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China Anecdotal Evidence of a Huge Slowdown

( From China Daily, Business Insider,IrishTimes, FinancialTimes, Bloomberg, Reuters, Aegis Advisory, China Daly, Yahoo News, HuffPost, Money News, WallStreetJournal, ThreeHunger,ChinaDigitaTimes,

CS Monitor,​ Th Guardian )

Signs of weakening demand at China's largest industrial bazaar

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​Weak global demand for Chinese exports was evident at China’s largest industrial bazaar, where suppliers of everything from electronics to Christmas decorations said the number of buyers and orders were 10 per cent lower than at the previous fair in the spring.



The Canton Fair is a twice-yearly event that provides anecdotal evidence of overseas demand for Chinese goods. The organisers said yesterday that orders from Europe had fallen about 10 per cent, while orders from Japan had dropped almost one-third – hit by tension between China and Japan. The dearth of buyers has added to evidence that the slowdown in Chinese exports looks set to last, since the orders by retailers from the US, Europe and the Middle East are for 2013.



Although exports in September rose 9.9 per cent from the previous year, those numbers were not as firm as they looked. They were affected by the timing of the Chinese mid-autumn festival, which this year fell in early October, meaning September export data this year benefited from more working days.



Other Anecdotal Evidence



​​The challenging economic backdrop in China Anecdotal information tells a darker tale – perhaps not surprising given how Chinese

officials groom economic indicators. Take three major companies: BYD, a carmaker and favourite of Warren Buffet, saw its profits fall 94% in the first half of 2012; ZTE, a telecommunications equipment manufacturer, announced year-on-year profit declines of 85% in the second quarter of 2012; and China Rongsheng Heavy Industries, a shipbuilder, stated that it had taken orders worth only $58 million in the

first half of 2012, compared to $725 million in the same period of 2011. Meanwhile smaller companies, with less access to bank finance, are thought to be suffering even more.

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Other proxy indicators are also down. . Production of polyethylene, a precursor chemical used in many manufacturing processes, was also down by 7% year-on-year in September. Some prominent analytical groups, such as Lombard Street Partners, have argued that China’s growth may fall as low as 5%, owing to bad debt and declining return on investment.

Foreign direct investment in China dropped again in January as a result of the global slowdown as well as lingering concerns over China's economic recovery.

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The country registered $9.27 billion in FDI in January, a drop of 7.3 percent year-on-year, the Ministry of Commerce said.This is on the heels of a drop of 4.5 percent in December.

​( See graph below for China s FDI growth year-over-year )

Fourteen of the past 15 months have seen a decline in FDI. May was the exception.



Global cross-border FDI dropped 18 percent year-on-year in 2012 while in Asia it declined 9.5 percent. The decline in China on the global scale was 3.7 percent, Shen said, citing a report from the UN Conference on Trade and Development.



Song Hong, an economist with the Institute of World Economics and Politics under the Chinese Academy of Social Sciences, said global uncertainty and weak investment sentiment were to blame.



The world's second-largest economy expanded 7.9 percent in the last quarter of 2012, halting a seven-quarter slowdown. The full-year expansion of 7.8 percent last year was the lowest in more than 10 years.



"The FDI decline in January shows that global investors have different views on whether China's economic recovery will be steady and sustainable. Meanwhile, they are also weighing whether further investment in China will bring the same rewards as in the past," said Lian Ping, chief economist with Bank of Communications.



Investment from the United States fell 20 percent year-on-year in January to $270 million while Japanese investment, $640 million, was down 20 percent from a year earlier, according to the ministry.



"Tension over Diaoyu Islands drove down Japanese investments in China. US investors are returning home and favor Mexico more than China where costs keep rising," Song said.



However, European Union investment in China surged 81.8 percent year-on-year in January to $820 million.





Risks of Political Instability



Political instability in emerging markets, led by China, will be one of the biggest risks for markets in 2013, Ian Bremmer, president of political risk firm Eurasia Group, said on Monday.



China, the world's second-largest economy, is high on the lists of worries, he said, citing ongoing tensions with Japan and uncertainty about the investment atmosphere.



"The level of uncertainty around investing in China is many magnitudes greater than it is in the United States, but no one ever says they're on the sidelines because of uncertainty in China," Bremmer said.

