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How China Can Stimulate Itself To Full Recovery Again
May 3, 2020,06:31pm EDT
If you build it, they will come.
And if they don’t, unless you built it. Hey, someone’s gotta work.
In 2009, in the middle of the Great Financial Crisis, China saved much of the world by pumping trillions into its economy. It was more of the same: real estate that no one lives in; six lane highways in second tier cities like Yantai that no one drives on; and factories making things no one is buying, leading to an oversupply and price destruction on numerous components — from car parts to photovoltaic cells for solar panels.
Last week, Bloomberg reported that China was putting similar money to work — trillions of renminbi, or around $600 billion, in more infrastructure projects.
Anyone who has been to Beijing, Shanghai, Guangzhou or Macau would find it hard to believe that those cities need anything built other than maybe low cost housing. But, China is certainly more than its main cities, and so there must be something that needs building somewhere in the interior. And China apparently is willing to spend on it to get its economy back in recovery mode.
Infrastructure build-outs in China keeps Wall Street and the local investors happy. Always.
The new stimulus plan is evident in the third tier city of Heze, home to a whopping 8.2 million in Shandong province. Bloomberg, complete with pictures of massive construction equipment on display that looks like something out of Avatar, reported last week that Heze is busy building a high-speed railroad.
In the race to recovery post-pandemic, China has the upper hand over the U.S. and Europe not because it has money to burn, but because it can spend on things no one will use, or needs...at least not in the near term.
China stimulates itself to full recovery by fixed asset investment in mega greenfield projects that employs blue collar workers — roads, bridges, even if those lead to nowhere. Some will. Some might. Others won’t.
Meanwhile, the U.S. can’t even build a high speed train connecting San Francisco to Los Angeles. A U.S. infrastructure bill seems dead-on-arrival.
The five-day International Labor Day holiday at the start of May on Friday shows that China is not yet back to normal. Five months into this new SARS outbreak and travel is down by nearly half. Depending on the city, most are still facemasks in public, including outside. This is especially true in Beijing, which has tried to build an invisible wall against the coronavirus as it is the seat of government.
The National People’s Congress will meet in Beijing later this month. Markets are expecting even more stimulus to come out of that meeting.
Barclays thinks Beijing will now try striking a balance between boosting consumption and containing outbreak risks from an increase in public gatherings and outdoor activities as summer comes.
There’s been some positive developments in some regions. Jiangxi, Qinghai, and Gansu are planning to, or have begun to, reopen indoor attractions, cinemas, and bars. Some inland provinces encouraged 2.5-day-a-week vacation system, providing residents a longer weekend to —in theory — boost spending. It is not clear if this is happening because the economy is so weak and there is no business (likely) or if the government really thinks that extra half day off means the locals will spend more on take-out, gasoline, or take a longer three day weekend trip to a Macau casino (less likely).
Some tourism restrictions remain, including limiting visitor numbers at outdoor scenic attractions and parks to just 30% of daily capacity, and suspending cross-province group tours. Shanghai Disneyland is still closed.
If the U.S. follows the China model, then five months from our main outbreak in March means Disney would be closed all summer and state’s may even try to close off parking at popular public beaches in order to avoid overcrowding.
Still, China being home to 1.4 billion people, online travel firm Ctrip.com (CTRP) said it expects around 90 million people to take local trips during the five-day Labor Day holiday. That’s about 40% lower than last Labor Day, however.
“Data from the holiday will be key to assessing the recovery’s strength,” says Jian Chang, Barclays China economist in Hong Kong. Tourism, hotels and restaurants remain in deep contraction. Markets will be hoping for an upside surprise from Chinese tourists this week.
Meanwhile, exports are still looking lousy. China’s exports are dependent on recovery in Europe and the U.S.
Bulk carriers and container ships at China’s ports are less numerous than before, with no markets, and an oil glut making matters worse.
PMI data for new export orders remains in decline. The contraction in exports is seen dropping 20% annualized in April from the 7% annualized fall in March, Barclays analysts believe.
China’s next-round fiscal package — expected after the May 22 People’s Congress meeting — should be all about “economic relief” rather than “economic stimulus”, says Chang. Most of the measures will be aimed at spurring business investment rather than consumption.
“The stimulus package (will) likely provide more support for domestic demand, with little in the way of global spillovers,” she says.
Unlike the Great Financial Crisis economic aid package, this one will be different, but not so different that countries that provide goods to China — whether its copper from Chile or iron ore for Brazil used in construction — won’t stand to benefit from a healthy Chinese economy.
The go-to property sector will remain key to China post-pandemic, not only because it keeps blue collar labor employed, but it is still used as a savings account for the locals. Moreover, unlike high speed rail, which is concentrated on a geographic region, housing support is nationwide.
Beijing likes to make noise about not allowing its housing market turn into a Macau-like gambling den, leading to bubble pricing. But these are desperate times post-pandemic. If new housing leads to a credit bubble or a housing bubble, China will just have to cross that bridge when she gets there. Or when she builds it.
https://www.forbes.com/sites/kenrap...e-itself-to-full-recovery-again/#510ff889b670
May 3, 2020,06:31pm EDT
If you build it, they will come.
