaron Back says this time China is likely to feel the effects of the volatility in the stock markets. The surge in the stock markets added about half a percentage point to GDP growth in the 1st quarter of 2015, according to Capital Economics. GDP growth in the 1st quarter 2015 was 7%. Capital Economics says removing the boost from the stock market to a sluggish economy would mean a loss of 1 percentage point in GDP growth. Equity issuance was one way China hoped to reduce high debt levels at companies, and that avenue would the be that much harder to access to reduce debt levels. Margin financing is about $354 billion, or 3.5% of GDP according to Goldman Sachs, posing another source of problems and potentially affecting growth if stock losses lead to defaults. Declining investor sentiment and confidence in management of the economy would be another casualty in this situation. Only 10% of Chinese households own stocks compared to 50% in the U.S., yet Aaron Back says the effects of this are likely to be felt in lower economic growth and shaken confidence in the economy....

LyrArc Article Gist
Greg Ip of the WSJ points to the economic changes in China's economy and the threat of deflation in 2016 with the large debt and slowing economy. For the last decade China was seen as a currency manipulator as it kept the value of its currency lower to increase imports. With the large changes in China's economic situation in 2015-2016 China may face a situation similiar to Japan with deflationary trends. China faces political pressures in 2016 with the U.S. presidential election in 2016 to not intervene with the currency. The goal of making the yuan a global currency adds to these pressures. Other factors are the need to service debt in dollars of Chinese property companies.

LyrArc Article Gist
Efforts by homebuyers in China to evade government restrictions designed to control rising prices.

LyrArc Article Gist
The PBOC, China's central bank, injects $65 billion into China's banking system in Dec. 2014 to get banks to increase lending as the economy slows further. Experts say the growth rate is likely to drop below 7%. At the same time the central bank and economic policy makers are concerned about excesssive debt in the economy, shadow banking and local government debt risks. It cut benchmark interest rates by 0.25% in 2014. Other risks are developing as the property market cools off and investors shift investment to equity markets creating a surge of 50% in the Shanghai and Shenzen stock exchanges for 2014. As a result economic policy is not as effective in today's environment.

LyrArc Article Gist
Sales of automobiles in China in July 2012 declined 12.6% from the prior month according to the China Association of Automobile Manufacturers. There are two parts of China's automobile sector, the foreign brands of GM, Toyota, VW, Ford and others, and the Chinese brands. There are 48 Chinese domestic carmakers for 30% of China's automobile market, with sales of 87,500 per brand on average, according to J.D. Powers. Many of these carmakers will not survive even with subsidies from local governments. China's car buyers prefer foreign brands because of the better quality and reliability. Foreign carmakers face an oversupply of cars as GM, Honda, Ford, VW have continued to add capacity. Total automobile manufacturing capacity is about 28.5 million cars and commercial vehicles. This is 9 million more than the expected sales in 2012, according to J.D. Powers. The most recent company adding large capacity is Ford Motor Company, which was relatively late in the Chinese market, and decided to boost capacity from 450,000 in 2011 to 1.2 million in 2015, to make it the largest manufacturing location outside of its home base of Michigan. This creates the prospect of foreign carmakers having to offer larger incentives and discounts to manage inventory and operating with higher levels of unused capacity, reducing profits in future years. Most of the plans to increase capacity were made when China's GDP growth was over 10%, it is now slowing to 7.5%....

LyrArc Article Gist
Krugman points to the economic muddle that China is getting itself into. He says one way of looking at what is happening now with high inflation is that inflation is the market's way of undoing the currency manipulation that China has engaged in. By following aweak currency policy to protect export interests China has created an artificially high trade surplus. But this is now turning into a lose-lose proposition for both China and the US as market forces push wages and prices up, whittling away at any competitive advantage of China's weak currency policy. He says some estimates he has seen show that Chinese undervaluation could be gone in two or three years. Chinese consumers are asked to accept interest on savings limited to 2.75% and below inflation, with the spread designed to help banks earn their way out of bad loans made during the stimulus lending binge of 2009-2010. What is happening is a massive allocation of capital away from consumers to lending for state owned companies that have created overcapacity in many industries, and use part of this capital to engage in real estate speculation. Krugman says China may be on its way to some kind of crisis with collateral damage to the rest of the world as it is a major importer of commodities from Canada, Brazil, Argentina, Australia, and a major importer of high tech goods from Germany and the USA....

