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China’s Economy Not Immune to Market Sickness
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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.
China's stalling economy and productivity growth- the need for new direction in 2013-2015
03/06/2012
Bloomberg estimates show every one dollar of new credit created now yields about 17 cents in GDP growth as old polices of state led growth are no longer working. This compares to over 83 cents in 2007. Financial repression by reducing interest rates for savers is further depressing consumer spending when it is most needed to rebalance the economy towards domestic consumption.
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Is China's GDP growth for 1st quarter 2015 the 7% official figure, or below 5% as estimated by Capital Economics, Citi and the Conference Board
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Experts say the official numbers for GDP are "fudged" or simply way off. The Bureau of National Statistics does not release the methodology, inflation assumptions and other basis for the GDP figures, making many of the numbers hard to reproduce. Transparency is seriously missing in the figures. As Communist party chief of Liaoning provincee, prime minister Li Keqiang, looked at the GDP numbers with skepticism, considering instead figures on electricity consumption, rail cargo, bank loans, as more reliable indicators of economic activity and growth.
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The People's Bank of China's injection of $65 billion into China's banking system in Dec. 2014 and other moves in 2015 to spur bank lending
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China's central bank injects money into the banking system as banks are reluctant to lend and expected growth slows to below 7%. PBOC is also concerned about the excessive debt buildup as it guides the economy. PBOC lowered the reserve requirement by one half percentage point in Feb. 2015 to free up $81 billion for lending at banks, with other targeted moves for small business and agriculture.
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Margin trading reached over 1100 billion yuan in China's stock markets by Feb 2015, according to Wind Information. Action by regulators has failed to lower the leveraging practices in the stock market.
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The People's Bank of China cuts the benchmark one year deposit rate by 0.25% to 2.75% in Nov 2014.
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China's debt situation in 2014 with total debt to GDP of 250%, and the risks to the economy
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China’s First-Quarter Growth Slowest in Six Years at 7%
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Washington Post 01/27/2016
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Washington Post 01/27/2016
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