Tag: Economy

On the other hand, tariff threat can be good?

Cooling off the excessive confidence

If the economy is running too hot, you need to cool it off.

One way to cool it off is to add uncertainties.

Individuals and businesses will pause new investments and rethink how fast they shall run when uncertainty (not short-term, or can be overlooked) skyrockets.

Perfect excuse to change gears

Sometimes, business leaders also need a good external excuse to press the “pause” button. Why?

Normally, they want to be seen as the encouraging voice internally. That what business leaders do – to grow the companies. And they always want suppliers to increase their capacity. Thus, showing extra confidence in business can ensure suppliers are confident enough.

To be seen as credible in the long-term, business leaders can’t change the tone overnight. And it’s hard to change the tone if there is no external shock. Otherwise, it feels like you were trying to “trick” your suppliers or employees.

Suddenly, tariff becomes this perfect excuse – external, lingering, impactful.

It’s just the perfect time to take a step back and rethink business leaders. And it’s the perfect opportunity to change gears.

China’s fixed asset investments: smaller discrepancy and better numbers vs 2023

Found another closing discrepancy in reported numbers.

These were the reported numbers for fixed asset investments (excl. rural) between 2020 and 2024.

The 2023 number has the biggest difference. If you directly compare 503,036  and 572,138, that’s dropping -12% yoy. Yet, the reported yoy was +3%.

This resulted in a 15% gap in yoy percentage number for 2023.

That gap has been shrinking to less than 1% in 2024, with +3.2% reported for 2024 fixed investments, compared with +2.3% in calculated comparison.

In 2024, the investment in the water conservancy management industry increased by 41.7%, investment in the air transportation industry increased by 20.7%, and investment in the railway transportation industry increased by 13.5%.

Those are some big % numbers. If you compare some headline numbers, e.g. water conservancy, the growth should be 13%, rather than 42%.

  • 2023年全年完成水利建设投资11996亿元
  • 2024年完成水利建设投资13529亿元

Maybe 2023 was indeed a lower base than reported.

Anyways, the picture in 2024 indeed looks better.

Brazil set to rise

One thing is certain – US is trying to fight its trade deficits.

Who would be relatively safe from Trump’s tariff threat?

Countries that US runs a trade surplus!

Any examples? Brazil.

If a company wants to relocate its production, Brazil would be a top destination due to the trade surplus US enjoys, which means tariff threat is lower.

Plus, Brail has a big population with a relatively lower labor costs vs other countries like Australia, UK, or Singapore (US runs a trade surplus to those countries as well).

China’s export and import trend is more even in 2024

If you look at 2023 vs 2022 export data, you will find China’s export to Russia surged by almost 50% in USD terms.

Meanwhile, EU and US bought less from China in 2023 vs 2022 – China’s export to EU and US dropped by double digit.

In 2024, that trend is gone.

In USD terms, China’s export to Russia, US, and EU all rose by 3-5% in 2024 vs 2023.

So, investors think tariff is negotiation tool?

Tariff is not an unknown factor.

Trump talked a lot about tariff during campaign and after election.

However, stock market was buoyant until recently.

The most common excuse? Investors thought tariff is just an negotiation tool that won’t be implemented.

That sounds reasonable, but actually it doesn’t make any sense.

Let me explain.

If stock market reflects the common wisdom and it doesn’t go down, then it means everyone assumes tariff threat is not that real.

Then why should the negotiation be effective?

Governments are not fools. Like in poker, if they think Trump is just bluffing, they would call.

The stock market almost sells Trump out if it doesn’t fall.

So, if US wants to be considered serious on the negotiation table, stock market must fall.

Why?

Because you need to let everyone know tariff is real. Every company needs to talk about it. Investors need to be panicking about it. When investors are really worried, they sell, even with losses.

Stock market drop is a manifesto that everybody realizes the tariff can be as real as the losses in their retirement accounts.

That’s when the “negotiation tool” is effective.

