Thursday, May 7, 2009

It's the Economy, Stupid

I've been conscious of how much economic-related news I put on this site recently. I don't want Mark's China Blog to turn into a China financial/economic news blog.

Although I don't want to get too entrenched in economic analysis, I'm having trouble resisiting diving into economic and financial numbers I find on a daily basis. There is just so much interesting news going on with the financial crisis and China's place within the global economic maelstrom.

So today, for better or worse, I've chosen to highlight more economic stuff.

I'll start with some good news for GM. From The Wall St. Journal:
BEIJING -- General Motors Corp. said its sales in China hit a monthly record in April, rising 50% from a year earlier on strength in its Buick and Wuling brands.

The strong performance in China by the U.S. auto maker, until recently the world's biggest by output, contrasts with its struggles in its home market. GM is racing to restructure outside of bankruptcy court in the U.S., and is expected this week to accelerate talks with the United Auto Workers union and move toward closing about 2,600 dealerships.

GM, which posted record China sales of 151,084 units in April, has two joint ventures in the country: passenger-vehicle maker Shanghai General Motors Corp., a 50-50 venture with Shanghai Automotive Industry Corp., and mini-commercial vehicle maker SAIC-GM-Wuling Automobile Co., a three-way partnership with SAIC and Liuzhou Wuling Motors Co.

Read On
As the article notes and Thomas, a frequent commenter on this site, has pointed out before, GM's presence in China is a joint-venture. So it's not as if GM is simply going to be able to replace its American sales collapse with the Chinese market. But it is worth noting that people in China are buying GM cars.

In some other (I suppose) positive news for China, the "Chinese Nasdaq" is getting its feet on the ground and the Chinese yuan is beginning, what should be, a steady and sustained appreciation.

There is also a lot of news on China's lending today, too. Although it was expected, the fact that Chinese banks appear to have cooled off lending in April (instead of continuing its unprecedented rates earlier in the year) is another positive thing to report.

From The Associated Press:

Image from

China's new bank lending in April was likely above 600 billion yuan ($87.8 billion), sharply lower than the record trillion-plus yuan loans in earlier months this year, a state-run newspaper said Tuesday, citing unnamed industry figures.


"Clearly, new lending in the rest of the year at the same pace ... or half as fast ... as in the first quarter would be unthinkable and too fast," UBS economist Tao Wang said in a report issued last week.

Apart from the risk of spurring inflation by pumping too much money into the economy, "Growth may not be sustainable if demand is mainly driven by the government and easy credit, and the risk of massive resource misallocation rises," she said.

One worry is that excess investment in some industries could lead to gluts and overcapacity, further depressing corporate profits, said Sherman Chan, an economist at Moody's

She noted that while corporate earnings improved dramatically over the last quarter of 2008, stripped of seasonal effects net profits for companies listed on mainland stock exchanges fell nearly 26 percent from a year earlier.

While recent surveys suggest a mild rebound in export and domestic industrial demand, China's 6.1 percent growth in the first quarter fell short of the leadership's 8 percent goal for the year.

Electric power generation - a key indicator of industrial activity - likely fell by 4 percent in April from a year earlier, Xue Jing, director of the statistics department of the China Electricity Council, told the state-run newspaper China Daily.

Read the Entire Article
This article is a little disconserting. Despite the perception that China is recovering, some of the key indicators of how the economy is functioning mentioned in this article are not too glowing. Things in China are still really difficult. It seems dangerous to me to pack everything up and think that things are going to be great in China going forward.

Saying that, the Chinese do appear to have a grasp on what is going on with their credit system. They, unlike the Americans of a few years ago, are realizing that unchecked lending can be incredible problematic.

Now we just have to see what happens over the course of the year. Chinese banks have obviously been directed to pump out their money to help avoid the crisis upon which the rest of the world is engulfed. And the banks have more than complied. China is swimming in credit.

What happens if things go further south in other countries though? Right now, China is an economic beacon in an otherwise very dark and scary economic environment. Will Beijing continue to see this kind of lending as the prevention of a Chinese economic crisis? Will the powers-that-be be willing to keep this lending at dangerously high levels?


Ramesh said...

Yeas Mark - Fully agree on the "awash" with bank credit scenario here. Its a big big risk and I'm not at all sure that governments can react in time. High inflation is a real threat.

I personally like your economic slant. Its topical, and interestingly written with little jargon. Keep going Mark

Mark said...

Thanks a lot for the encouragement, Ramesh. I'm kind of figuring out this economic stuff as I go. Trying my best.

I clicked through on your blog recently. It's really good. I'm going to keep checking it out. Keep up the good work.

Ramesh said...

Thanks Mark