Why the West is worried Xi’s economic bazooka has misfired
If Beijing cannot raise China’s animal spirits, the world could feel the consequences
An estimated 6 trillion yuan (£650bn) “bazooka” of effectively free money pumped into China’s flagship stock market and financial system fired up a 30pc spike in shares – its biggest rally in 16 years.
Only 30 stocks in Shanghai’s 300-strong index failed to rise, while the MSCI China Index — a way for Western investors to own Chinese stocks – surged 34pc.
Billionaire investor David Tepper, founder of Appaloosa Management, said he was buying more of “everything” related to China while Ray Dalio, another US billionaire, said the move “could go down in the market-economic history books”.
Yet beneath the stock market froth lurks a more troubling question for China and the West.
President Xi, a leader who rarely takes decisions lightly, has made a bold gamble that by pumping huge amounts of liquidity into China’s system he can revive the country’s animal spirits and save the country.
So far, Chinese consumers are excited but if his big bazooka fails, it could risk a further spiral for the world’s second largest economy – and many Western countries that have hitched their wagon to China. A sugar rush is often followed by a crash.
“The big question is whether China can actually reignite this animal spirit for companies and households,” says Ng.
Global trade largely hinges on the prosperity of China, due to its large need for commodities such as iron ore used to make steel required for the country’s vast construction projects as well as its consumption of everything from medicines to luxury brands.
Donald Trump’s trade war with China triggered global economic jitters – and a self-inflicted wound on its own economy could have similar repercussions for growth.
The sudden policy blitz has been driven by the urgent need for China’s leadership to arrest the country’s rapid economic slide after a cataclysmic property crash.
Pan Gongsheng, the People’s Bank of China (PBOC) governor, unveiled a surprise slew of monetary reforms on Sept 24 including cutting bank deposit rates and measures to support the property sector.
In a hastily arranged conference broadcast live on Chinese television, Mr Pan said the measures would create a “good monetary and financial environment” for China’s battered economy.
The most eye-catching measure was an attempt to prop up China’s long-suffering stock market with 800bn yuan to support share buying.
Under the plan, Pan, a Cambridge graduate, is offering China’s banks 300bn yuan worth of cheap loans to help fund stock market purchases and 500bn yuan for funds and insurers to buy stocks.
Alongside the cash, China’s Politburo – the powerful 24-man Communist Party committee headed by Xi – issued a rare economic statement saying it would stop the real estate market from declining.
On Saturday, Chinese officials went even further, handing local governments cash to buy unused land and unsold homes, while China’s largest state-owned banks will also be given free money to boost their balance sheets.
At the market’s close on Friday, the main Shanghai index was down 3.3pc for the week as the rally fizzled out.
Some fear Xi’s stimulus is likely to fail as many Chinese consumers have become all too wary of the Politburo’s flip-flopping on economic policy.
“The party has a real economic problem on its hands with the decline of the property market, because they’ve lost a major driver of growth that has bubbled for 20 years,” says Andrew Collier, a senior fellow at the Harvard Kennedy School
“I find it ironic that a country that’s so authoritarian and has such a state-owned system is eager to get the animal spirits of capitalism to rejuvenate the economy.
“But they’re not doing anything structural, so people aren’t buying it. People said that they’re going to fire a bazooka – they fired a pop gun.”
If anything HK is the cleanest shirt in China... so if this ... then imagine the situation on the mainland...
Cullinan Sky was developed on a land plot that Sun Hung Kai bought for HK$25.2 billion ($3.2 billion) in 2018, a record price at the time. With the pricing of this first batch of homes, the developer may be booking a loss as the average sale is 38% below the estimated breakeven unit price of HK$32,000 per square foot, BI said. Sun Hung Kai has an additional 584 homes under construction in a second phase of the project.
China New Credit Data Is A Disappointing Mess, Sparking Speculation Of QE
Two weeks ago, when the world was still enamored with Jim Cramer's idiotic idea that Chinese stonks can magically double in just a few weeks simply because Beijing had some soothing words to say and because when it comes to greater fools, China has more than anyone else, and when Goldman laughably upgraded Chinese stocks after the 30% runup had already taken place,we warned that the party was about to end...