It seems that China’s housing market is trying to find bottom

In Oct, monthly property sales was ~800bn rmb, down 1% yoy.

In terms of sqm sold, that was ~76.5mn sqm, down 2% yoy.

If looking at residential property only, those two comparisons were at +1% and -1% yoy.

Year to date comparison would still look bad – residential property sales is down 22% (Jan – Oct) in rmb, and down 16% (Jan – Oct) in sqm.

End of Sep policy support and stock market rally helped the property market.

However, more recently, it seems that the frenzy has faded.

Despite that Oct yoy comparison looks flattish, don’t forget that when comparing with 2021 (Jan-Oct), property sales has dropped 50% in rmb terms!

One thing US is envying.. inflation

China Oct CPI is out, core CPI excl. food and energy, there was 0% increase month over month, and only 0.2% increase year over year.

Almost all kinds of food price dropped MoM, with pork dipping 3.7% MoM (+14.2% yoy).

Including food and energy, Oct CPI dropped 0.3% MoM and increased 0.3% YoY.

In Sep, the core CPI YoY increase was at 0.1% while MoM is -0.1%.

 

Thoughts?

a) Powell would love US CPI / PCE look more like China’s… not exactly the same, otherwise that might indicate a problem with demand..

b) The end of Sep & early Oct China’s stock market rally didn’t move the needle / has limited impact so dar. Day to day consumption still looks weak.

c) Rental price dropping 0.1% MoM and 0.3% YoY.

 

China reported numbers’ discrepancy seems lower

China’s reported number can be very different from reality.

What numbers can you really rely on?

I would assume the number reported today but happened a year ago is more accurate than the number reported last year.

For example, for 2024 Jan to Aug, fixed asset investment rose by 3.4% to 32.94 trillion rmb.

While you need to believe in the current number, it’s more acceptable to me to assume the number for 2023 Jan to Aug is 31.86 trillion rmb [32.94 / (1+ 3.4%)].

Then you can compare with last year’s reported number, and see the discrepancy is -3% – last year’s reported number is 3% higher than current year implied number.

If you do the same for all month since December 2021, you can see the discrepancy grew from 0% for Dec 2021 to -15% for Dec 2022 and now back to only -3% for Aug 2023.

Indeed, the discrepancy has been low for May 2023 to Aug 2023: -4%, -3%, -3%, -3%, which seems to be a good thing.

About printing money

In the US, when the US gov borrows money, the treasury department will issue different debt securities with different maturity and interest rate.

When demand is low, and interest rate may shoot up. Meanwhile, the Fed may step in to buy treasuries in the open market, by crediting (increasing) reserve accounts banks hold at the Fed. Also Fed needs to pay interest for these reserve accounts, it doesn’t really matter that much – the loss Fed made can be earned in the future. In normal times, the Fed’s profit will go to the treasury department.

So everything looks like magic and money is just created from the air.

The only process that needs the public to participate is the US treasury auction and the Fed can’t buy directly.

In China, property looks just the same.

When a city gov borrows money, it will sell the use right of a land. If that’s for residential, then they will be held by homebuyers eventually. When demand is low and deficit is high, home price shall drop.

So developers are like the banks participate in US treasury auction. But who is the Fed in this case?

It’s interest that China has thought about the idea of buying back unsold homes.

In some cases, homes will be auctioned by banks if the homebuyers default. Anyways, there is excess supply on the market and demand is not strong.

The problem is this is not central gov’s deficits. Local gov doesn’t have a “Fed”. Maybe some local SOEs can act like Fed in this case to buy properties back?

But these local SOEs can’t just buy by creating “reserve accounts” at local banks.

Sure they must have good relations. So basically local banks need to lend to local SOEs and not to worry about these “reserve accounts”. Put it another way, banks need to swap the homes (treasuries) with local SOEs promises (reserve accounts).

You see, this has become very complicated and is not as smooth as printing money in the US.