Crasht China?

• „(…) Credit Suisse stra­tegist Andrew Gar­thwaite (…) writes that ‘to us, China remains the biggest macro risk curr­ently. We would expect aggregate demand to con­tinue to slow (owing to a slowdown in housing, manu­fac­turing investment and exports and there needs to be a desto­cking) but we also would expect to see an acce­le­rating policy response which should be enough to sta­bilize PMIs at lower levels’.“ – Stelter: Natürlich, die chi­ne­sische Regierung wird, wie ihre Vor­bilder im Westen, alles daran setzen, kurz­fristige Schmerzen zu ver­hindern – egal, was dies für lang­fristige Kon­se­quenzen hat.
• „And while the ‘house view’ from the Swiss bank is that the Chinese government still has policy fle­xi­bility and none of the pre­con­di­tions for a hard landing are curr­ently present, it does caution that as one of its biggest pos­sible outlier sur­prises for 2019 that, China suffers a hard landing, defined as real GDP growth slowing to sub 5%. So is a China hard landing pro­bable in 2019, and how could we get to that point? Credit Suisse lays out several key deve­lo­p­ments that could get us there, starting with aggregate demand growth, mea­sured as the sum of exports, FAI and retail sales, is at the weakest in 20 years.“ – Stelter: Die Nach­frage ist so entscheidend.

Quelle: Credit Suisse

• „(…) the key drivers of demand are likely to con­tinue to slow: Exports have been front loaded and new orders suggest export growth con­tinues to fall. Housing starts are expected to fall around 8% in 2019 (…) with the fall in pro­perty tran­sac­tions and the end of shan­tytown loans.“ – Stelter: Und da muss man im Hin­terkopf haben, dass der Unter­neh­mens­sektor in China unter hohen Schulden leidet:

Quelle: Credit Suisse

• „(…) manu­fac­turing investment could slow sharply to reflect the fall in cor­porate profits, coupled with an inventory destock: invent­ories are in the top 10% of their range, with NBS PMI new orders vs invent­ories now at their lowest level in their five-year history.“ – Stelter: Typische Sym­ptome einer Abschwächung.

Quelle: Credit Suisse

• „(…) China’s housing sector ‘seems the most likely catalyst’ because if we look at the credit bubbles in Spain, Ireland, Japan or the US, then ‘the recession occurred soon after house prices started to fall.’ Con­sider this: China has seen the fourth biggest increase in credit to GDP of any economy over a 10-year period; this is notable because all the other countries that have seen a larger increase in leverage ended up with major reces­sions (Ireland, Spain and Thailand).“ – Stelter: Ich habe diese Geschichte schon vor drei Jahren anlässlich einer Kon­ferenz in China erzählt. Und was ist pas­siert? Nichts. Damit will ich nicht sagen, dass es keine Rolle spielt. Wir haben es aber mit einer sehr leis­tungs­fä­higen Regierung zu tun, die zudem über erheb­liche Ver­schul­dungs­ka­pa­zität verfügt.

• „(…) much of this credit excess has gone into real estate (…) in China real estate is as high as a pro­portion of GDP, and two mea­sures of afforda­bility look clearly stretched: rental yields are one third of the mor­tgage rate (a simple measure of afforda­bility) and the house price to wage ratio is among the highest in the world.“ – Stelter: Dem steht ent­gegen, dass das Land natürlich erst die Kapa­zität für Wohnen schaffen muss, bevor die Men­schen vom Land in die Stadt ziehen.

Quelle: Credit Suisse
„CS thinks that pro­perty is the key to a potential hard landing in China as pro­perty accounts for 40–50% of banks‘ col­la­teral and around half of household wealth.  The worry is that:

• Pro­perty tur­nover is con­sistent with a small fall in pro­perty prices.
• As above, afforda­bility is stretched.
• 29% of Chinese urban house­holds have at least one vacant property.
• The problem with this is that the home ownership rate in China is already very high (c.73% according to ana­lysts‘ esti­mates), which means should any cracks appear, they will be few potential buyers that could step in (if not the government).“ – Stelter: Ich würde darauf setzen, dass die Regierung ein­greift und stabilisiert.

