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Subject: China heading for recession?
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kodama
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China heading for recession?
I've been monitoring some of the problems emerging in the Chinese economy including the widespread bankruptcies among smaller enterprises and decline in the property market and think this could be building towards China's growth ending some time next year and entering a contraction. China could be hit by some of the financial issues around the world but it has plenty of its own problems right now including the problems with the world economy hitting exporters in the country and the fact many Chinese companies were betting on global growth which seems to have been a bad bet. The companies building massive ports may be faced with bankruptcy.
I have a hard time believing China can maintain growth at this point with so much of the world economy falling and its own internal economic problems. There's likely to be some bank failures on the way with some having heavily lended to those sinking small enterprises and the lack of a deposit insurance system means a lot of people could lose their money. All the trends right now are down and unemployment looks to increase.
The data seems to indicate a recession is on the way for China. I saw on projection for the fourth quarter at 5.8% growth which is a huge step down from just the previous quarter. If that trend continues it could mean China enters a recession next year.
It's likely China will not suffer like the U.S. and other countries for a variety of reasons, but the likelihood of a recession in China seems to have increased considerably.
2008-11-22 03:59 PM
#1
zglobal
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It is possible I think.
But no matter what China will be one of the strongest.
China also has a better social infrastructure in many ways.
While they don't have open social security handouts, they do have the villages to retreat to which is even better.
China has huge cash reserves. Pity they are mostly in USD but well, just bad foresight.
China has the world's best savers.
China has the world's biggest production.
China is one of the world's smallest consumers per capita.
China has a government that can react quickly in the best interests of the country.
China has a safety net of the villages.
For years now the parents stayed in villages and kids moved to big cities.
They send gifts and money back home to create a more comfortable life.
Now they can return if need be and on the whole life is not so bad.
Yes, China will almost certainly hit recession (maybe not officially as every country cooks its books).
However, they are far better placed than almost any other country in the world.
Compared to others, China and Australia look strongest to me in the next 1 to 5 years.
2008-11-22 04:09 PM
#2
peterd
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Well, if you build a house of cards anywhere ......
2008-11-22 06:35 PM
#3
interesting
(Steven Schreiber)
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Kodama,
Power generation is down 4% over last year. That's a very worrying sign. Growth of 5.8% means that there will be negative job growth.
Recessions for developing countries are hard to peg because increases in the economy don't always translate cleanly to other factors. For example, China needs 6% growth just to maintain employment.
2008-11-22 08:27 PM
#4
rock_chopper
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Steel production is down 17% too and I saw a report that 30% of China's steel mills have been closed. Not good.
2008-11-22 08:59 PM
#5
tradervic
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QUOTE:
Originally posted by
zglobal
at 11/22/2008 03:09 AM
Now they can return if need be and on the whole life is not so bad.
<Arched Eyebrow> Considering the size of plots I saw for those folks still 'on the farm' it is going to be a shock to the village resources - including food supplies. The CCP better step it up on rural land reforms - cause letting local governments plow under anymore viable, or semi-viable, farm land is not going be a good thing.
Then again, if the powers to be in Beijing are thinking of dabbling in hydroponics...
2008-11-23 12:56 AM
#6
westhall
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It seems that the rational for guessing that China will hit a recession is a regression type analysis. You look back at the GDP trend and guess that it will continue its course. The problem is graphs do not control GDP, industries do. Just because China and the world has seen huge economic damage, it does not mean that it will continue.
To determine if China will hit a recession we need to look at the root of the problems. In an oversimplified sentence, world consumer spending has dropped because credit is frozen. Business can't expand, not being able to expand has cut consumption, a lack of consumption has cut manufacturing orders. Not until the root of the liquidity problem is addressed will the world economy turn around.
The US has done a lot to fix some of its problems backing commercial paper, re-capitalizing banks, and soon to be large fiscal spending. These things will help restore the US economy and, as the biggest player in the world economy, help restore the world economy.
But China is doing a lot to restore its own economy. Since China is a production oriented economy, as opposed to service oriented, it is easy to help the Chinese economy by doing exactly what the Chinese government is doing, spending a crap-load of cash on capital developments. It is estimated that the stimulus package proposed by China will result in 3% of China's GDP, Amazing.
So, if we add the three percent to the current 5.8 percent growth, then we have a growth rate that is inline with the past ten years.
Is this GDP growth sustainable, no. No county in the world can grow this fast forever. It will however, last a long time. I am guessing the growth rate will slowly decelerate as China takes its position as the largest economy in the world.
One last, semi-unrelated point. A recession is two quarters of negative GDP growth. For China to have a negative GDP growth, something drastic would need to happen.
2008-11-23 04:18 AM
#7
zglobal
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QUOTE:
Originally posted by
westhall
at 2008-11-23 04:18
It seems that the rational for guessing that China will hit a recession is a regression type analysis. You look back at the GDP trend and guess that it will continue its course. The problem is gr ...
Well, the root of the problem is...
China has been producing for America for decades.
America has been over consuming for decades.
Not only has China been producing for America but has also borrowed the money to America.
America now HAS NO MONEY,
China's major customer has no money, except the brand new bills they're printing now as fast as the ink will dry/
America is fixing the problems? Really?
What, by borrowing more money when she can't pay back what she has.
Yes, China is headed for a short, sharp recession but will recover quickly.
China will most certainly have a recession whether the books are cooked or not by gov.
In fact, I'd say China was very close now.
2008-11-23 08:17 AM
#8
greendragon
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Boy! Panicky people in this tread.
ha ha ha
People have experience recession many time.