And if they don’t, unless you built it. Hey, someone’s gotta work.
In 2009, in the middle of the Great Financial Crisis, China saved much of the world by pumping trillions into its economy. It was more of the same: real estate that no one lives in; six lane highways in second tier cities like Yantai that no one drives on; and factories making things no one is buying, leading to an oversupply and price destruction on numerous components — from car parts to photovoltaic cells for solar panels.
Last week, Bloomberg reported that China was putting similar money to work — trillions of renminbi, or around $600 billion, in more infrastructure projects.
Anyone who has been to Beijing, Shanghai, Guangzhou or Macau would find it hard to believe that those cities need anything built other than maybe low cost housing. But, China is certainly more than its main cities, and so there must be something that needs building somewhere in the interior. And China apparently is willing to spend on it to get its economy back in recovery mode.
Infrastructure build-outs in China keeps Wall Street and the local investors happy. Always.
The new stimulus plan is evident in the third tier city of Heze, home to a whopping 8.2 million in Shandong province. Bloomberg, complete with pictures of massive construction equipment on display that looks like something out of Avatar, reported last week that Heze is busy building a high-speed railroad.
In the race to recovery post-pandemic, China has the upper hand over the U.S. and Europe not because it has money to burn, but because it can spend on things no one will use, or needs...at least not in the near term.
China stimulates itself to full recovery by fixed asset investment in mega greenfield projects that employs blue collar workers — roads, bridges, even if those lead to nowhere. Some will. Some might. Others won’t.
Meanwhile, the U.S. can’t even build a high speed train connecting San Francisco to Los Angeles. A U.S. infrastructure bill seems dead-on-arrival.
The five-day International Labor Day holiday at the start of May on Friday shows that China is not yet back to normal. Five months into this new SARS outbreak and travel is down by nearly half. Depending on the city, most are still facemasks in public, including outside. This is especially true in Beijing, which has tried to build an invisible wall against the coronavirus as it is the seat of government.
The National People’s Congress will meet in Beijing later this month. Markets are expecting even more stimulus to come out of that meeting.
Barclays thinks Beijing will now try striking a balance between boosting consumption and containing outbreak risks from an increase in public gatherings and outdoor activities as summer comes.
There’s been some positive developments in some regions. Jiangxi, Qinghai, and Gansu are planning to, or have begun to, reopen indoor attractions, cinemas, and bars. Some inland provinces encouraged 2.5-day-a-week vacation system, providing residents a longer weekend to —in theory — boost spending. It is not clear if this is happening because the economy is so weak and there is no business (likely) or if the government really thinks that extra half day off means the locals will spend more on take-out, gasoline, or take a longer three day weekend trip to a Macau casino (less likely).
Some tourism restrictions remain, including limiting visitor numbers at outdoor scenic attractions and parks to just 30% of daily capacity, and suspending cross-province group tours. Shanghai Disneyland is still closed.
If the U.S. follows the China model, then five months from our main outbreak in March means Disney would be closed all summer and state’s may even try to close off parking at popular public beaches in order to avoid overcrowding.
Still, China being home to 1.4 billion people, online travel firm Ctrip.com (CTRP) said it expects around 90 million people to take local trips during the five-day Labor Day holiday. That’s about 40% lower than last Labor Day, however.
“Data from the holiday will be key to assessing the recovery’s strength,” says Jian Chang, Barclays China economist in Hong Kong. Tourism, hotels and restaurants remain in deep contraction. Markets will be hoping for an upside surprise from Chinese tourists this week.
Meanwhile, exports are still looking lousy. China’s exports are dependent on recovery in Europe and the U.S.
Bulk carriers and container ships at China’s ports are less numerous than before, with no markets, and an oil glut making matters worse.
PMI data for new export orders remains in decline. The contraction in exports is seen dropping 20% annualized in April from the 7% annualized fall in March, Barclays analysts believe.
China’s next-round fiscal package — expected after the May 22 People’s Congress meeting — should be all about “economic relief” rather than “economic stimulus”, says Chang. Most of the measures will be aimed at spurring business investment rather than consumption.
“The stimulus package (will) likely provide more support for domestic demand, with little in the way of global spillovers,” she says.
Unlike the Great Financial Crisis economic aid package, this one will be different, but not so different that countries that provide goods to China — whether its copper from Chile or iron ore for Brazil used in construction — won’t stand to benefit from a healthy Chinese economy.
The go-to property sector will remain key to China post-pandemic, not only because it keeps blue collar labor employed, but it is still used as a savings account for the locals. Moreover, unlike high speed rail, which is concentrated on a geographic region, housing support is nationwide.
Beijing likes to make noise about not allowing its housing market turn into a Macau-like gambling den, leading to bubble pricing. But these are desperate times post-pandemic. If new housing leads to a credit bubble or a housing bubble, China will just have to cross that bridge when she gets there. Or when she builds it.
https://www.forbes.com/sites/kenrap...e-itself-to-full-recovery-again/#510ff889b670
