PRC Economy - New Reflections : April 20 2015

[Theo_Fidel]

Pish posh, even a broken clock is right twice in the day, doesn't mean it tells you anything. And that is not your case that GDP data lies and car sales data is gospel. I don’t need cars sales to tell me that, GDP data tells it to me free an clear in Japan & SoKo.

By that same chart the SoKo has the same amount of money as 1990. Or Japan has ½ the money as 1985. Or America has just twice the money as 1950. Or that China has 5 times the money of Japan. All of which are demonstrably false.

There is a sliver of China that has done well. Somewhere between 100 million to 200 million, these are the ones buying cars & apartments, USA condo’s, Green cards, etc. All this buying is a fad for these folks, the Chinese economy is not rich enough yet to support this level of lifestyle and won’t be for a long time. For everyone else in China life is pretty hard….. ..I don't think they have a clue how really hard it is going to get in the short to medium term....

[A_Gupta]

Economics is far simpler than people make it out to be than with things like GDP.

The only things that really matters if you get down to brass tacks are sales. If they can buy things, they have money. If they can't, they don't have money. It is that simple.

I don't think this is the thread to debate elementary economics. How do we gauge how well the Indian economy is doing if people bought 10% more wheat, 3% more smartphones, 30% more regular phones, 8.9% more voltage stabilizers, 2.5% more cars, 6% more scooters, 25% more Ganesh murtis, 6% more incense, etc., etc. over two comparable time intervals? (and by the way, I think voltage stabilizer sales in India would exceed that of any Western country, but that is because Indian power supply quality is poor, and voltage stabilizers are typically not needed in any western country. Likewise the market for Ganesh murtis is mainly in India. Likewise, maybe Indians buy a lot of dairy, while with more prevalence of lactose intolerance, the Chinese buy less dairy but more tofu.)

We convert all the economic activity into a single measure - money; and add it all up (with a lot of caveats).

PS: that said, because all this is so difficult, there are things like the "Big Mac Index" - what fraction of the daily wage does it take to buy a common commodity like a McDonald's Big Mac burger? The more sophisticated version of this is PPP, and so on.

[chola]

Pish posh, even a broken clock is right twice in the day, doesn't mean it tells you anything. And that is not your case that GDP data lies and car sales data is gospel. I don’t need cars sales to tell me that, GDP data tells it to me free an clear in Japan & SoKo.

GDP tells about you what and for what purpose? So you can argue in some ivory tower? Or theoretically measure lun size? Who the hell cares.

Sales is gospel not just car sales, my friend. Car sales is just an example and a bell weather.

Sales is money. If they can pay this amount for this amount of crap then I can project that I can sell this amount of crap to this amount of their population. In the end, that is all that is important.

There is a sliver of China that has done well. Somewhere between 100 million to 200 million, these are the ones buying cars & apartments, USA condo’s, Green cards, etc. All this buying is a fad for these folks, the Chinese economy is not rich enough yet to support this level of lifestyle and won’t be for a long time. For everyone else in China life is pretty hard….. ..I don't think they have a clue how really hard it is going to get in the short to medium term....

Who cares if it is 100 million ch1nks or 200 million buying 20 million cars? It could be just 10 million for all we care. All we should care is how much their absolute sales are. You think GM or VW cares? They've began placing bets 10 years ago that China was going to be a large market and then accelerated even more after Arvind predicted a chini market larger than the US (for everything not just cars.) It certainly paid off for them even with the recent crash.

We spend too much time arguing about their "sustainability" while the MNCs simply sells. There is a tyranny in numbers, my friend.

You can't get past money and money comes from sales (and credit but that is another story.) If an economy has enough money to spend on 24 million cars then it will carry far more weight than one that buys under 3 million. The MNCs will make sure of that. Why else would you think a commie sh1thole would get more attention on the Street? Why else would some f'ed-up bingo parlor index like Shanghai make the Dow open down a 1000 points when Dalal street barely gets a glance?

[Vayutuvan]

Can US FED unload some investments to keep dollar low while increasing interest rates?

what do you mean by "unload some investments"?

I'm not sure what you mean......