LyrArc Article Gist
Former World Bank chief Zoellick points to the need for investments in human capital and productivity improvements in emerging markets such as India, China and Brazil to overcome the problem of slow growth in 2013.

LyrArc Article Gist
Prof. Scott Kennedy of the Research center for Chinese Politics and Business, voices concerns of experts who think that the $585 billion stimulus and the doubling of lending this year, increase in exports by a third last month, all point to an economy that is expanding too quickly. Kennedy says that no one defies economic laws, that eventually endless growth can get get you in trouble. The concern is whether the overexpansion of credit and the size of the stimulus may have led to overreaction in stimulus spending. People's Daily newspaper of China said that China's leaders are moving much faster than leaders of developed nations. But the flip side of this is that in the rush to increase spending there may be a lot of wasteful spending resulting in many bad loans a few years from now.

LyrArc Article Gist
Anglo American responds to declining commodity prices and the slowdown in China with deep cuts of 53,000 jobs from its 151,000 workforce. Some of the jobs will be layoffs and other job cuts will be through sale of mines. In Australia mining employment is down 13% in the 2d quarter of 2015 over prior year. Anglo American plans to sell over a quarter of assets in the downsizing. BHP has spun off over ten mines into a separate company called South32. American Pittsburgh based company Consol Energy says it will no longer provide guaranteed health insurance to retired workers. Anglo American is one of the hardest hit companies. It had losses of $3 billion for the first half of 2015, and needs $1.5 billion in cost cutting to become profitable again.

LyrArc Article Gist
Cook and Olson look at how U.S. shale oil firms have handled the slump in oil prices. Their report in WSJ says the shale firms have weathered the oil slump well, with production declines in 2016 of only 535,000 barrels a day compared to 2015. The Saudi decision to not cut production and let oil prices drop has affected mostly higher cost less flexible production for mega projects such as deep water projects and oil sands in Canada. Oil shale firms are expected to snap back, according to experts, as demand increases. U.S. production is expected to increase by about 700,000 barrels a day by end of of 2017, say experts.

LyrArc Article Gist
The limited options the US has to get China to appreciate the value of its currency, the yuan. Some of the options depend on getting the IMF or the WTO to prod the Chinese, others depend on a Plaza type Accord.

LyrArc Article Gist
Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

LyrArc Article Gist
The Peronist candidate Alberto Fernandez wins Argentina's election with 48% support. Mr. Macri's economic policy led to mismanagement of the economy, and recession, high inflation. Mr. Macri took on $100 billion in foreign debt and had to turn to the IMF for a $57 billion bailout. The shift in administration happens as the peso tumbles. By lifting capital controls in 2016 when the official rate was 10 to the dollar Mr. Macri shifted direction but failed to manage this in a prudent way leading to a jump in the foreign debt. By the second half of 2018 this policy led to the peso falling to 45 to the dollar and another drop by mid 2019 to about 60 to the dollar. The central bank has burned about $22 billion or a third of the central bank reserves to defend the peso, including $4 billion only last week. A third of this decline in reserves is due to withdrawals as capital controls were reimposed., the remainder due to interest on debt and bank interventions in currency markets to defend the peso. Customers are now limited to $100 in withdrawals leading to demand in the black market pushing the rate to 75 pesos to the dollar. Argentina is no stranger to these crises, yet they repeat every 10-15 years. The earlier Peronist administration of Mr. Nestor Kirchner came in when there was economic collapse in 2003 and had to suspend debt payments as a last resort. Negotiations were begun with lenders only after 2007 when Mr. Kirchner's wife Christina Kirchner assumed office. She won the election in 2011 but was defeated in the 2015 election by Mr. Macri, and reelected in 2019 as vice president running under her former chief of staff Mr. Alberto Fernandez. The Peronists are a socialist party and restored a degree of stability to the economy, limiting foreign debt and managing the economy with a rebound in commodity prices such as soyabeans exported by Argentina to meet growing demand in China. By 2015 the country appeared ready for a change, but Mr. Macri's austerity policies and mismanagement of the debt led to a repeat of earlier crises with high inflation and collapsing peso, hitting working class Argentines.    Argentina has a long history of alienation with IMF loans with policy strings attached for austerity spending, starting in 1957.  About 58% of the people who voted Macri into office opposed turning to the IMF in May 2018 after interest rates were raised to 40% by the central bank to stem a drop in the peso. The IMF loan this time was a shorter duration loan on better and was supposed to help Mr. Macri stabilize the economy and its cash and payments position. The jump in foreign debt including issue of dollar denominated bonds, lack of caution and prudence in managing the finances, lack of currency controls, drop in foreign investment by 2019, and the fall in commodity prices from the commodity boom years especially soyabeans, combined to create another collapse in Argentina. It was thought that the 2003 crisis that hit the working class and poor hardest was behind it once and for all. Yet only 15 years later the country is in a similar mess and hardships, showing that prudent management of finances, maintaining social programs to support the middle and weaker segments, and ways to create sustainable growth from within, are still the major problems facing not just Argentina, but also Brazil, Chile and other nations of Latin America.   ...