Quelle: Credit Suisse

• „Demo­gra­phics is not helping as well. The working age popu­lation has already peaked and the country is rapidly ageing. Rising urba­ni­sation should be sup­portive, but the Japanese expe­rience makes us less san­guine. Admit­tedly, it is slow moving and unlikely to cause a large price cor­rection in itself.“ – Stelter: Was wie­derum ein immer wieder unter­schla­gener Faktor ist. Die demo­gra­fische Ent­wicklung ist gut vor­her­sagbar, aber wird dennoch verdrängt.

Quelle: Credit Suisse

• „China has two key sup­ports for allowing an ‘overva­luation’ of real estate — first, that dis­posable income is still growing at ~8% (helping to improve afforda­bility over time) and second, there are very few alter­native venues for investment in mainland China (with a high saving ratio, capital con­trols and an under­de­ve­loped financial markets). The Swiss bank also admits that Chinese pro­perty deve­lopers tend to lead pro­perty tur­nover, which in turn leads pro­perty prices. Pro­perty deve­lopers have recently started to under­perform but have held up remar­kably well in the past year.“ – Stelter: Was dann stimmt, wenn der Leverage im Bereich der Immo­bi­li­en­fi­nan­zierung nicht so dominant ist. Da wir aber eine stei­gende Ver­schuldung sehen, müssen wir es ernst nehmen.

Quelle: Credit Suisse

• „The investment share of GDP remains extreme. This is a problem because when GDP moves from being investment-led to con­sumer-led, the GDP growth rate tends to halve.“ – Stelter: Die Umstellung der Wirt­schaft ist eine große Her­aus­for­derung und führt immer – his­to­risch betrachtet – zu ent­spre­chenden Umstellungsproblemen.

Quelle: Credit Suisse

• „China accounts for 22% of global investment, it is respon­sible for just 10% of global con­sumption and thus this excess capacity has to be exported. However, this is now more dif­ficult for both poli­tical and eco­nomic reasons. The danger is when excess capacity leads to domestic deflation. This pushes up real rates which could in turn trigger a major dele­ver­aging. Both PPI inflation and GDP deflators have dropped signi­fi­cantly recently.“ – Stelter: Und nicht nur in China gäbe es dann Deflation, sondern es wäre ein welt­weites Problem. Ein defla­tio­närer Impuls ist das Letzte, was die (hoch ver­schuldete) Welt­wirt­schaft gebrauchen kann.

Quelle: Credit Suisse

• „Credit Suisse is worried that China’s lea­dership does too little, too late and that in turns allows the credit bubble to deflate much more aggres­sively. The risk is that the lea­dership has a higher ‘pain’ threshold than normal to slowing growth as: (1) with the lifting of the term limit for Pre­sident Xi, there is less need to focus on short-term boosts to growth, and (2) there is not yet a sharp rise in official unem­ployment with the job offer to appli­cation ratio still high at 1.2 and the urban unem­ployment rate of 3.8% offi­cially (its lowest level since 2002).“ – Stelter: Den Ein­druck habe ich nicht, hat doch die Geld­po­litik in China schon auf Expansion geschaltet. Da dies auch poli­tisch bestimmt ist, handelt die Regierung also.
• „The current account fell to a small deficit for the first three quarters of 2018. Indeed, this might mean that the lea­dership would deem cutting rates and allowing the RMB to depre­ciate as the most appro­priate response — some­thing that would not only export deflation but also poten­tially cause a pro­tec­tionist backlash  among its trading partners.“ – bto: Weshalb dieser Weg meines Erachtens ver­sperrt ist. In den letzten Tagen hat die chi­ne­sische Währung auch aufgewertet.
• „With a con­sumer share of GDP of 39%, it is obvious that in the long run growth has to be led by the con­sumer. The problem is that after Norway, China has had a bigger increase in household debt to GDP than any other country. – Stelter: Ande­rer­seits gibt es mit der Ver­schuldung noch Potenzial nach oben.

Quelle: Credit Suisse

• „While it may comes as a sur­prise to some, the debt to dis­posable income ratio is above that of the US (at 118% versus 104% in the US). The debt service ratio has also increased signi­fi­cantly in recent years, and is likely to increase further given that con­sumers are incurring more expensive forms of bor­rowing, i.e. via credit cards or short term loans. Credit card debt to GDP now is about 7%.“ – Stelter: Ja, das über­rascht mich wirklich!