... for one simple reason: as we said in "Why China's Rally Won't Have Legs", China would be unable to recreate previous reflationary episodes simply because Beijing would not be able to recreate the credit impulse explosion that rebooted the Chinese economy during previous downturns, in 2012, 2015 and 2020.
Specifically, this is what we said:
In the 2015 stimulus cycle, China’s credit impulse peaked at 13.5 trillion yuan, equivalent to over 15 percent of GDP. Given that China’s nominal economy is now twice as large, an equivalent stimulus would need the credit impulse to peak at 27 trillion yuan (Chart 2).
At its most recent peak though, China’s credit impulse did not even reach 5 trillion yuan! Meaning that to compare with the 2015 episode, the just-announced stimulus cycle would need an amplitude five times greater than the most recent peak.
This would require a major reversal of the downtrend in stimulus cycles through the past two decades. After the credit impulse peaked at a monster 25 percent of GDP in 2009, subsequent peaks have reached 15 percent, 15 percent, 10 percent, and just 3 percent. This is significant because as the peak impulse has dwindled, so has the boost to growth (Chart 3 and Chart 4).
I watched a video of the latest trend in China. Closure reps who go into restaurants and businesses to show them how to close shop and run off with the cash before any employees or suppliers find out.
They pay an old guy, with no money from the province, to become the new owner first. Then the original owners packs up and leaves with all the equipment, employees wages, prepaid dining cards, gym memberships, ect.
China is totally in free fall and there is no way to stop it. Way too many empty homes and way too many college grads with no jobs available for them.
China also started rounding up passport from government employees so they can't leave the country. I spent a lot of time in Wuhan before the Scamdemic. NOT a good place to be now.
Yes... the country is beyond saving... but they did their part to keep the global economy from collapsing in 2008.... they took the baton from the USA... who inflated a housing bubble to keep the economy growing... when that ran out of steam ... China took things to even greater heights
I knew soon after the GFC that there was no possible way to fix this ... it amazes me that the Central Banks have been able to deliver another 16 years of life...
I am off on another bucket list trip on Wednesday... a month this time... I may extend that
At some point, debt could simply be ... crossed out. If all the infrastructure is in place, could a country simply decree a jubilee, and start again with a gold backed currency? Outside investors might not like it, but who cares. They will probably then look at a brand new country, with everything it has going for it, including suddenly much cheaper labour no longer burdened by punishing debt.
And, its off the races... once more. A brand new world. The youth would see the promise of a good life once again.
Is this not something BRICs could achieve, as it shuffles off the coils of the western extortion system?
China is a critical component of the global supply chain.
This country has been the driver of global growth since the GFC.... all based on running up gargantuan debts and building ghost cities.
"Professor Victor Shih, director of the 21st Century China Center in San Diego, says 12 of the 31 provinces have monthly debt service costs that exceed their monthly income, and all but four were over 50pc. By the end of 2022 the debt service ratio had reached 200pc in Tianjin, 188pc in Jilin, 176pc in Guizhou, and so on."
The country is bankrupt. It is too big to fail. It is too big to bail.
I have no idea when it will implode... but implode it will... and it will bust the supply chains and destroy the global economy.
Consider the mining industry that supplies China... China is by far it's biggest customer... China implodes mining implodes...
Likewise the oil industry.
This has not been going on for 3000 years because it's been less than 50 years since China became the workshop a globalized world.
We must be close to the end game https://fasteddynz.substack.com/p/the-ultimate-extinction-plan-uep
You do not want to be alive when China goes down....
Why the West is worried Xi’s economic bazooka has misfired
If Beijing cannot raise China’s animal spirits, the world could feel the consequences
An estimated 6 trillion yuan (£650bn) “bazooka” of effectively free money pumped into China’s flagship stock market and financial system fired up a 30pc spike in shares – its biggest rally in 16 years.
Only 30 stocks in Shanghai’s 300-strong index failed to rise, while the MSCI China Index — a way for Western investors to own Chinese stocks – surged 34pc.
