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 iron ore related investment expansions 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.

 

(emphasis added)

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 'Also sprach Analyst'):

 


 

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.”

 

(emphasis added)

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.”

 

(emphasis added)

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!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

5 Responses to “A Slowdown in China, and Ill-timed Socialist Interventions in Australia”

  • zerobs, if your comments are in my direction, in no way have I called a bottom in the market. I surely haven’t seen Pater call one, so you must have misread what I wrote. DFW was and is a growing population area, yet we had a multiple year bust after a couple of years of overbuilding. Prime suburban locations today don’t sell for any more per foot than they did in 1984, a year 113,000 housing units were constructed in the metro area. Foreclosures here were running 4000 postings a month prior to the bust, while SFR construction was running around 12,000 a quarter. So, in essense, the supply was being put back on the market as fast as it was built. I’m in the housing business here with my mother. She wants to buy. I’m waiting for the next shoe to drop. I have sensed speculation has never ceased here. If the rental market soaks up the excess, new construction will merely steal from the rental market. There isn’t enough credit to run another price run and I suspect that declining needs of an aging population will provide an overhang of supply in the mid range market.

    APM, I have marveled for years over the seeming skys the limit of the Hong Kong market. What I have never been able to rectify is the income needed to occupy such an expensive market. Having a massive amount of GDP tied up in housing can’t be productive, save for it providing a source for credit to float the rest of the economy. Of course, the bill eventually comes due.

    • APM:

      mannfm11, of course a lot of money in HK is flowing in from the outside i.e. from China, India, Australia and so forth, and real estate speculation (price appreciation) is only one of the driving factor. More important driving factors are diversification (especially for the Chinese), a low-taxation jurisdiction and in general a good place from which to run a business in Asia (rule of law, good infrastructure, developed financial system). Thus prices can stay elevated as long as the other regional economies in Asia are performing and still inflating. Corrections do occur though: between 1997 and 2003, residential real estate prices collapsed by 60% and did not reach again the 1997 level until last year (2011).

  • zerobs:

    I actually think you are understating the problem in the US.

    Statistically, the big local or national housing bubbles have taken 6-8 years to hit bottom and we are only entering year 6. We may be near the bottom, but we aren’t quite there yet. I’m not one for market timing, so I would not discourage some souls with the time and money to look at buying but when I say people with money, I mean people with cash not creditworthiness.

    Having said all that, I would probably still caution that group to think a little more. I would venture to say that nearly all US economic statistics since WWII have been tainted by a demographic bias that is almost always ignored – baby boomers (more aptly named the “ME” generation in the 70’s). To make a long post short, we may be near the “bottom” in housing, except that we are just beginning the retirement sell-off of houses which may mean we will be bouncing along the housing bottom for another 12-15 years until the number of living baby boomers no longer skews the statistics. If you consider a 67-year old’s house to be shadow inventory of 2017 (will they want to sell and move to a retirement community at age 72? will they die?), supply is probably still increasing for the next decade.

  • 30% huh? I guess China is going to have to pay it or the mines won’t run. That CDS on the Australian banks might be a good play.

    In the meantime, they have all their BS artists, beginning with Stephen Roach, on CNBS today. Makes me want to kill my TV every time they put these groups together. China has blown the mother of all housing and capacity bubbles. These bubbles feed themselves until they pop. Humpty Dumpty is broken and there is this delusion he will fit right back together again. China has been building around 20 million units a year and I have read estimates of 60 million empty units. The bubble is 3 years too large. 20 billion square feet at $100 a foot is $2 trillion. They don’t have a pipe big enough to smoke this one. If you figure the average US home was twice the size of the Chinese home, the US bubble was only about 1/5th the Chinese bubble. Empty property is near worthless.

    My personal experience and my posted analysis on the US bubble, from afar, I would consider myself an expert on this subject. When the media was calling bottoms, I was calling record low construction rates before our mess was done. Note the chart. We had the lowest birth rate since the Great Depression in 1976. Why would a dwindling number of people coming of age produce an interrupted boom in home construction and price? The levels on this chart exceed what I have added up from government data, but it is possible I added up home sales and not homes built. I assume the difference is some people build their own homes, thus they don’t count as a sale. In any case, instead of coming off the peak in the mid 1990’s, we had an accelleration. The declines are what worked off the excess of the prior few years and there wasn’t one, for 10 years after one was naturally due. My research indicated that about 750K in new home sales should have been more than enough to supply the market. From the figures I recall, sales will be about 15% less than the numbers indicated on the chart. There were years they built and sold 2 times prior peak year demand. At current construction rates, it will be absorbed at about 500K units a year. In most areas of the US, we still have a few years to go and if speculators continue to soak up the excess, the improvement in construction will merely be added to such excess. The same principals apply to China.