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A weakened global economy, rising Chinese labor costs, and rampant environmental problems are challenging China’s once-strong model of low-cost, export-oriented manufacturing. Last year, exports grew 7.9 percent and imports rose 4.3 percent, with total trade up only 6.2 percent, well below 22.5 percent in 2011. “We should raise the quality and returns of foreign trade, rather than just increase its volume, and raise its overall competitive advantages instead of relying on cost and price advantages,” Wen said. Says GK Dragonomics Batson: “There is a pretty clear acknowledgement that the environment for China’s exports is not going to get better—they know they can’t count on that.”



​​ China needs to navigate a global recovery that’s “full of uncertainty,” Wen said. In the domestic economy, “unbalanced, uncoordinated and unsustainable development remains a prominent problem,” he said, repeating a phrase that he’s used previously. “Social problems have increased markedly.”

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The nation plans to run a budget deficit of 1.2 trillion yuan ($193 billion), amounting to about 2 percent of gross domestic product and 50 percent wider than last year’s deficit. The Ministry of Finance said it will issue bonds to cover local governments’ portion of the budget deficit, which will amount to 350 billion yuan.



​​“There are concerns that some local governments are accumulating too much debt for short-term high growth,” Li Daokui, a former member of the central bank’s monetary policy committee, told reporters at the congress today. “They are consuming May’s grain in April.”

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Industrial Projects to Require Risk Assessments to Stem Protests



With large-scale protests over environmental concerns increasing in size and frequency, China’s leaders are under pressure to find ways to ease public concerns about industrial pollution. The Chinese government will require that future industrial projects include assessments of their risk to social stability, following several large protests around the country over pollution, a top official said Monday.



Protests over environmental pollution have been increasing at an average rate of 29% per year, according to official statistics. Just before the opening of the Party Congress, protests in Ningbo against a chemical plant caused the government to back down on plans for development.



Zhou said that central authorities require all large projects to undergo stringent risk assessments and his ministry will make concerted efforts with other government agencies to ensure that the requirement is fully honored.



Last week, the New York Times reported on the impact of these protests on China’ business climate:



China’s economic boom over the last three decades has depended overwhelmingly on a build-at-all-costs investment strategy in which pollution concerns, the preservation of neighborhoods and other such questions have been swept aside. But that approach is starting to backfire, posing one of the biggest challenges for the new generation of Chinese policy makers who will take over at the Communist Party Congress, which starts on Thursday.



New investment projects used to be seen as the best way to keep the Chinese public happy with jobs and rising incomes, assuring social stability — a paramount goal of the Communist Party — while frequently enriching local politicians as well.



But from Shifang in the west to the port of Ningbo in the east, where a week of sometimes violent protests forced the suspension on Oct. 28 of plans to expand a chemical plant, more projects are running into public hostility. In many cases, they are running into opposition not just from farmers who do not want their houses and fields confiscated, but also from a growing middle class fearful that new factories will lead to more environmental damage.



In response to this and other worries about the economy, a number of influential officials and business leaders in China have stepped up their calls for changes aimed at increasing the efficiency of investment and simultaneously shifting the country toward a greater reliance on consumption.



Sandstorm pushes Beijing pollution levels off the charts last month.



​​Beijing and other parts of northern China were stung by hazardous air pollution levels Thursday as strong winds blew a sandstorm through the region.



Air in the capital turned a yellowish hue as sand from China's arid northwest blew in, turning the sky into a noxious soup of smog and dust.





The U.S. Embassy's air quality index showed a reading of 516 for particles less than 2.5 micrometers in diameter.

​The developers of the U.S Embassy's air monitoring station had planned for an index capped at 500. The World Health Organization suggests that 24-hour exposure to PM2.5 should be limited to levels of 25 on that scale.



Beijing's municipal government issued a yellow-haze warning late Wednesday while state media urged citizens to stay indoors or to take precautions such as donning face masks before venturing outside.



Frustration over China's continued pollution problems popped up across Chinese social media. But irritation over the long-brewing issue was perhaps best summed up by a viral photo originally posted on popular Web portal QQ.com of an unhappy looking Yao Ming, grimacing at the Beijing sky.