Billionaire investor David Tepper, founder of Appaloosa Management, said he was buying more of “everything” related to China while Ray Dalio, another US billionaire, said the move “could go down in the market-economic history books”.
Yet beneath the stock market froth lurks a more troubling question for China and the West.
President Xi, a leader who rarely takes decisions lightly, has made a bold gamble that by pumping huge amounts of liquidity into China’s system he can revive the country’s animal spirits and save the country.
So far, Chinese consumers are excited but if his big bazooka fails, it could risk a further spiral for the world’s second largest economy – and many Western countries that have hitched their wagon to China. A sugar rush is often followed by a crash.
“The big question is whether China can actually reignite this animal spirit for companies and households,” says Ng.
Global trade largely hinges on the prosperity of China, due to its large need for commodities such as iron ore used to make steel required for the country’s vast construction projects as well as its consumption of everything from medicines to luxury brands.
Donald Trump’s trade war with China triggered global economic jitters – and a self-inflicted wound on its own economy could have similar repercussions for growth.
The sudden policy blitz has been driven by the urgent need for China’s leadership to arrest the country’s rapid economic slide after a cataclysmic property crash.
Pan Gongsheng, the People’s Bank of China (PBOC) governor, unveiled a surprise slew of monetary reforms on Sept 24 including cutting bank deposit rates and measures to support the property sector.
In a hastily arranged conference broadcast live on Chinese television, Mr Pan said the measures would create a “good monetary and financial environment” for China’s battered economy.
The most eye-catching measure was an attempt to prop up China’s long-suffering stock market with 800bn yuan to support share buying.
Under the plan, Pan, a Cambridge graduate, is offering China’s banks 300bn yuan worth of cheap loans to help fund stock market purchases and 500bn yuan for funds and insurers to buy stocks.
Alongside the cash, China’s Politburo – the powerful 24-man Communist Party committee headed by Xi – issued a rare economic statement saying it would stop the real estate market from declining.
On Saturday, Chinese officials went even further, handing local governments cash to buy unused land and unsold homes, while China’s largest state-owned banks will also be given free money to boost their balance sheets.
At the market’s close on Friday, the main Shanghai index was down 3.3pc for the week as the rally fizzled out.
Some fear Xi’s stimulus is likely to fail as many Chinese consumers have become all too wary of the Politburo’s flip-flopping on economic policy.
“The party has a real economic problem on its hands with the decline of the property market, because they’ve lost a major driver of growth that has bubbled for 20 years,” says Andrew Collier, a senior fellow at the Harvard Kennedy School
“I find it ironic that a country that’s so authoritarian and has such a state-owned system is eager to get the animal spirits of capitalism to rejuvenate the economy.
“But they’re not doing anything structural, so people aren’t buying it. People said that they’re going to fire a bazooka – they fired a pop gun.”
https://www.telegraph.co.uk/business/2024/10/14/xi-jinping-tried-save-chinese-stock-market-risks/
https://archive.md/XLupq
If anything HK is the cleanest shirt in China... so if this ... then imagine the situation on the mainland...
Cullinan Sky was developed on a land plot that Sun Hung Kai bought for HK$25.2 billion ($3.2 billion) in 2018, a record price at the time. With the pricing of this first batch of homes, the developer may be booking a loss as the average sale is 38% below the estimated breakeven unit price of HK$32,000 per square foot, BI said. Sun Hung Kai has an additional 584 homes under construction in a second phase of the project.
https://www.bnnbloomberg.ca/business/international/2024/10/06/hks-biggest-developer-sells-204-apartments-in-a-day-at-discount/
China New Credit Data Is A Disappointing Mess, Sparking Speculation Of QE
Two weeks ago, when the world was still enamored with Jim Cramer's idiotic idea that Chinese stonks can magically double in just a few weeks simply because Beijing had some soothing words to say and because when it comes to greater fools, China has more than anyone else, and when Goldman laughably upgraded Chinese stocks after the 30% runup had already taken place,we warned that the party was about to end...