Unload their investment in Pakistan to be taken up by China? It is happening as we speak - Gwadar.

[TSJones]

Unload their investment in Pakistan to be taken up by China? It is happening as we speak - Gwadar.

exactly what "investments" in Pakistan does the US Federal Reserve have? trying to keep a straight face here before I......

[chola]

Economics is far simpler than people make it out to be than with things like GDP.

The only things that really matters if you get down to brass tacks are sales. If they can buy things, they have money. If they can't, they don't have money. It is that simple.

I don't think this is the thread to debate elementary economics. How do we gauge how well the Indian economy is doing if people bought 10% more wheat, 3% more smartphones, 30% more regular phones, 8.9% more voltage stabilizers, 2.5% more cars, 6% more scooters, 25% more Ganesh murtis, 6% more incense, etc., etc. over two comparable time intervals? (and by the way, I think voltage stabilizer sales in India would exceed that of any Western country, but that is because Indian power supply quality is poor, and voltage stabilizers are typically not needed in any western country. Likewise the market for Ganesh murtis is mainly in India. Likewise, maybe Indians buy a lot of dairy, while with more prevalence of lactose intolerance, the Chinese buy less dairy but more tofu.)

We convert all the economic activity into a single measure - money; and add it all up (with a lot of caveats).

PS: that said, because all this is so difficult, there are things like the "Big Mac Index" - what fraction of the daily wage does it take to buy a common commodity like a McDonald's Big Mac burger? The more sophisticated version of this is PPP, and so on.

I'm saying we spend too much time on GDP. We should focus on sales. On how much our people can buy. Period. Trying to use GDP (and especially the growth of GDP) as a gauge is meaningless to people who actually create wealth (entrepreneurs, businesses) as compared to people who talk about wealth in academia (economists.)

Working with the MNCs, we KNOW that the wealth drives population to particular standards. Once you are wealthy enough, you WILL buy German car, you WILL consume more American movies and you WILL drink a lot more milk.

Don't believe me? Lactose tolerance or not, China will be the largest dairy market in the world next year. It is the largest export market by far (since the US as the largest overall market doesn't need to import.) It's a massive market in spite of the fact their whole industry is full of melamine and poison. It doesn't matter, they'll just buy foreign brands.

Now India has the world's largest dairy industry by tonnage. But we don't export crap to China while the Western brands make a killing. Why? Partly because we spend time on worrying about their "sustainability" or how many millions of them are able to afford this "lifestyle."

Figure out the what they can buy and just sell. This is the way the US, Germany, Japan and South Korea do it with China. We get into the philosophical, theoretical bull manure which does us no good.

[Vayutuvan]

German cars are overrated. Anybody with VFM in mind (which most Indians are) would rather buy top of the line Lexus (even if it is a girly car) as opposed to less reliable Beamers, Audis, Saabs, Jaguars, and Mercs. Unless they are sales droids, ad agency fellows, cine stars, RE agents, financial advisers, or doctors who have to show off their wealth to attract HNW individuals as their clients.

[Theo_Fidel]

You can't get past money and money comes from sales (and credit but that is another story.) If an economy has enough money to spend on 24 million cars then it will carry far more weight than one that buys under 3 million. The MNCs will make sure of that. Why else would you think a commie sh1thole would get more attention on the Street? Why else would some f'ed-up bingo parlor index like Shanghai make the Dow open down a 1000 points when Dalal street barely gets a glance?

I think you mistake the nature of the argument on BRF. We tend to believe that a lot of China is smoke and mirrors. I mean 5 years back they were at 1 million and now suddenly 20 million… ..come on.. ..no Indian tight wad will fall for that… ..The CPC government provides incentive to car buyers, bang 20 million of them run out to buy cars and then the MNC’s see dollah signs and go in salivating and build the factories to build a 30-40 million cars with plans for factories for another 40 million in process, yes that really is the number. CPC gets to trumpet 700% growth, great leap forward, etc... Then bang the Panda pulls the rug out and the MNC’s do a fire sale and China is left with millions in car factory equipment. MNC’s lose their shirt, rinse/repeat….. ..like I said the only people making money in China is that sliver busy buying green cards...