Since taking over China's ruling Communist Party late last year, the new leaders have spoken repeatedly about improving the mainland's environment.



Many China watchers believe that China's environmental degradation -- underscored by severe air pollution, contaminated soil and dirty waterways -- will be a focal point during the congress.





Air pollution is a major problem in China due to the country's rapid pace of industrialization, reliance on coal power, explosive growth in vehicle ownership and disregard for environmental laws, with development often taking priority over health. The pollution typically gets worse in the winter because of an increase in coal burning.



"The pollution has affected large areas, lasted for a long time and is of great density. This is rare for Beijing in recent years," Zhang Dawei, director of Beijing's environment monitoring center, told a news conference Monday.



City authorities ordered many factories to scale back emissions and were spraying water at building sites to try to tamp down dust and dirt that worsen the noxious haze.



Schools in several districts were ordered to cancel outdoor flag-raisings and sports classes, and in an unusual public announcement, Beijing authorities advised all residents to "take measures to protect their health."



The Beijing Shijitan Hospital received 20 percent more patients than usual at its respiratory health department, most of them coughing and seeking treatment for bronchitis, asthma and other respiratory ailments, Dr. Huang Aiben said.



The bulk of the smog choking Chinese cities is belched out by commercial trucks, but authorities have put off enforcing tougher emissions standards to spare small businesses the burden of paying for cleaner engines.



"It is not a problem of technology. It's more about consumer affordability. Increasing the emissions standard greatly increases the cost," said John Zeng, Asia-Pacific director for LMC Automotive Ltd., a research firm. "Most buyers are small business owners, and they are very price-sensitive."



Upgrading to cleaner engines would cost about 20,000 yuan ($3,200), adding about 8 percent to a typical sticker price of a vehicle, according to Zeng.





So China will face tremendous pressure on the environment side and will have to address it.... And pay the cost of it...

POLITICAL ANECDOTES

POLLUTION ANECDOTES and its economic and social costs





​​Nouriel Roubini, chairman of Roubini Global Economics and an economics professor at New York University's Stern School of Business, added that China was the biggest risk for the second half, when he said growth could slow to about 6 percent - not a hard landing but a slowdown that could hurt global growth.



"It's not a hard landing, but close enough," he said. "I still worry about a hard landing in China."



"My fear is the new leadership is very cautious and will carry out reforms much more slowly than necessary," Roubini said, adding that rapid stimulus spending could turn into an investment bust in the second half of 2013.



China's annual economic growth is expected to have quickened to 7.8 percent in the fourth quarter, a Reuters poll showed, after seven quarters of weaker expansion.

New China Leaders Anxiety about Slowing Economy

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Massive Infrastructure Program

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​​China announced on earlier this month a “massive infrastructure spending programme” as part of a new fiscal stimulus plan aimed at boosting the country’s rapidly slowing economy.



The State Council, China’s cabinet, authorised Rmb4,000bn ($586bn) of investment on infrastructure and social welfare over the next two years, although it did not say how much of the spending would be on new projects not already in the budget.



The government said the spending plan reflected a decision to adopt an “active” fiscal policy to deal with the global financial crisis, while monetary policy would be “moderately active”.



The announcement reflects mounting anxiety in Beijing that China’s economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market



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​​ Debt will be the key driver of Investments

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​Wen said China targeted a 2013 fiscal deficit of 1.2 trillion yuan, or around 2.0 percent of gross domestic product, up from the 850 billion yuan deficit chalked up in 2012 that was worth 1.6 percent of GDP.



That increased spending and a rush of approvals worth around $150 billion for key infrastructure projects in the second half of 2012 helped cushion a slowdown in growth to a 13-year low of 7.8 percent in 2012 - just over the 7.5 percent official target set in March a year ago.



In a separate document, the Ministry of Finance said it was raising the quota for bonds issued by local governments to 350 billion yuan in 2013, compared with 250 billion yuan in 2012.

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"China will appropriately increase the scale of the fiscal deficit and government bond issuance to guarantee spending plans," the document said.





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China-Japan Island dispute opens door to Economic Retaliation



​​Stubbornness over conflicting claims to the Diaoyu/Senkaku islands in the East China Sea holds out the prospect of competing maritime patrols and continued tensions, raising the risk of an incident.

