2014-10-28

More Signs of Slowdown in Today's Paper

Light posting this week due to travel, but I came across a few stories in today's paper worth mentioning.

In Guangzhou, license plates are auctioned. This month the number of people bidding declined and was actually below the number of license plates available. The average transaction price fell 7.5% from the month before and the rate of decline is increasing. Average prices are back to end of 2013 levels. According to the article, the drop in demand is related to a gov't law restricting out of town license plates. When the law was proposed and announced, auction prices jumped, but now that the law could hit between now and 2017, prices have come down. Or it's the economy...

Zhangjiakou Online: 广州车牌拍卖再遇冷 10月申请人少于车牌数

Next, An article on mortgage discounts in Guangzhou. The accompanying chart shows the number of discounts has ticked up, but less than 20% of banks are offering them.

21st CBH: 广州房贷利率调查:6家有优惠 5家附条件

Bonus item: I didn't snap a picture, but there's a big billboard here in Guangzhou from a developer whose offering the chance to win an iPhone 6 if you look at some properties.


The third story: Chinese media are also starting to report the slowing industrial production in local economies that I covered in Liaoning Sounds Warning on Chinese Economy. Industrial production in Beijing, Hebei, Hainan, Zhejiang and Guangzhou has ticked up, but in Tianjin, Shanghai, Jiangsu and others places, there's a slowdown.

The differentiation is occurring within the local economy as well because it is due to certain industries. Large scale industries in Shanghai grew only 4.9% in the first three quarters, down from 6.3% in the first half (growth was only 0.5% in August and 1.3% in September). In contrast cumulative growth in Guangdong has ticked up by 0.1 percentage points in each quarter and Zheijiang has ticked up 0.2 percentage points in each quarter.

Here's a Google translated bit from the article:
21st Century Business Herald was informed that some of the slowdown in the coastal provinces, mainly in the past about the traditional pillar industries affected. For example, the first three quarters of the industrial slowdown in Shanghai, garments, crude oil processing volume, ethylene, cement, steel, household refrigerators, micro-computer-related production slowdown. January-September output growth in these industries was -2.2%; -12.4%; -13.2%; -12.8%; 0%; -3.1%; -13.3%.

Tianjin's industrial growth slowed down, but also with crude oil processing volume, ethylene production slowdown related. Liaoning's industrial slowdown, and metallurgy, petrochemical, coking and other heavy industry slowdown related.

Hainan Industrial accelerated industrial growth in the country and even in September the first, and the slowdown in the development of many of these provinces, petrochemical and other heavy industries concerned.

The argument for a smooth transition and soft landing for China is that it can rebalance away from investment and exports to a larger domestic and service economy, supported by industries such as advanced engineering and manufacturing, aerospace, financial services, consumer sectors, etc. at least as fast as the other sectors contract. The risk is that growth isn't fast enough in the emerging industries, which is a problem when there is an existing credit bubble and an inefficient credit allocation system, in addition to the risk that external shocks impact the credit bubble. China is unlikely to get any help from emerging economies that rely on Chinese growth going forward, while developed economies seem more likely to hurt at this point. If the U.S. dollar is following a long-term pattern, 2015 will see a big U.S. dollar rally that will pull the yuan higher at exactly the worst moment. Meanwhile, the evidence from Liaoning shows the domestic economy may already be in trouble.

Confusing the issue is China's reform efforts. Everything that is happening may be a very fortuitous rebalancing effort, or this all might be the business cycle at work. If the former, all the bears are going to be burned once more in their expectations of a crash (though I still believe Pettis' slowdown scenario will be in play). If the latter, then the whole world is in for a world of hurt as the business cycle comes back to China, Austrian-style.

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