It takes time and a lot of government and deep pocketed corporation to rebuild consumer spending confidence.
ha ha ha
Green Dragon
2008-11-23 11:21 AM
#9
zglobal
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There has never been a broke America before.
There is reason to be fearful.
The only way for America to fix itself is to take the medicine.
The medicine is a deep recession where Americans learn to save again and not consume on credit.
Anyone that thinks America printing trillion of new dollars will fix the problem is sadly deluded.
They had a chance to fix it after the tech bubble and chose to throw credit at the problem.
Now they are doing the same.
The result will be 5 years of rebuilding in a depression.
They are facts.and anything else is delusional.
Throwing more credit around will only stall and cause a deeper depression.
A recession now would have been very healthy for America.
2008-11-23 11:30 AM
#10
zglobal
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QUOTE:
Originally posted by
greendragon
at 2008-11-23 11:21
ha ha ha
People have experience recession many time.
It takes time and a lot of government and deep pocketed corporation to rebuild consumer spending confidence.
ha ha ha
Green Dragon
Yes that's what people were saying when the DOW hit 10,000.
Now it's 8,000
Look for the HSI at 11,000 bottom and DOW at 5,000 to 6,000
If you have American dollars... SELL NOW before they print trillions more
2008-11-23 11:31 AM
#11
greendragon
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Reply #11 zglobal's post
I am talking about the New Middle Kingdom, not USA.
USA have difficulties in the "minting machine" now...
Still, they will still create more liquidity later on........otherwise they'd have social problems.
ha ha ha
Green DRagon
2008-11-23 11:53 AM
#12
zglobal
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I see.
Well I think the U.S will have huge social problems from the economic fallout.
I guess China will have a short recession and then power forward finding new markets as they are doing now.
I see it as good for China to cut their dependency on the U.S to more reasonable levels.
China can only win n the long run because Chinese people know how to save.
2008-11-23 12:20 PM
#13
greendragon
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Reply #13 zglobal's post
you still need to increase liquidity within China.....and find way to remain productive especially in goods that the people wants!
you cannot command people to consume, or can you?
cheerios!
Green DRagon
2008-11-23 12:28 PM
#14
zglobal
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Well, you certainly cannot command Chinese people to consume.
One of the strengths of China is that it is productive and the people are the worlds best savers.
All China needs to do is to try and smooth out the deep troughs as best she can.
Then get ready for the next wave.
Let's hope Companies learn something from this.
If you setup a Company as a collective workshop for foreign brands you have no future.
All those factories closing in GD are a stark reminder of that.
It's time for good Chinese companies to stop pure opportunism and plan a lasting future.
That means brand names and marketing.
2008-11-23 12:46 PM
#15
interesting
(Steven Schreiber)
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West,
The problems with your analysis are simple.
Bank credit, not consumer credit, is frozen. Consumers still have access to credit to make purchases and this credit pool is actually expanding because more stores are starting to issue credit again--many stores quit doing so starting the 1970s and 1980s when credit cards became pervasive--and on easy terms because retailers need to move product, even if it means eating margins left and right. Home loans are actually quite robust.
The problem is two-fold: consumers know that the economy has been shedding jobs, they know that prices will have to fall, they know that their jobs may not be secure. So people are holding off on many purchases until they feel more secure.
Next, China's "stimulus package" isn't what it appears to be. Much of what is in there is spending already planned and long since factored in to China's earlier projected growth rates. It's unlikely to stimulate the economy since earlier, now reduced, projections already factored it in.
2008-11-23 01:04 PM
#16
zglobal
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Yes, that's the answer to America's debt ridden society.
Spend more. Print more phony greenbacks.
Now why would anyone think that was stupid economics.
China on the other hand is not borrowing money for a stimulus plan.
I hope China is not injecting too much and allows things to run their course.
Recessions are short term pain but good for a healthy economic future.
America cannot stall a deep depression for long.
China will suffer but will be an ultimate winner.
2008-11-23 01:11 PM
#17
rock_chopper
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So China sells stuff to the US and the US gives China money. Cool. Then China sells more stuff to the US and they so ok we'll buy that too it's cheap. Here's some more money. The the US says ok out of money now, we can't buy any more stuff.
Who's fault is the crisis?
Yes I know this is over simplified however....
2008-11-23 07:31 PM
#18
boring
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China's unemployment level 'critical'
By China Correspondent Stephen McDonell
Posted Thu Nov 20, 2008 10:14pm AEDT
Updated Fri Nov 21, 2008 12:24am AEDT
China's unemployment situation is critical according to a key Government mini ster.
The Chinese Government has warned that the country is facing a massive problem with unemployment.
Social Security Min ister Y i n W e i m i n described the unemployment situation as "critical" and said that the impact of the world economic crisis is still unfolding there.
The hardest hit area was the coastal manufacturing strip in the south-east where textile and light industry companies are going under.
Mr Yin said the Government would provide financial aid to some manufacturing companies to try and reduce the problem.
Offici ally China's unemployment rate is 4 per cent but it is thought to be a large underestimation because it does not account for 100's of millions of rural workers.
2008-11-23 11:02 PM
#19
markwu
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recession? hardly
REAL GDP
% Change YoY 2006 2007 2008f 2009f 2010f
USA 2.8 2.0 1.3 - 0.7 3.0
Japan 2.4 2.1 0.6 - 0.3 1.3
CHINA 11.6 11.9 9.5 8.0 8.5
Europe 3.0 2.6 1.0 -0.9 1.0
WORLD 5.1 4.9 3.7 2.5 4.3
(National sources, ABN Amro estimates)
2008-11-24 06:37 AM
#20
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