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Both governments blame each other for the deepening crisis and promise to stand firm.



"I don't see a way out," says Akihisa Nagashima, a former deputy Japanese Defense minister. "It is very unfortunate, but we do not have a solution."



"It will be very hard for China's new leaders to give up their political stand on the Diaoyu islands," says Sun Zhe, who teaches international relations at Tsinghua University in Beijing, using the Chinese name for the islands known in Japan as the Senkaku.



Shinzo Abe, Japan's new prime minister, was elected in December partly on pledges to firmly defend the islands. His refusal to acknowledge that China claims them enjoys support across the Japanese political spectrum, as far left as the Communist Party.



With crucial elections to the upper house of parliament due in July, Mr. Abe cannot appear weak in the face of China's maritime intrusions.



Nor can Xi Jinping, who is due to become China's president in early March. Since becoming head of the ruling Communist Party last November, Mr. Xi has made frequent visits to military units, and until he has fully established himself as the man in charge, he is not expected to show flexibility on the Senkaku/Diaoyu issue.



But Xi's calculation, in light of angry Chinese public opinion, may not come out in Japan's favor. For the time being, says one Western diplomat in Tokyo, "the best we can hope for is that they can cauterize this [territorial crisis] and keep it from expanding into other areas of the relationship."



​​Shinzo Abe , the new PM of Japan, said China's tactics at sea are yielding "strong support" domestically. Those tactics, some analysts say, also could prove financially lucrative if China gains control of shipping lanes and access to rich fishing territory, and extracts hydrocarbon reserves.



But he warned that China's sparring with its neighbours could backfire, potentially undermining trade partnerships and causing skittishness among foreign investors. " Such behaviour is going to have an effect on their economic activity at the end of the day," he said, "because it will lead to losing the confidence of the international community, which will result in less investments in China . I believe it is fully possible to have China change their policy once they gain that recognition," he said.



​ In a broad series of increased spending commitments, China said it would raise military spending by 10.7 percent this year to 740.6 billion yuan, building on a nearly unbroken series of double-digit rises in the defence budget over two decades.



The government also announced that the domestic security budget would rise 8.7 percent to 769.1 billion yuan, the third year in a row it will outstrip defence spending.

ECONOMIC ANECDOTES

Electricity Consumption

China released official statistics on Q4 2012 GDP and other measures. GDP rose 7.9 percent year-over-year in the fourth quarter, slightly ahead of economists' estimates of 7.8 percent expansion.



However, China's official statistics often spark skepticism among analysts and investors who question the veracity of the data, which is why those observers turn to electricity data to see what's really going on inside the Chinese economy.



BofA Merrill Lynch economist Ting Lu suggests there is little reason for electricity consumption to be manipulated. The latest data out reveal that China's power consumption declined in 2012 compare to 2011.

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China's energy consumption rises 3.9% in 2012.

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​China's energy consumption totaled 3.62 billion tonnes of standard coal equivalent in 2012, up 3.9 percent year on year, the National Bureau of Statistics (NBS) said last month.



Consumption of coal, crude oil, natural gas and electricity rose 2.5 percent, 6.0 percent, 10.2 percent and 5.5 percent from a year earlier, respectively.



Energy consumption for every 10,000 yuan ($1,601.98) of China's GDP fell 3.6 percent year on year, according to a report released by the NBS.



Unless the Chinese has became the more efficient in the world in term of energy usage, growth numbers ( 7.9% GDP ) and energy consumption dos not match...​​

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Diggers Pile Up Unsold After Caterpillar Adds Capacity

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​Caterpillar Inc. , Komatsu Ltd. and other construction-equipment makers have built enough capacity in China to satisfy global demand twice over while sales in the country are falling, according to a research company.



Manufacturing capacity in China is almost 600,000 excavators a year while the worldwide market is about 300,000, according to London-based Off-Highway Research. Inventories of crawler excavators in China are about 100,000, almost equal to projected 2012 domestic sales, the research firm’s Managing Director David C.A. Phillips said.