BTW, thanx for noticing my ivory tower, I'm particularly proud of it....

[Vayutuvan]

about 2000 highest-end Teslas are gathering dust in Chinese ports - for almost a year now and counting. At this point of time nobody can beat the US for consumption. Whether it is sustainable for next 20 years (heck even next 10 years) is a question mark. Just look at DJI in the recent past.

[A_Gupta]

BTW, thanx for noticing my ivory tower, I'm particularly proud of it....

No elephants involved, I hope!

[Suraj]

Mod Note

Please keep this thread from being derailed by a debate founded on anecdotes and data without references.

[TSJones]

To all:

since Gyan has not answered my question as to what investments the Fed Reserve has to unload to keep to keep the dollar low while raising interest rates, if it pleases the auditorium I would like to take a stab at explaining my bafflement.

1. the Fed does indeed have currency swap agreements with various other central banks in order to maintain currency stability. these are held under prearranged agreements with the various parties involved.

2. the amount of these agreements are insignificant in comparison to Fed's holdings of US government treasuries and GSE's mortgage backed securities.

3. The Federal Reserve does not own any gold. Yup, you heard it here first, folks. Zero, zip, nada. The Fed does have gold certificates that they keep on their books. These were issued under the US Gold act passed in 1934 when the Fed turned over all its gold to the US Treasury. These gold certificates are valued at $42.22 per ounce as established in 1973. These certificates cannot be redeemed by the Federal Reserve for gold. These certificates are valued on the books at $11.05 billion which is laughable.

4. The Fed does have gold custodial agreements with various parties. The gold is kept at the New York Federal Reserve vault, where you can take a tour and gawk if you wish.

It should be noted that the gold at Fort Knox is controlled by the US Mint for the US Treasury and most definitely you MAY NOT take a tour of their vault with out going to prison afterwards. If you survive the experience that is.

5. The Federal Reserve does not have that large of amount of foreign countries' sovereign debt or as the Fed calls it "Foreign currency denominated assets". They have about $20 billion of it. Not very much compared to their US government holdings. The US Federal Reserve is not the PBOC. It does not hold trillions in foreign sovereign debt like the PBOC.

6. The effect of the Federal Reserve selling its assets would be to take money out of economy. Making the dollar even more scarce and valuable.

References to follow. Enjoy:

http://www.federalreserve.gov/faqs/does ... d-gold.htm

Asset statement of the Federal Reserve as of September 10, 2015:

http://www.federalreserve.gov/releases/h41/Current/

Does anybody have similar references for the RBI?

[A_Gupta]

The mechanics of how the Fed is going to raise rates:
http://www.nytimes.com/2015/09/13/busin ... rates.html

The Fed requires banks to set aside reserves in proportion to the deposits the banks accept from customers. The reserves can be kept in cash or held in an account at the Fed. Banks that need reserves at the end of a given day can borrow from banks that have a surplus. Before the crisis, the Fed controlled the interest rate on those loans by modulating the supply of reserves: It lowered interest rates by buying Treasury securities from banks and crediting their accounts, increasing the supply of reserves; it raised rates by selling Treasuries to banks and debiting their accounts.
...
As the crisis hit in 2008, the Fed pressed this machine to its limits.
...
One result is a banking system almost comically awash in money. In June 2008, banks had about $10.1 billion in their Fed accounts. The total is now $2.6 trillion.
...
The Fed would need to sell most of the securities it has accumulated before short-term rates would start to rise. Selling quickly could roil markets; selling slowly could allow the economy to overheat. So the Fed decided to find another way.
...
Say the Fed wanted to raise short-term interest rates to 1 percent, meaning that it did not want banks to lend at lower rates. Because the glut of reserves is so great, the Fed could not easily raise rates by reducing the availability of money. Instead, the Fed plans to pre-empt the market, paying banks 1 percent interest on reserves in their Fed accounts, so banks have little reason to lend at lower rates.
...
The rest of the financial system is also awash in cash, and lenders — like money market mutual funds — put downward pressure on interest rates as they fight to attract borrowers.
...
The Fed lacks the legal authority to pay these {non-bank} lenders a minimum interest rate on deposits, as it does to the banks. But two years ago, Lorie Logan, one of Mr. Potter’s top aides, suggested the Fed could achieve the same goal by borrowing from these companies at a minimum interest rate.