    • APM:

      Yes, the property bubble in China is unprecedented in terms of size and also of sheer greed. I currently live in Hong Kong and in a 7.7 million people city there are apparently between 200,000 and 300,000 empty apartments bought as “investment”. It is a peculiarity of the Chinese culture that an apartment can be resold (flipped) for a higher price if it is still “new” i.e. unused. So property gets bought, stays empty for a few years and gets resold to the next speculator in the chain. It does not take much business acumen to know where this thing is headed. The picture in Mainland China is possibly even worse. One thing that strikes me when talking to business owners and managers in China, is the amount of energy they devote to property speculation, not only on the private side with their family money but also on the business side with their firm’s funds even if real estate does not happen to be one of their (declared) areas of business. I have done business with and reviewed the balance sheet of several companies whose core business (industrial, distribution, retail) was money losing or breaking even and whose source of (paper) profit was property speculation by buying offices, stores and even residential real estate. Those companies are basically consuming their capital chasing paper profits in the real estate market. Look out below! Most likely, this will end up in a huge bust coupled with even more money printing to soften the blow.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • What Kind of Stock Market Purge Is This?
      Actions and Reactions Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it.  Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all.  We'd rather get our teeth drilled by a dentist.  Still, a rapid selloff has many positive qualities.   Memorable moments from...
  • How to Buy Low When Everyone Else is Buying High
      When to Sell? The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.  Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to...
  • US Stocks - Minor Dip With Potential, Much Consternation
      It's Just a Flesh Wound – But a Sad Day for Vol Sellers On January 31 we wrote about the unprecedented levels - for a stock market index that is - the weekly and monthly RSI of the DJIA had reached (see: “Too Much Bubble Love, Likely to Bring Regret” for the astonishing details – provided you still have some capacity for stock market-related astonishment). We will take the opportunity to toot our horn by reminding readers that we highlighted VIX calls of all things as a worthwhile...
  • When Budget Deficits Will Really Go Vertical
      Mnuchin Gets It United States Secretary of Treasury Steven Mnuchin has a sweet gig.  He writes rubber checks to pay the nation’s bills.  Yet, somehow, the rubber checks don’t bounce.  Instead, like magic, they clear. How this all works, considering the nation’s technically insolvent, we don’t quite understand.  But Mnuchin gets it.  He knows exactly how full faith and credit works – and he knows plenty more.   Master of the Mint and economy wizard Steven Mnuchin and...
  • Why I Own Gold and Gold Mining Companies – An Interview With Jayant Bandari
      Opportunities in the Junior Mining Sector Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally...
  • Seasonality of Individual Stocks – an Update
      Well Known Seasonal Trends Readers are very likely aware of the “Halloween effect” or the Santa Claus rally. The former term refers to the fact that stocks on average tend to perform significantly worse in the summer months than in the winter months, the latter term describes the typically very strong advance in stocks just before the turn of the year. Both phenomena apply to the broad stock market, this is to say, to benchmark indexes such as the S&P 500 or the...
  • The Future of Copper – Incrementum Advisory Board Meeting Q1 2018
      Copper vs. Oil The Q1 2018 meeting of the Incrementum Fund's Advisory Board took place on January 24, about one week before the recent market turmoil began. In a way it is funny that this group of contrarians who are well known for their skeptical stance on the risk asset bubble, didn't really discuss the stock market much on this occasion. Of course there was little to add to what was already talked about extensively at previous meetings. Moreover, the main focus was on the topic...
  • “Strong Dollar”, “Weak Dollar” - What About a Gold-Backed Dollar?
      Contradictory Palaver The recent hullabaloo among President Trump’s top monetary officials about the Administration’s “dollar policy” is just the start of what will likely be the first of many contradictory pronouncements and reversals which will take place in the coming months and years as the world’s reserve currency continues to be compromised.  So far, the Greenback has had its worst start since 1987, the year of a major stock market reset.   A modern-day...
  • Strange Economic Data
      Economic Activity Seems Brisk, But... Contrary to the situation in 2014-2015, economic indicators are currently far from signaling an imminent recession. We frequently discussed growing weakness in the manufacturing sector in 2015 (which is the largest sector of the economy in terms of gross output) - but even then, we always stressed that no clear recession signal was in sight yet.   US gross output (GO) growth year-on-year, and industrial production (IP) – note that GO...
  • US Equities – Retracement Levels and Market Psychology
      Fibonacci Retracements   Following the recent market swoon, we were interested to see how far the rebound would go. Fibonacci retracement levels are a tried and true technical tool for estimating likely targets – and they can actually provide information beyond that as well. Here is the S&P 500 Index with the most important Fibonacci retracement levels of the recent decline shown:   So far, the SPX has made it back to the 61.8% retracement level intraday, and has weakened...
  • Update on the Modified Davis Method
      Whipsawed Frank Roellinger has updated us with respect to the signals given by his Modified Ned Davis Method (MDM) in the course of the recent market correction. The MDM is a purely technical trading system designed for position-trading the Russell 2000 index, both long and short (for details and additional color see The Modified Davis Method and Reader Question on the Modified Ned Davis Method).   The Nasdaq pillar...   As it turns out, the system was whipsawed,...
  • Market Efficiency? The Euro is Looking Forward to the Weekend!
      Peculiar Behavior As I have shown in previous issues of Seasonal Insights, various financial instruments are demonstrating peculiar behavior in the course of the week: the S&P 500 Index is typically strong on Tuesdays, Gold on Fridays and Bitcoin on Tuesdays (similar to the S&P 500 Index).   The quest for profitable foresight...[PT]   Several readers have inquired whether currencies exhibit such patterns as well. Are these extremely large markets also home to...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com

Diary of a Rogue Economist