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The industry assumed that pace would persist and kept assembly lines going even after the slowdown began last year, said Karen Ubelhart, a Bloomberg Industries analyst in New York. Phillips sees annual demand growth in China slowing to as little as 5 percent for the next 3 to 5 years.



Chinese excavator unit sales fell 25 percent in November, a 19th straight monthly drop, according to China Construction Machinery Business Online. As competition intensifies, Chinese companies are offering customers “wildly crazy, very attractive financing,” said Phillips, who has been with Off-Highway for more than 30 years.



China’s new leaders have vowed to target “sustained and healthy development” and focus on urbanization. Despite that, even accelerating economic growth in 2013 might not be enough to help the machinery makers. If they proceed with their planned expansions in China, total capacity would exceed demand by 175,000 units, even with 15 percent growth through 2022, according to Off-Highway.



Caterpillar and its dealers in China have cut inventory this year and the manufacturer has implemented temporary shutdowns and shorter work weeks to lower production, Jim Dugan, a company spokesman said.



Caterpillar Inc the world's largest maker of construction equipment, plans to cut 1,400 jobs at a plant near Charleroi in Belgium due to high costs and the weak European economy, the group's Belgian unit said last week.



The cuts will come at the Gosselies site just outside of Charleroi, one of the largest Caterpillar facilities in Europe, where the group makes hydraulic excavators, loading vehicles and engine parts. The site employs 3,700 people.

The Excavators Anecdotes

China is facing like any other Asian countries in the past a huge investment boom at the beginning of their developped cycle and then see the growth rate tapering off. The investment in infrastrucuture is still huge ( near 50% of GDP ) compare to other countries but as we will see, signs of slowing are already there... Read also : China s Economy too much investment

A new IMF working paper lays out what many China sceptics have been saying for years: the country has too much investment, and households are bearing the costs. The paper concludes that the level of over-investment is in China is equivalent to about 10 per cent of GDP, and perhaps as high as 20 per cent.



So one sign that we may observe of a slowing investment in China is the major construction excavators sales, production and inventory​​.

China's steel industry was confronted with its greatest difficulties in decades last year, as the global economic slowdown curtailed demand, an industry association said Thursday.



China's crude steel output grew 3.1 percent to 716.54 million tonnes in 2012, down 5.8 percentage points from a year earlier, the China Iron and Steel Association (CISA) said in a press release.

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An international industry group, the World Steel Association, estimates China accounted for 46.3 percent of world crude steel production last year, up from 45.4 percent in 2011.



CISA said its member companies saw profits plummet 98.22 percent to 1.58 billion yuan (about $252 million) year on year.



The steel industry faced an extremely difficult situation in 2012, as an economic slowdown in China and the rest of the world curtailed market demand and resulted in flagging steel prices, the association said.



Slowing economic growth has decreased steel demand from downstream industries, such as the railway construction, property development and shipbuilding sectors, the association said.



Meanwhile, China's steel sector still has excessive production capacity, which has caused steel output to greatly exceed market demand.



As a result, steel producers competed fiercely to boost their sales, which in turn resulted in steel price decreases, the association said.



"The steel industry experienced its greatest difficulties since the beginning of the century," the association said.







The Steel Anecdotes

The Foreign Direct Investment Flows Facts

Social Unrest

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Pollution now #1 cause of social unrest in China





This has been building up for years, as China rapidly industrialized and urbanized without much regard for the air, water, and land on which the life of its citizens depend. Chen Jiping, a former leading member of the party’s Committee of Political and Legislative Affairs, recently told the media that pollution has now replaced land disputes as the main cause of social unrest in the middle kingdom.

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“The major reason for mass incidents is the environment, and everyone cares about it now,” Chen told reporters at a meeting of the Chinese People’s Political and Consultative Conference, where he’s a member. “If you want to build a plant, and if the plant may cause cancer, how can people remain calm?”



All this pressure has made the government open up a bit on environmental issues and start to make some of the right moves, but China has a lot of catching up to do on that front, as the never-ending smog proves (though China is not the only problem spot in Asia and in the Middle-East).



China's heavy reliance on coal for electricity is one of the main sources of the problem, and by switching to cleaner sources, it could both alleviate air quality problems and step up its fight against global warming.

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The Beijing Story