LyrArc Article Gist
Keith Bradsher visits Guangzhou, China, just as prime minister Wen Jiabao tells the National People's Congress that China is changing its priorities from high growth to sustainable development. As recently as 2007 GDP growth reached 14%! The minimum wage is expected to rise 13% each year under the five year plan. Even with the increase in wages owning an apartment is unaffordable in Guangzhou- a 1000 square feet apartment costs upward of $300,000, showing the extent to which the bubble in real estate prices affects young people who cannot afford to own an apartment. A new graduate with marketable skills such as computer engineering makes about $6000 a year, putting owning an apartmet beyond reach. Another change he notices today is that during visits to construction sites he does not see flood lit sites at night. This used to be the case because builders were scrambling to build. With government policies discouraging the property bubble there is no longer a need for work at night. The focus now has shifted to build low income housing....

LyrArc Article Gist
Wang Huning, who has shaped the policies of three Chinese presidents, was a professor at Fudan University in Shanghai, before beng selected by president Jiang Zemin in 1995 to join the Communist Party of China's Central Policy Research office. The Policy Research Office provides research and guidance on foreign and domestic policy to China's leadership body, the Politburo. Huning was dean of the law school at Fudan, and head of its international politics department. He studied French at a foreign languages school during the Cultural Revolution upheavals in China, before going to Fudan University in 1978. Xi Jinping, the current president, was sent like many other Chinese leaders to work on a farm in the countryside during that period. In that same year 1978, Li Keqiang, the current prime minister moved to Peking University, after taking the first university entrance exams in 1977 following the Cultural Revolution. Li studied western constitutional law, later focussing on urbanization for his postgraduate work. Huning studied in the U.S. in 1989 and is familiar with the American system, western concepts of government and economy. His specialization at the international politics department was in comparitive politics- the systems of government of different countries- and he is seen by experts as having been a key influence in defining China's path making move to build a market economy under public ownership, seeing it possible for the two to work together. In 1991 Huning published "America Against America," critiquing the American political system and pointing out that in American democracy major economic decision making powers still rested mainly in private consortiums, with this acting as a constraint on political democracy. These ideas gradually evolved into ways to manage China in a world with alternative systems and political history. For Huning the question facing China was one of of finding its own workable model based on its history and experience, and need to manage the transition to a modern economy in a stable environment. Huning is now part of the Politburo and a candidate for a seat on the Standing Committe in 2017. At 57, he is expected to be part of the leadership for the next decade, having helped three presidents shape domestic and foreign policy, setting the direction for China's transition to a modernized economy and a political system that accomodates the needs of a new generation....

LyrArc Article Gist
The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

LyrArc Article Gist
The Economist looks at real estate markets in the U.S., Canada, Britain, Germany, Hong Kong, India and other countries in May 2013. It looks at price to disposable income and price to rent ratios and sees if these ratios are higher than historical averages to determine if prices are based on sound foundations. Canada's real estate market looks set to face problems of a bubble bursting. The U.S. recovery is seen to be based on firm foundations. Property prices are undervalued in Germany and set to rise.

LyrArc Article Gist
U.S consumer spending declines by 0.9% in Dec. 2014 over the prior month, according to the Commerce Department. Consumer spending was up in Nov. 2014 by 0.4%. Excluding auto sales and falling gas prices the Dec. 2014 decline in consumer spending was 0.3%. This shows that consumers are saving most of the money saved as a result of gasoline at about $2 a gallon, or using it to pay off debt. Analysts had estimated a significant increase in retail spending which turned out not to be happening.