The resulting deals, known as overnight reverse repurchase agreements, signal a significant break from the Fed’s history of working through only the banking industry.

[member_20292]

What are untapped opportunities in China in the IT sector?

For example, I think the "teaching Chinese students ESL" from India, over skype is highly undertapped.
There are some issues there , though - the Chinese and other east asians almost exclusively prefer to learn ESL from goras.

Collecting payments over Skype through Paypal.

And other issues.


But I was wondering if there are Indian companies tapping into this market.

[member_20292]

You can't get past money and money comes from sales (and credit but that is another story.) If an economy has enough money to spend on 24 million cars then it will carry far more weight than one that buys under 3 million. The MNCs will make sure of that. Why else would you think a commie sh1thole would get more attention on the Street? Why else would some f'ed-up bingo parlor index like Shanghai make the Dow open down a 1000 points when Dalal street barely gets a glance?

Cholaji - time for you to enlighten us on how an Indian IT SME can tap China? Your help is much required.

And IT, as you know, you can do code pretty much anything under the sun. But the idea is....how does one take the first step to China? Who to find for a good , "trustworthy" partner in China?

[panduranghari]

PS: that said, because all this is so difficult, there are things like the "Big Mac Index" - what fraction of the daily wage does it take to buy a common commodity like a McDonald's Big Mac burger? The more sophisticated version of this is PPP, and so on.

Agreed. I do not know if we have anything similar to the Michigan consumer sentiment index in India? I am sure Suraj saar would know.

[Singha]

Mbhu, the bland fact is no SME can penetrate china, they have enough of their own and play it close to the clan.

the only ones making some easy money in cheen are luxury brands like apple, gucci, versace, louis vuitton, single malt whiskeys, boeing, airbus....brands and things they cannot easily replicate or else their rich do not accept the local clones.

some foreign architecture and design firms also made money during the prestige buildings phase.

lots of cos are ofcourse making money worldwide on the back of china production.

[Hari Seldon]

^Exactly. Our manufacturing and SMEs also need protection.

This piece here is a goldmine. Explains in plain terms why is not a market economy and cannot be treated like one.

http://blogs.economictimes.indiatimes.c ... heres-why/

Here're the money quotes:

In China, it has just been a ‘cash flow’ game. An entrepreneur has absolutely no idea about what global market sizes are, or how to market products or services. Chinese businesspersons sell on purely one thing: price. Why? Because they need cash at any cost, *not* returns. A Chinese company takes money from a bank and sets up a plant for, say, 100 units of currency. It starts without knowing its true cost of production.

The company’s owner has some idea, but no precise number is necessary as the state bank is always there to fund any deficit. He exports at whatever price he can get as long as he gets dollars. It is possible that part of the dollars are also required to import raw material, for which he now has his dollar earnings. The surplus dollars, post the raw material purchase, have all gone to fund China’s $3 trillion of foreign reserves.

As far as his operations are concerned, his local bank is funding him for working capital and growth. The core of the Chinese economic policy is to create jobs at any cost, as long as basic raw material costs are covered. The banks, on the other hand, are funded by the People’s Bank of China, which prints currency notes to ensure that this cycle continues as it brings in the dollars, generates jobs and ensures that China can continue its breakneck speed of economic growth. The same holds for infrastructure. The banks fund tons of companies who build ghost cities, highways to nowhere and buildings that no one occupies because the investment growth remains high and no one looks at economic returns.

The material for infrastructure growth is all generated locally and doesn’t require dollars. So, it’s purely about printing local currency and financing dead assets. The funding of all state-owned banks for non-recoverable assets and of dead infrastructure projects are what has caused China to have a public debt of over $25 trillion. The only reason this does not create panic is because this is in renminbi.
Only the $3 trillion of foreign currency assets has been referred to because it gives China a strong negotiating position on the geopolitical stage. So why has inflation remained under control? One, because no one really knows what China’s real rate of inflation is since their numbers have always been questionable.

