One of the accepted truisms of the modern era is that the economic world is shifting eastwards to the Pacific. The emerging vibrant nations there will push forwards and eclipse the old sclerotic developed nations in the west. Well out of that it is true that the western world has looked sclerotic but 2015 has not been especially kind to economies in the Pacific region. It was only on Wednesday that I analysed the problems and travails of the Japanese economy the same problems and travails that so many told us would be cured by the Abenomics arrows of the current government.
But there is an even bigger story in the Pacific region right now and that is the emerging crisis in China. This morning has seen disappointing news from the business survey about its important manufacturing sector.
Flash China General Manufacturing PMI™ at 47.1 in August (47.8 in July). 77-month low.
Eyes will immediately turn to the 77 month low part if the number which takes us back towards the beginning of the credit crunch and we all know what happened then. As to the number then officially 50 is the benchmark for contraction expansion but even if we use 49/51 to allow for uncertainty we can see that Chinese manufacturing is slowing according to this measure.
If we look into the detail I note that output is dropping as are orders and stocks/inventories are rising which suggest further trouble ahead. Thus the accompanying notes from Dr. He Fan, Chief Economist at Caixin Insight Group indicate someone who has either drunk too much Kool-Aid or took the Matrix style red pill.
But overall, the likelihood of a systemic risk remains under control and the structure of the economy is still improving…… This will lead the market to confidence and renew the vigour of the economy.
This means that there is now quite a gap between this survey and the official one as we wonder if fear stops companies from reporting the truth to officials
Unemployment in China
There has long been doubt over China’s economic statistics and The Economist has pointed out some obvious issues.
The registered urban jobless rate is just 4.1% now. This would seem to point to economic vigour, but the problem is that it has sat at that precise level, without moving, since late 2010. And it has stayed within an absurdly narrow range of 4.0-4.3% since 2002, even at the depths of the global financial crisis.
It adds some research from the National Bureau of Economic Research which uses other survey data.
They find that China’s unemployment rate averaged 10.9% from 2002-2009, nearly seven percentage points higher than the registered jobless rate over that period.
There are issues actually with both approaches and some now consider this to be better.
Another alternative is a surveyed unemployment rate that in its methodology more closely resembles the unemployment rates reported by developed economies. According to this, China’s jobless rate is now 5.1%
Now unemployment statistics have their flaws wherever we look as I am again reminded of Yes Minister telling us that manipulation of them was a common theme in the UK back in 1983. But we move on realising that we have evidence China is slowing but that the picture is far from crystal clear.
These are another potential signal for slow down signs in China and the price of crude oil has been very weak again this week. As I type this WTI (West Texas Intermediate) has dropped below US $41 and Brent Crude is in the low US $46s. Whilst there was a rally yesterday Dr.Copper’s price is 27% lower than a year ago. Iron Ore has been more stable recently at US $55.60 according to The Australian but I note that this is for delivery to Tianjin and I think most would not be especially keen to visit there right now. From CNN.
Chinese emergency workers were working to extinguish four fires Friday that broke out at the site of last week’s fatal blasts in the northern city of Tianjin, the state-run Xinhua News Agency reported.
This is in addition to the millions of dead fish which have washed up on local shores.
Although of course fans of the economics of Paul Krugman will see this as a boost to GDP.
Underlying all this are fears for the western corner of the South China Territories who at least had a better day in the Ashes cricket at the Oval yesterday.
The recent devaluations which I discussed on August 11th have stopped with the Yuan stable for now at 6.39 to the US Dollar. However there have been impacts ricocheting around the emerging markets or EM complex. From RANsquawk.
We also have the complex issue of the petro-currency nations hitting trouble which is interrelated. Yesterday saw Kazakhstan devalue as the currency world swings its axis but I would like to point out that this is a zero-sum game and ironically a recent riser has been the Euro as it nudges 1.12 to the US Dollar. The UK Pound £ has been strong for the past couple of years something that you get to write relatively rarely.
These generate headlines but underlying the situation is modern central banking theory which operates to boost asset prices often explicitly. We have plenty of countries offering implicit support via QE policies but more than a few offering explicit support such as Japan,Switzerland and now China. From The Australian.
the more than $US90 billion the Beijing government has earmarked to rescue its stock market.
Today it has not gone so well as the Shanghai Composite Index fell by 4.2% to 3510. However there was a lot of speculation that The Plunge Protection Team did appear at the close. From Lim Chee Tiong.
ALERT: Here comes plunge protection team …
Although whilst a close above 3500 was achieved the PPT was unable to keep the market above various averages which chartists consider important. So watch this space! Although markets of course can spin on a sixpence.
Sometimes things are not as you might think at least for short periods and on this front I bring you this from Simon Rabinovitch.
So much for mini-stimulus. China to try mini-recession: will shut 10000 factories, 9000 construction sites week before Sep 3 military parade.
Although rumours are already swirling of more stimulus and monetary easing. From Live Squawk.
Speculation surrounds PBoC RRR cut could come this weekend, last cut was 50bp on Sat June 27, the third in 5 months.
Like all weekend moves it would have the advantage of catching the lazy western capitalist imperialists on the hope as they take time off to relax. Although it would appear that an old enemy is already on the case. From The Japan Times.
Finance Minister Taro Aso said Friday that recent moves by China to allow its currency to depreciate are a concern and could pose problems for Tokyo.