... for one simple reason: as we said in "Why China's Rally Won't Have Legs", China would be unable to recreate previous reflationary episodes simply because Beijing would not be able to recreate the credit impulse explosion that rebooted the Chinese economy during previous downturns, in 2012, 2015 and 2020.
Specifically, this is what we said:
In the 2015 stimulus cycle, China’s credit impulse peaked at 13.5 trillion yuan, equivalent to over 15 percent of GDP. Given that China’s nominal economy is now twice as large, an equivalent stimulus would need the credit impulse to peak at 27 trillion yuan (Chart 2).
At its most recent peak though, China’s credit impulse did not even reach 5 trillion yuan! Meaning that to compare with the 2015 episode, the just-announced stimulus cycle would need an amplitude five times greater than the most recent peak.
This would require a major reversal of the downtrend in stimulus cycles through the past two decades. After the credit impulse peaked at a monster 25 percent of GDP in 2009, subsequent peaks have reached 15 percent, 15 percent, 10 percent, and just 3 percent. This is significant because as the peak impulse has dwindled, so has the boost to growth (Chart 3 and Chart 4).
https://www.zerohedge.com/markets/china-new-credit-data-disappointing-mess-sparking-speculation-qe
I watched a video of the latest trend in China. Closure reps who go into restaurants and businesses to show them how to close shop and run off with the cash before any employees or suppliers find out.
They pay an old guy, with no money from the province, to become the new owner first. Then the original owners packs up and leaves with all the equipment, employees wages, prepaid dining cards, gym memberships, ect.
China is totally in free fall and there is no way to stop it. Way too many empty homes and way too many college grads with no jobs available for them.
China also started rounding up passport from government employees so they can't leave the country. I spent a lot of time in Wuhan before the Scamdemic. NOT a good place to be now.
Yes... the country is beyond saving... but they did their part to keep the global economy from collapsing in 2008.... they took the baton from the USA... who inflated a housing bubble to keep the economy growing... when that ran out of steam ... China took things to even greater heights
I knew soon after the GFC that there was no possible way to fix this ... it amazes me that the Central Banks have been able to deliver another 16 years of life...
I am off on another bucket list trip on Wednesday... a month this time... I may extend that
Hey Eddie. You're one of those expendables bad ass types. You want to help me go to Xiogan to rescue my daughter? I have all the gear and logistics.
Just kidding! It's suicide to go there now. I'm trying to find a way to do it.
Have a safe trip scratching off another bucket list item. Take good care!
good work, more please!
At some point, debt could simply be ... crossed out. If all the infrastructure is in place, could a country simply decree a jubilee, and start again with a gold backed currency? Outside investors might not like it, but who cares. They will probably then look at a brand new country, with everything it has going for it, including suddenly much cheaper labour no longer burdened by punishing debt.
And, its off the races... once more. A brand new world. The youth would see the promise of a good life once again.
Is this not something BRICs could achieve, as it shuffles off the coils of the western extortion system?
China has been imploding for 3,000 years
China is a critical component of the global supply chain.
This country has been the driver of global growth since the GFC.... all based on running up gargantuan debts and building ghost cities.
"Professor Victor Shih, director of the 21st Century China Center in San Diego, says 12 of the 31 provinces have monthly debt service costs that exceed their monthly income, and all but four were over 50pc. By the end of 2022 the debt service ratio had reached 200pc in Tianjin, 188pc in Jilin, 176pc in Guizhou, and so on."
The country is bankrupt. It is too big to fail. It is too big to bail.
I have no idea when it will implode... but implode it will... and it will bust the supply chains and destroy the global economy.
Consider the mining industry that supplies China... China is by far it's biggest customer... China implodes mining implodes...
Likewise the oil industry.
This has not been going on for 3000 years because it's been less than 50 years since China became the workshop a globalized world.
I'm sure it will implode eventually like everywhere else
I think it’s time to start a garden 🪴
https://fasteddynz.substack.com/p/the-utter-futility-of-doomsday-prepping
That just makes you a target for raiders
It should have occurred years ago but China's coal continued the game for one more generation
Cornucopians think they can kick the can again with all these rumored new tech but they are in denial