Here's my Top 10 links from around the Internet at 11 am today in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read article today is #7 on the capital flight out of China and into countries such as Cyprus (and New Zealand)
1. The problem with China - George Soros points out the problem is China is the falling share of GDP there that is from consumption.
A rebalancing of the economy there really needs less investment and more consumption.
But that's not happening.
It's actually going the other way around.
Soros is right to point to this unbalanced nature of the Chinese economy.
I hope our Reserve Bank and Treasury and Beehive are thinking about this because currently a strong Chinese recovery is our plan A.
And our Plan B?
Billionaire investor George Soros said China’s growth is slowing because household spending as a percentage of the world’s second largest economy is waning.
“The growth model which has worked is running out of steam because consumption as a percentage of GDP has fallen” to one- third of output from half, Soros said at a National Association for Business Economics conference in New York today. Central bankers “will have to modify the growth model and somehow allow the household sector to have a bigger share of the total.”
2. Why so polarised? - Observers of America's Presidential election and tortured political process may wonder why the politics there has become so polarised.
This chart via Zerohedge helps show the problem and this piece from Steven Strauss on Economonitor explains why.
It's a combination of redistricting (which ensures candidates rarely lose once elected, which means they only have to convince their own party supporters to vote for them), the Citizens United decision pumping masses more money into electioneering, and the changing economics of the media industry.
America’s current hyper-partisanship stems from a perfect storm of factors. And it has created Belief Communities — where people who want to believe patently untrue things (e.g., that President Obama was born in Kenya) are never challenged in their beliefs, and may even be encouraged in their fantasies.
3. Yet another mad Ferrari race ends in a mega-smash in China - The picture tells the story via Beijing cream. This is the sort of thing ordinary Chinese people get very grumpy about.
They're usually driven/raced by the sons of corrupt officials.
Around 3:30 pm today on the Shaanxi Baomao Highway in Ansai County, Shaanxi province, witnesses say they saw about a dozen Ferraris traveling at absurdly fast speeds. Two of them bumped into each other, and the result was what you see above (more pictures after the jump, all viaNetEase).
So far there have been no reports of fatalities, and if that remains the case, the Grim Reaper must have fallen asleep at his desk, or decided that even idiots deserve the occasional reprieve. Judging by the images, it looks like it had been raining at the time of the accident.
4. Some good news from China's slowdown - John Garnault reports via SMH.com.au that the weakness in the Chinese economy is reducing some social conflict as hard-up local governments don't appropriate so much land from the peasants for their grand projects.
The slowdown in the Chinese economy is producing an unexpected reduction in violence and social conflict, a senior Chinese security official says. Falling land prices and fewer transactions have reduced the number of forced land appropriations, which had accounted for an estimated two-thirds of the 187,000 ''mass incidents'' reported for 2010.
The number of mass incidents - a rubbery official category encompassing everything from small protests to riots - had more than doubled in the previous five years.
The official, who is a deputy head of a provincial security ministry, said the number of ''mass incidents'' peaked last year and had since fallen across the country, including in the trend-setting province of Guangdong. He pointed to a reduction in land disputes, which he credited in part to a shift in official focus away from economic growth and also a less confrontational approach to resolving social disputes.
5. How QE enriches banks and the richest 1% - One of the main complaints about the type of money printing being done in America, Britain and Europe is that it is money printed to buy government and mortgage bonds from banks in secondary markets. This isn't being distributed into the real economy and is simply boosting the profits of those banks and lifting the asset prices of shareholders and bondholders, who tend to be at the wealthier end of the spectrum.
That money is then parked in bank accounts and bonds. It's not circulating and new investment and hiring remains stalled.
Here's John Aziz at Azizonomics with a post on the distributional effects of QE.
This chart showing money supply (blue line), corporate profits (green line) and stock prices (red line) rising while employment is flat...
While quantitative easing has dramatically reinflated corporate profits, and equities, it has not had a similar effect on employment (nor wages).
However there are lots other factors involved (including government layoffs), and employment (and wages) is much stickier than either corporate profits or equities. It will be hard to fully assess the effects of quantitative easing on employment outcomes without more hindsight (but the last four years does not look good).
What is clear, though, is that following QE financial sector profits have rebounded spectacularly toward the pre-2008 peak, while nonfinancial sector profits have not.
6. What's the story with Chinese stats? - New York Times' Keith Bradsher reports some signs of life in orders for exports from China, but it's still tough going.
The same old tactic of pumping cash into investment (see #1 above) is being used. But growth is still slower, and much slower than the statistics indicate.
