More Evidence of a Sharp Slowdown in China Emerges
As an update to our recent missive on China, there is now more evidence of a bursting property bubble as well as a more general economic slowdown.
BHP Billiton is reconsidering its planned as imports into China are declining due to falling steel production and a slowdown in car sales.
Meanwhile, house prices have lately been falling in 45 of 70 Chinese cities, with property sales in free-fall. As the FT Alphaville Blog reports on this, quoting from a Societe Generale report:
“Chinese property sales and prices have made for dour reading recently. Property sales value contracted 20% year on year in the two months ending in February. This is not only the worst result since the property slide in 2008 – it’s the worst result since the series began in 2006.
It’s particularly worrying to note that the slope of the fall is as sharp as the decline in January 2008. Back then, sales fell by a further 20% year on year after the January decline. This time, the comparables are a bit better, since property sales were rising through 2007, and have been stagnant over 2011. But if we assume that the monthly sales patterns in 2008 repeat in 2012, then sales should trough at around -24% year on year
Chinese property prices released today made for equally glum reading.Prices fell in 45 of 70 cities in February from January, according to prices released on Sunday by the statistics bureau. The average decline across the cities is now around 1.5% year on year. This is similar to the 1.3% drop seen in the old series (shown in red on Chart 2), but arguably the results are a lot worse.
Here are the two charts referenced above:
China property sales
China property prices
It sure looks like the slowdown in China's economy is intensifying.
Australia's new Mining 'Super Tax'
Also interesting in this context is a chart we have come across that depicts the correlation between China's steel production and the external value of the Australian dollar (hat tip to ''):
China's steel production sand the the Australian dollar: a close correlation.
This makes it all the more ironic that Australia's socialist government has just enacted a 30% 'super tax' on coal and iron ore production in order to, you guessed it, 'diminish those excessive profits' and obtain a 'fair share' for the bureaucrats to squander. This example of 'resource nationalism' is bound to backfire mightily. It once again proves that government bureaucrats and politicians are economically illiterate. They expect mining companies to shoulder the immense risks associated with capital intensive projects, but want to deny them the rewards during good times. Naturally this nonsense is hailed as great progress by interventionist apologists in academe (see below). The projections regarding the likely revenue increases from this tax will likely never come true. Moreover, Australia probably can bid a good part of its mining boom adieu now. Note also here that the institution of this tax highly likely to turn out to be extremely ill-timed, as iron ore and coal prices are probably going to slump in the wake of China's slowdown. Will the government give anything back to the mining firms in the event of a bust? We don't think so.
From the Bloomberg article linked above:
“Australia passed legislation that will reap about $11 billion in taxes within three years from BHP Billiton Ltd. (BHP), Rio Tinto Group and other iron-ore and coal miners as the government seeks to turn its budget to surplus.
Prime Minister Julia Gillard’s Minerals Resource Rent Tax was passed in the upper house yesterday and will become law on July 1 after receiving backing from the ruling Labor party and the Greens, who hold the balance of power in the Senate.
Passing the legislation is a success for Gillard, whose predecessor Kevin Rudd was ousted amid a campaign by mining companies against a broader 40-percent levy that he initially proposed. Gillard, the country’s first female prime minister, is trying to hold together a minority government that relies on the support of independent and Green party lawmakers.
“It’s a victory for Labor and will help the nation’s bottom line,” said Norman Abjorensen, a political analyst at Australian National University in Canberra. “Most Australians probably believe the big miners can afford to pay more tax.”
The levy will aid the prime minister’s bid to return the budget, to be announced May 8, to surplus.
“We’ve got a spectacular resources boom,” Gillard said in an interview with Channel Nine television today. “It makes sense to take some money from the turbo-charged section of the economy and share it more broadly around the nation and that is what the mining tax does.”
None of these projections will come to pass, you heard it here first. What 'Australians probably believe' about how much tax the mining firms can afford to pay is largely irrelevant in this context. Naturally the idea that Peter will get more if Paul is squeezed is often popular, but that doesn't make it a good basis for sensible economic policy. The irony becomes evident further below in the Bloomberg article:
“Australia posted its first trade deficit in 11 months in January, as weaker shipments of iron ore and coal contributed to the biggest drop in total exports in almost three years. The nation’s economic growth slowed to 0.4 percent in the fourth quarter from the previous three-month period, according to figures released on March 7.
The mining tax will raise A$10.6 billion in the three years after being implemented from July 1, according to government estimates. [no, it won't, ed.]
Parliament goes on hiatus from March 22 and resumes May 8, when the government will announce its annual budget that it says will return to surplus. Under laws already passed, the government will put a tax on carbon emissions from July 1 by charging about 500 polluters A$23 a ton for discharges until the set price gives way to a cap-and-trade system in 2015.”
Conclusion: sell the Australian dollar as quickly as you can. Seeing that Australia is also enacting a carbon tax and a 'cap and trade' scheme, we recommend prayer to our Australian readers as an initial ad hoc measure.