Two, since this money actually goes towards investment — and not consumption — the supply of goods increases at a rapid pace, ensuring that there’s never a case of ‘too much money chasing too few goods’. China has essentially destroyed the manufacturing economies of the world by dumping goods at unviable prices everywhere. It has focused so much on investment-led capacity-creation that, across industries, capacity utilisation is running at about 50% today. These dead investments have now come to haunt China today.

And to conclude:

The world needs to look at serious trade measures against China and ensure that it doesn’t dump its goods all over the place. China’s dollar reserves will start drying out, and it will be forced to close unviable plants and move to market-oriented economics. The WTO should extend a non-market economy status on China indefinitely and put an additional duty for import of goods from China in other countries. The day that happens, China will be forced to build internal consumption as a way of growth.

Hear, hear!

[member_20292]

Could be that it is tough for SMEs to enter China profitably.

Makes sense to own a foreign brand, or a foreign sounding brand - possibly make something in India, and export and market it in China.

If one were to do that with artistic objects then one would get ripped off in no time.

But an innovative business model, with suitable ITES based innovation added to the mix, to raise the bar higher, possibly headed by gora salespeople in China maybe just the ticket.

[Suraj]

Looks like CPC is trying to take down Li-Ka Shing
China party mouthpiece lashes out at Asia's richest man

The mouthpiece newspaper of China's Communist Party has blasted Hong Kong tycoon Li Ka-shing as "ungrateful" for selling assets on the mainland with the world's second-largest economy facing headwinds.

The 87-year-old, nicknamed "Superman" for his sharp business acumen, has been offloading major property investments in China -- where growth slowed to a 24-year low last year and has continued to weaken this year -- after investing heavily there in the 1990s.

The move, combined with his selling of assets in Hong Kong, has fuelled speculation that the richest man in Asia is losing confidence in the Greater China region.

The People's Daily said on a verified social media account that China's opening up, vast market and favourable policies had been "the key cornerstone" of Li's success, yet he was now leaving his benefactor in the lurch.

"He shared the prosperity while we had good times but could not beat the odds together with us now that we have difficulties. This is indeed unacceptable emotionally," it said in a commentary Sunday on its account on China's mobile messaging application WeChat, a less formal platform than the printed newspaper itself.

While admitting Li's move may have a "negative impact" on confidence in China, the article sought to downplay concerns.

[Singha]

seems he is getting out of property and liquidated some 25 billion HK$ (around 3 billion USD) of holding in 2014
http://www.scmp.com/business/companies/ ... s?page=all

maybe he has already obtained a suitcase american green card as plan-B for his clan.

[Yagnasri]

So they are now admitting that they are facing some problems. Situation must be really bad.

[Austin]

Reform of China’s public companies to fuel economic growth

[ldev]

Looks like CPC is trying to take down Li-Ka Shing
China party mouthpiece lashes out at Asia's richest man

The mouthpiece newspaper of China's Communist Party has blasted Hong Kong tycoon Li Ka-shing as "ungrateful" for selling assets on the mainland with the world's second-largest economy facing headwinds.

The 87-year-old, nicknamed "Superman" for his sharp business acumen, has been offloading major property investments in China -- where growth slowed to a 24-year low last year and has continued to weaken this year -- after investing heavily there in the 1990s.

The move, combined with his selling of assets in Hong Kong, has fuelled speculation that the richest man in Asia is losing confidence in the Greater China region.

The People's Daily said on a verified social media account that China's opening up, vast market and favourable policies had been "the key cornerstone" of Li's success, yet he was now leaving his benefactor in the lurch.

"He shared the prosperity while we had good times but could not beat the odds together with us now that we have difficulties. This is indeed unacceptable emotionally," it said in a commentary Sunday on its account on China's mobile messaging application WeChat, a less formal platform than the printed newspaper itself.

While admitting Li's move may have a "negative impact" on confidence in China, the article sought to downplay concerns.

