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
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
5 Responses to “A Slowdown in China, and Ill-timed Socialist Interventions in Australia”
Most read in the last 20 days:
- How the Welfare State Dies
Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico). Gee, we wonder why? They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
- Free Speech Under Attack
Offending People Left and Right Bill Bonner, whose Diaries we republish here, is well-known for being an equal opportunity offender - meaning that political affiliation, gender, age, or any other defining characteristics won't save worthy targets from getting offended. As far as we are concerned, we generally try not to be unnecessarily rude to people, but occasionally giving offense is not exactly beneath us either. The motto of the equal opportunity...
- Toward Freedom: Will The UK Write History?
Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call. The battle lines are...
- A Market Ready to Blow and the Flag of the Conquerors
Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast. St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6 Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
- Going... Going... Gone! The EU Begins to Splinter
Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
- Rule Britannia
A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union. Waving good-bye to...
- What Could Possibly Go Wrong?
A Convocation Of Gamblers The Wall Street Journal and BloombergView have just run articles on the shadow banking system in China. This has put me in a nostalgic mood. About 35 years ago when I was living in Japan, I made a side trip to Hong Kong. Asia's Sin City, Macau Photo credit: Nattee Chalermtiragool I took the hydrofoil to Macau one afternoon and the same service back early the next morning. On the morning trip, I am sure that I saw many of the...
- The Problem with Corporate Debt
Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour. Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us: “Businesses racked up debt in the...
- A Darwin Award for Capital Allocation
Beyond Human Capacity Distilling down and projecting out the economy’s limitless spectrum of interrelationships is near impossible to do with any regular accuracy. The inputs are too vast. The relationships are too erratic. The economy - complex and ever-changing interrelations. Image credit: Andrea Dionne Quite frankly, keeping tabs on it all is beyond human capacity. This also goes for the federal government. Even with all their data gatherers and...
- Janet Yellen’s $200-Trillion Debt Problem
Blame “Brexit” BALTIMORE – The U.S. stock market broke its losing streak on Thursday [and even more so on Monday, ed.]. After five straight losing sessions, the Dow eked out a 92-point gain. The financial media didn’t know what to say about it. So, we ended up with the typical inanities, myths, and claptrap. “Investors” are pushing the DJIA back up again..apparently any excuse will do at the moment. The idea may backfire though, as exactly the same thing happened...
- Gold and Brexit
Going Up for the Wrong Reason Gold is soaring. It should—and a lot—but in my view not for the reason it is. Indeed gold is insurance for uncertain times, a time that Brexit seems to represent. But insurance is an administrative cost — one must minimize its use. August gold contract, daily – gold has been strong of late, but this seems to be driven by “Brexit” fears - click to enlarge. Moreover, insuring against Brexit might ironically be equivalent...
- The Fed’s Doomsday Device
Bezzle BALTIMORE – Barron’s, in a lather, says the market is facing the “Two Horsemen of the Apocalypse.” Huh? Only two? There were four last time! Supposedly, the so-called Brexit – the vote in Britain this Thursday on whether to leave or remain in the European Union (EU) – and uncertainty over where the Fed will take U.S. interest rates are cutting down stocks faster than a Z-turn mower. But Brexit is a side show. As our contacts in London...