As an aside: these 'climate change' related extortions of tax payer funds are probably closely related to the state of the economy. They often are quietly dropped when economic conditions get bad enough, as they are really a luxury associated with a positive social mood ('let's all pull together to save the planet!' is a positive social mood inspired slogan).
The climate changes all the time, regardless of what governments think they can do about it. In fact, if there is indeed a problem associated with changes in the climate (consider us extremely doubtful on that score, especially as global temperatures have completely failed to rise for 13 years running now), the last organization we want to 'deal' with it are the world's governments. They demonstrably make a hash of everything, and it won't be any different in this case.
Addendum: US Housing Starts – Worse than Thought
Much ado has been made about the recently reported improvement in US housing starts. However, as the disaggregated numbers show, the bulk of the improvement was in multi-family units, not single family dwellings, which represent the bulk of the extant housing stock.
The chart below depicts the situation (via Calculated Risk):
Disaggregated US housing starts – single family dwelling starts have actually declined again.
Single family structures in isolation, long term. There's evidently nothing to get excited about. The housing slump is still not over.
Charts by: SocGen, AlsoSprachAnalyst, Calculated Risk
Emigrate While You Can... Learn More
Dear readers - we want to once again thank all of you who have supported us with donations.
To donate Bitcoins, use this address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Thank you for your support!
5 Responses to “A Slowdown in China, and Ill-timed Socialist Interventions in Australia”
Most read in the last 20 days:
- Why Do We Let Other People Tell Us What to Do?
Lame Theories of Government We have been disappointed with political ideas and theories of government. They are nothing but scams, justifications, and puffery. One tries to put something over on the common man… the other claims it was for his own good… and the third pretends that he’d be lost without it. Most are not really “theories” at all… but prescriptions, blueprints for creating the kind of government the “theorist” would like to have. Not surprisingly, it is a...
- Gold and Gold Stocks – Back to Tricky, but Interesting Signals Emerge
A Relentless Short Term Decline When we last discussed the gold sector, we noted that with gold approaching its 200 day moving average, a pullback had to be expected soon. In the meantime, a bit more than just a pullback has happened, as a severe sell-off started after the October FOMC announcement. Photo via genius.com However, as you will see below, this has most likely merely reset the clock a bit in terms of anticipating a medium term trend change (even if...
- The Long, Cold Winter Ahead
Not Immune Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. Photo credit: David Byrne If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the...
- Gold and Gold Stocks – It Gets Even More Interesting
Technical Backdrop If only we could get a dime for every bearish article on gold that has been published over the past two weeks...but one can't have everything. When a market is down 83% like the HUI gold mining index is, we are generally more interested in trying to find out when it might turn around, since it is a good bet that it is “oversold”. Of course, it if makes it to 90% down, it will still be a harrowing experience in the short term. We like these catastrophes because...
- The Greatest Racket of All Time
The Successes of the Global War on Terror One would think that the so-called “Global War on Terror”, which has been given fresh impetus by the Paris attacks, must be going swimmingly. What else could explain the great enthusiasm with which it is pursued? It may be recalled that it started in earnest after the WTC attack – also a declaration of war, as it was put at the time. As is often the case when Islamist fundamentalists strike, the actual attackers immolated themselves on...
- How Do People Destroy Their Capital?
There is no Santa Claus I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one...
- Junk Bonds Under Pressure
While the Stock Market is Partying ... There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Photo credit: Getty Images At first it was assumed that the most highly...
- US Economy – Not Getting Better
An Update in Light of Recent Data Releases Since our last updates on the manufacturing sector of the US economy (in chronological order: “Is the US Economy Close to a Bust?” and “More Ominous Data Points”), new data have been released and our friend Michael Pollaro has mailed us updated versions of his charts, so we decided to provide another update. So far, there is no sign that the emerging downtrend in manufacturing activity is stopping or reversing. The recent manufacturing...
- Angry Belgian Muslims and the Price of Welfare Statism
Ill-Tempered Mohammedans in the Socialist Paradise In the wake of recent revelations about the identities of the morons involved in the horrific Paris attacks (happily, most of them shuffled off the mortal coil as well, thereby improving the aggregate degree of moral clarity and intelligence in the world), a friend pointed us to an article at Unz Review that asks: “Why Does Belgium Have Such Angry Muslims?” Our instinctive, immediate reaction was to argue that the bland, boring...
- The Next Level of John Law Type Central Planning Madness
Cries for Going Totally Crazy are Intensifying What are the basic requirements for becoming the chief economist of the IMF? Judging from what we have seen so far, the person concerned has to be a died-in-the-wool statist and fully agree with the (neo-) Keynesian faith, i.e., he or she has to support more of the same hoary inflationism that has never worked in recorded history anywhere. In other words, to qualify for that fat 100% tax-free salary (ironically paid for by assorted tax serfs),...