Illustrates starkly the difference between India and China. Li Ka-Shing entered the Indian mobile phone market in 1994 and over the next 7-8 years, in partnership with the Ruia brothers built a powerhouse business consolidated in Hutchison Essar. He is estimated to have invested about $ 2 billion in this mobile business from the beginning and then exited in 2007 via a sale to Vodafone for about $11 billion, a profit of $9 billion on his original $2 billion investment!! The Indian government did not cry foul when he exited, unlike China now where he is being accused of treachery. (It's another issue of course that GOI, Ministry of Finance is trying to get Vodafone the buyer to pay a tax bill on this offshore asset sale with a retrospective change in the tax laws)

[ldev]

seems he is getting out of property and liquidated some 25 HK$ of holding in 2014
http://www.scmp.com/business/companies/ ... s?page=all

maybe he has already obtained a suitcase american green card as plan-B for his clan.

Does not need that, his sons have had Canadian passports since the mid 1990s, when plans were announced by the British to handover HK to China. He was the single largest shareholder in CIBC, the Canadian bank (investment since sold) and he owns Husky Energy in Canada, an oil company with retail distribution including gas stations.

[Singha]

man these rich people always have plan-B and plan-C. so they can rage at him and at worst , open some investigation on his mainland investments but he must have cleverly spread his investments and net worth all around now. and he already has canadian citizenship per wiki.

cheen is the angry tom cat, shing saheb is jerry and Spike is the massa bloc where his savings are untouchable by tom cat

[ldev]

^^^
He certainly knows how to play the game!! When he sold his investment in CIBC, he kept the money ($ billion plus) parked in the same bank in Toronto in the name of his foundation and uses it to make donations, say $50 million for a new hospital wing etc. etc. Keeps everybody on side and happy!!

The rich always have a Plan B and C!!

[Suraj]

(It's another issue of course that GOI, Ministry of Finance is trying to get Vodafone the buyer to pay a tax bill on this offshore asset sale with a retrospective change in the tax laws)

GoI has decided not to pursue that, and other retroactive taxation efforts any further, on the basis of the recommendations of the workgroup tasked with coming up with a plan to clarify the retroactive taxation issue.

[ldev]

(It's another issue of course that GOI, Ministry of Finance is trying to get Vodafone the buyer to pay a tax bill on this offshore asset sale with a retrospective change in the tax laws)

GoI has decided not to pursue that, and other retroactive taxation efforts any further, on the basis of the recommendations of the workgroup tasked with coming up with a plan to clarify the retroactive taxation issue.

Thanks for that update. Had stopped following this issue.

[Austin]

Bank of China: China's GDP growth this year will be 7%

The growth rate of the consumer price index (CPI) - a key indicator of inflation in the country - have amounted to 1.6%, which is 0.4% lower than in 2014

BEIJING, September 24. / Correspondent. Alex Selishchev TASS /. China's GDP will grow this year by 7%, which is 0.3% lower than in 2014. This is stated the report released by the Bank of China.

"Until the end of the year the industrial enterprises in China will show moderate growth because of a slowdown in the Chinese economy and the presence of uncertainty in foreign markets", - stated in the document.

Bank experts say that despite the easing of monetary policy National Bank of China by lowering rates on loans and reduce reserve requirements, a number of companies are still facing difficulties in attracting medium- and long-term loans.

"The shortage of borrowed funds and tightening of requirements by the Chinese government to protect the environment slow down the process of technical modernization of traditional sectors of Chinese industry", - the report says.

The growth rate of the consumer price index (CPI) - a key indicator of inflation in the country - have amounted to 1.6%, which is 0.4% lower than in 2014.

In China, there is a gradual slowdown of the national economy. So, in 2010 this figure stood at 10.4%, in 2011 - 9.2% and in 2012 - 7.8%. At the end of 2013 China's economic growth slowed to 7.7%, and last year - up 7.3%.

[Abhay_S]

Boeing-China Deal

http://www.vox.com/2015/9/24/9389767/boeing-china-deal

[Austin]

US Supports Renminbi Reserve Currency Bid as China Progresses on Reform

[sooraj]

In biggest layoff in China, coal company axes 100,000 workers

[Singha]

heliongjang is in extreme NE region near manchuria.