“It seems that while people are searching for signs of China’s consumption taking the lead, it is the good old exports and investment that might lead the recovery again, at least in the short term,” Wang Tao, a China economist at UBS, wrote in a research note Monday.
Many economists expect the Chinese government to announce Thursday that economic growth in the third quarter was barely short of the official target of 7.5 percent. But Chinese business executives said that the reality was worse for many companies selling in the domestic market, leaving considerable room for a rebound.
“All industries are going down, but why aren’t the official statistics going down?” asked Bob Wang, the sales manager of Kralle Tools, a manufacturer in Wenzhou, an eastern city, that makes circular saw blades for lumber mills. He said he believed that government officials had been underestimating the extent of China’s slowdown to avoid losing face.
7. Cashing out of China - WSJ reports on an exodus of cash from China as officials and businesses buy assets and hold profits overseas. Some of that money is coming to Auckland's booming property sector
China, once a catch basin for the world's money, is now watching cash stream out.
Wealthy Chinese citizens are buying beachfront condos in Cyprus, paying big U.S. tuition bills for their children and stocking up on luxury goods in Singapore, frequently moving cash secretly through a flourishing network of money-transfer agents. Chinese companies, for their part, are making big-ticket foreign acquisitions, buying up natural resources and letting foreign profits accumulate overseas.
China hasn't reported on capital inflows and outflows since last year, but it is possible to gauge more recent flows using trade data, foreign-exchange reserves numbers released Saturday and other economic statistics. A Wall Street Journal analysis of that data suggests that in the 12 months through September, about $225 billion flowed out of China, equivalent to about 3% of the nation's economic output last year.
"We all noticed what we suspected, which is that there was significant capital flight," says Michael Pettis, a finance professor at Peking University who witnessed capital flight up close in his previous career trading Latin American distressed debt. "It's not a good sign when local businessmen begin to think it's better to take money offshore, especially when the world economy is in such bad shape."
.
This section is particularly revealing. Is this happening here?
A sprawling industry has developed to help Chinese get money out. Services range from the money-transfer agents to private jets that ferry money by customs officials unmolested, according to lawyers and brokers who help Chinese investors find investments abroad. Sometimes bank transfers by companies hide personal money being moved out, these people say. Another method is to piggyback personal cash atop legitimate export and import transactions, at times by using fake invoices, they say. People even carry bags of cash across the border.
Charlie Zhang, an agent in Shenzhen who matches wealthy mainlanders with real-estate investments abroad, says getting money out isn't a problem.
"We suggest them to other people, some special channel, that can exchange money outside the banks, outside supervision," Mr. Zhang says. "It's not hard for people to solve this problem."
Cyprus has become a popular investment destination for wealthy Chinese. The island nation in the Eastern Mediterranean gives permanent European Union residency to anyone who spends €300,000 on a property.
"People in China are rich," says Arthur Cheung, a Hong Kong-based immigration consultant who matches Chinese buyers with foreign property sellers, including from Cyprus. "They just buy a passport or permanent residency like a Louis Vuitton bag."
8. The disaster that exposed China's corruption - Evan Osnos at the New Yorker has a cracking article on the high speed rail disaster in China that exposed one of the biggest corrupt officials ever.
He's been named Great Leap Liu.
At last, in December, authorities released an unprecedented, detailed report. It acknowledged “serious design flaws,” a “neglect of safety management,” and problems in bidding and testing. It also blamed fifty-four people in government and industry, beginning with Great Leap Liu. The Minister’s name became a byword for “a broken system,” as the muckraking magazine Caixin called the Railway Ministry, a testament to the political reality that, as Caixin put it, “since absolute power corrupts absolutely, the key to curbing graft is limiting power.”
When I spoke to an engineer who worked on the railway’s construction, he told me, “I can’t pinpoint which step was neglected or what didn’t get enough time, because the whole process was compressed, from beginning to end.” He added, “There is an expression in Chinese: when you take too great a leap, you can tear your balls.”
9. The air of unreality - If the global economy is in trouble, why are stock markets back near record highs. Alan Kohler examines the disconnect between the real and financial worlds.
Investors have long since ceased to worry about politicians, but how to account for the disconnect between what might be called the real world and the financial one?
The answer, I think, is that monetary policy is helping asset prices and markets, but not the world's economies. In other words, there is cash aplenty, which has to go somewhere. It's not yet going into productive, growth-supporting investment; rather, it's seeking safety. But it is giving the world time to recover.
The world's economies are in the midst of a long correction to decades of debt-fuelled growth in consumption. So far central banks successfully prevented a 1930s-style debt deflation, but have not managed to rekindle growth.
10. Totally The Daily Show doing a roundup thing with The Muppets and The Big Bird.
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