That China Qualifier

I keep hearing echoes of that China qualifier in most regional outlooks these days. Anything economic forecast, stick in a China qualifier.

SINGAPORE: A sharp slowdown in the Chinese economy will have a negative impact on Singapore, but it will not be as bad as the 2008 global financial crisis — that is the view of Moody’s Analytics in its latest report which came out on Monday.

The research firm defines a hard landing in China as a drop in GDP growth below 3 per cent in 2014. If it happens, Moody’s expects Singapore’s economy to contract 3.3 per cent year-on-year by late 2015.


“the deceleration of the Chinese economy poses downside growth risks for the region, given the country’s role as a major source of demand for Asia-Pacific’s exports.

The extent to which growth slows will in part be determined by policymakers, as China attempts to rein in excessive credit expansion and fundamentally restructure its economy to reduce reliance on investment as a driver of growth.

The outlook for the global economy will also weigh on the growth prospects of China’s economy, which has a high degree of openness.”–PR_278023

It makes sense given that China will be the world’s largest economy by 2016 if the timeline drawn below at the World Economic Forum is correct.

China Timeline (1).jpg

China’s clout grows as the Chinese Yuan enters the Top 10 Most Traded Currencies.

ADB published a paper recently on the Yen and Yuan’s role in boosting Asian stability.

And China’s domestic credit risks are now allegedly seen as the most significant threat to the global economy today.

“Since 2008, banking-sector credit growth in China has been among the fastest in the world, far outpacing GDP growth, and China’s total debt has risen from 130% of GDP to 220% of GDP. As of this year, ¥1 of GDP growth is consistent with more than ¥3.5 of credit growth. China’s financial sector is now increasingly feeling the strain of this rapid credit growth, which has led to overcapacity in favored sectors and mounting debt problems for local governments, SOEs, and banks.”

Everyone has something to say about China and China is on a whirlwind path to market reforms as we speak.

Another new development yesterday got me to thinking this. China is about to get real.

China to end property funding freeze.

“China’s securities watchdog has called for more information on property-related financing proposals, in the first sign that regulators are considering an end to a three-year freeze on local capital raisings in the real-estate sector.”

Reforms are not bail outs. And I am guessing the solar companies in March this year are the last we are going to see for a while as total loans outstanding at top 10 listed China banks at end June 2013 is up 20.42% YoY.

The defaults will have to happen and the signs are there.

China’s rating firms cut the most bond issuer rankings on record in June and brokerages said they are preparing for the onshore market’s first default as the world’s second-biggest economy slows. ”

We have to brace for impact and…… a better tomorrow.

“Time is a wonderful doctor and, in a few years, the Chinese banks will have enough retained earnings to replenish their equity base. In the meantime, neither the government nor the equity investors have to do anything but just sit back and relax.”


Chinese property bonds as of yesterday. Not sure if anyone is interested in this.