[amritk]

Speaking of anecdotes, I wonder how many of us have been to China, and if so what cross section of China we have seen first hand. The Internet Yindoo is typically not a manufacturing or even trading person. Manufacturing is hard to do well, really hard.

Please make a trip and see for yourself. Lots of things to do and see. Tourist sites are plentiful and accessible. Pick the hardware industry closest to your field (e.g. Circuit boards, toys, whatever) and visit some manufacturers. Take some time to see how the closed Internet has created a local segment that does not exist on the free internet. They are quite strong in Internet 2.0. They are not DOOs because they are from a different generation; they started later. Infrastructure you will observe as you travel, but do make it a point to do Beijing-Shanghai or similar on the newer trains. Try the older trains too if you're feeling brave. Go walk around the Tier 2 towns (e.g. the "-zhou"s). Talk to the locals about current affairs.

All in all I feel spending a couple of lakhs/k$ on a trip would provide great perspective.

[Gyan]

I have done that and I feel the world is under-estimating China. If they can turn their export economy into internal consumption economy even at 5% growth level, the change would be astounding.

[Suraj]

Barclays analysts visited China and came back saying it was one of the most bearish trips they've ever taken

As China's economy boomed, US industrial companies made serious investments in helping to build infrastructure, helping to drive growth in the country and their bottom lines.
This relationship, however, appears to be at an end.

"We are just back from our annual (since 2003) trip to China, and this one definitely fits in the top-quartile of bearish field trips," Barclays Scott Davis wrote. "We suspected that our forecasts for China industrial growth (for U.S. Multi-Industry) would need to come down, but it’s worse than we had hoped."

Davis said that the decade and a half of US industrial companies raking in serious gains from China is over.

"We suspected that foreign direct investment would slow but, in fact, it has essentially stopped," wrote Davis in a note to clients Monday. "Our average company is consolidating factories and working to pull capital out of the region."

Davis originally estimated that US Industrials, which make any number of large products from escalators to electrical grid infrastructure, would grow revenues in China 4-5% in 2015, and they have done so year-to-date. After the trip, he adjusted that to a rate of 2-3% for the rest of the year and only 1-3% in 2016.

According to Davis, these large industrial suppliers — such as General Electric, 3M, and Ingersoll Rand — have been able to grow their margins through investments in China for 15 years, and now there is nowhere to go:

"This marks the end of a 15-year investment cycle, the problem being that there is nowhere else in the world to invest for growth at present. There is excess capacity everywhere. This has implications for global capital spend levels and also price. There is nothing that correlates more to industrial growth (and stock performance) than capital spending and margin expansion. We have not seen a negative price environment for industrials since the late 1990s and over this time period we have seen steady gross margin improvements. This may mark the end of the margin expansion era."

[amritk]

Yes, people are preparing for a recession there. Partly a "normal" bust and partly a more general slowdown due to becoming less competitive.

Barclays analysts visited China and came back saying it was one of the most bearish trips they've ever taken

As China's economy boomed, US industrial companies made serious investments in helping to build infrastructure, helping to drive growth in the country and their bottom lines.
This relationship, however, appears to be at an end.

"We are just back from our annual (since 2003) trip to China, and this one definitely fits in the top-quartile of bearish field trips," Barclays Scott Davis wrote. "We suspected that our forecasts for China industrial growth (for U.S. Multi-Industry) would need to come down, but it’s worse than we had hoped."

Davis said that the decade and a half of US industrial companies raking in serious gains from China is over.

[Suraj]

Most of China does not 'know' what a recession is because they don't have a normal business cycle. Their last major one was in 1988-89. That one resulted in people being shot at by tanks.

[Theo_Fidel]

I have done that and I feel the world is under-estimating China. If they can turn their export economy into internal consumption economy even at 5% growth level, the change would be astounding.

I don't think anyone doubts this will happen in the long run. It is the short and medium term that there are questions about. Though I suspect 5% would be a stretch...

Remember what happened in SoKo & Japan after 1985+-...

http://ablog.typepad.com/.a/6a00e554717 ... 049970b-pi

You can see the GDP growth rate fall...