Quelle: Credit Suisse

• „As a result, Credit Suisse eco­no­mists argue that growth of nominal dis­posable income net of debt ser­vices (i.e. income available for con­sumption) has dropped to 2%.“ – Stelter: Damit würden die Kon­su­menten aber als Stütze der Kon­junktur aus­fallen. Wenn alles nicht fliegt, also Konsum, Inves­tition und Export. Was dann? Staat­liche Kon­junk­tur­pro­gamme. Also noch mehr Inves­ti­tionen in Bahn­technik etc.

Quelle: Credit Suisse

• „According to a paper published by NBER, the financial crises between 1980–2007 resulted in a hit of c7% of GDP on average (admit­tedly with a rela­tively large standard deviation of 9%). A 7% hit would push Chinese GDP growth to con­ven­tional recession ter­ritory.“ – Stelter: Wobei in China der Weg der staat­lichen Inves­ti­tionen und Pro­gramme offen ist. Eine Runde können sie damit noch gut bestreiten.

Quelle: Credit Suisse

• „(…) the question to ask is whether China has the fiscal fle­xi­bility to deal with a banking crisis. The two pre­vious banking crises in China have had NPLs in excess of 20%. If this hap­pened again, then NPLs would be around 30–40% of GDP (as bank loans are c.155% of GDP and total non-government credit to GDP is c.205%). If we assume that two thirds has to be written off, then the cost would be c20-30% of GDP.“ – Stelter: Was nun wie­derum keine undenkbare Grö­ßen­ordnung ist.
• With around 23% of local government revenue coming from property/land sales, then the budget deficit could be signi­fi­cantly worse than this.“ – Stelter: Weil es den dop­pelten Effekt sin­kender Ein­nahmen und stei­gender Ver­bind­lich­keiten gibt.
• Finally, if we include local government financing vehicles and other off-budget lia­bi­lities, total government debt to GDP is at 68%. The number is likely to be much higher once we include debt owed by SOEs, as non-financial cor­porate debt is at 155% of GDP and, according to ADB, SOEs account for appro­xi­m­ately 2/3 of them, i.e. more than 100% of GDP. Thus, China’s fiscal ability to maneuver could be much more limited than would appear to be the case.“ – Stelter: Ich finde es nicht ganz sauber, weil man die Ver­schuldung der Unter­nehmen nicht „doppelt rechnen“ sollte. Aber selbst wenn, dann zeigen Länder wie Japan, dass man mit eigener Notenbank viel höhere Schulden stemmen kann.

Klar ist, dass, wenn China wirklich in eine Rezession fallen sollte, dass dies die Wachs­tumsrate der Welt­wirt­schaft nach­haltig treffen würde:

• „China has accounted for 36% of the global growth since 2013 and accounts for 16% of the world GDP (on current exchange rates, 18.7% on PPP). If China growth slows to just 4% (i.e. c.2.2% lower than we expect), that would take 0.4p.p growth off global GDP directly. However, the total impact would be about double the size because the foreign trade mul­ti­plier is  typi­cally 2x to 3x (we assume 2.5x). In other words, if China growth slows, the growth of other Asian countries would likely to slow in response. One can see this beta by looking at the sen­si­tivity of say German exports to China versus China GDP growth (last time when Chinese nominal GDP dropped to 6% in Q3 2015, imports from Germany dropped by c.20%).“ – Stelter: Na ja, das Märchen vom reichen Land endet ja bereits jetzt. Würde das Ganze noch beschleu­nigen und dra­ma­ti­scher machen.
• „(…) China GDP growth slowing to 4% would take appro­xi­m­ately 1% off global GDP growth. Global PMIs are already pointing towards 2.8% global growth and thus global growth could fall to just below 2%. This would be the lowest level since 2009.“ – bto: Und die Zinsen sind schon sehr tief …
• „(…) even this may unde­re­stimate the impact because should China slow signi­fi­cantly, it is likely to be accom­panied by deflation (i.e. the GDP deflator becomes negative) and thus nominal GDP in China could slow by even more. If the deflator falls from the current 1.5% to ‑1% in this sce­nario, then nominal GDP in China falls from 9.4% to 3% and this then takes 2% off global nominal GDP growth.“ – Stelter: Was dann negativ wäre bzw. bei null.

Quelle: Credit Suisse

• „(…) the biggest problem is that this time around, unlike 2008, the space for policy response is limited (real rates in a recession typi­cally need to be cut 4% to 5%), and there is no new China to take over the lea­dership of global growth.“ – Stelter: Durch ein bil­lio­nen­schweres Konjunkturprogramm!