Here's my Top 10 links from around the Internet at 10 am today.
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 today is #9 on the secret to long life. I'm thinking of migrating to Greece.
1. Stall speeds and hard landings - Martin Wolf has written a cracking column here at FT.com on what's happening with the Chinese economy and why a slowdown in growth is not as simple and clean as it first appears.
This is of course crucial for New Zealand and Australia, and more so for Australia.
We have benefited enormously from China's growth of around 10% per annum for the last decade. The often-repeated argument is that a slowdown to 7-8% is no great drama because that still implies the Chinese economy will still double in size every 10 years.
There'll be plenty of growth to go around, they argue.
But what if the growth falls to much, much less than that? Or even goes into reverse?
And for Australia and New Zealand, what if the structure of China's economy switches from being investment-based (big imports of iron ore and coal) to consumption based (big imports of food and consumer goods)?
There's plenty to chew on here in Wolf's column:
In a recent note, David Levy of the Jerome Levy Forecasting Center has asked the crucial question: what is China’s stall speed? The general view is that it is straightforward for China to move from 10 per cent to, say, 6 per cent growth over the coming decade. The implicit assumption is that “a rapidly expanding economy is like a speeding train; let up on the throttle and it slows down. It continues to roll along the track as before, just not as rapidly.”
He argues, instead, that China is more like a jumbo jet: “In recent years, a couple of engines have not been working well, and the pilot is now loath to keep straining the remaining good engines. He is allowing the plane to slow down, but if it slows too much, it will fall below stall speed and drop out of the sky.”
The new Chinese government is, in effect, now engaged in the task of redesigning the jumbo jet, as it comes into land, with half of the engines working poorly. The market is most unlikely to deliver such a huge change smoothly. The sole reason I find to trust the landing will work as hoped is that the authorities have handled so many arduous tasks in the past. But it is going to be very tricky. In order to sustain demand, the government might find itself compelled to do some things – run very large fiscal deficits, for example, – that its new leaders neither want nor now expect
2. The big trouble in big China - John Plender at FT.com also has a good look at the massive challenge for China in switching its economy from infrastructure investment to consumption. Talk about landing a jumbo jet on a hankie while blindfolded...
If China confronts a more serious slowdown than most forecasters now expect, policy makers still have room to engineer one last big fiscal splurge. That is something China’s new leadership is desperate to avoid. The authorities have long recognised that their response to the financial crisis, which took investment from 42 per cent of gross domestic product to nearly 50 per cent, has resulted in a grotesque misallocation of capital. The priority of Premier Li Keqiang is thus to give impetus to plans to rebalance the economy towards consumption.
At the same time the local governments that have been responsible for the great majority of that investment have exhausted most of their borrowing capacity. The game whereby local officials have forced farmers to sell their land cheaply and put it into local government financing vehicles is coming to an end. Since land sales and property developments provide 30-40 per cent of local government revenues and local government is not allowed to borrow directly, this amounts to a fiscal watershed.
To lose one cabinet minister is bad luck, to lose two in two days… means… time for another eurozone peripheral crisis? The resignation of Portugal’s foreign minister Paulo Portas yesterday has everyone worried, because of his role as leader of the CDS-PP, the junior partner in the governing coalition. If CDS-PP withdrew their support, the government would be left with 108 seats in a 230-seat parliament and uncertain prospects for scraping together a majority.
And all this less than two weeks before a troika delegation is due to start their next review of the economy as the lenders consider whether Portugal will get an easing of terms on its 2011 €78bn bailout, and receive the next €2bn instalment.
4. Don't joke about interest rate cuts - Apparently Reserve Bank of Australia Governor Glenn Stevens made a joke about cutting interest rates in a speech yesterday. The Australian dollar fell a couple of cents. Hilarious.
Here it is. And I thought Alan Bollard had a dry sense of humour. Stevens' is drier than the Nullabor.
An off-the-cuff remark by Reserve Bank governor Glenn Stevens sent the dollar down on Wednesday after he “joked” a rate cut was seriously considered at Tuesday’s board meeting.
Mr Stevens’s remark, which a spokesman confirmed was intended to be a joke, was at odds with the rest of his speech, which indicated the RBA was content to keep official interest rates on hold while the falling dollar spurs economic growth.
Here, in full, is the ‘joke’.
As some of you may know, the Reserve Bank Board meeting was in Brisbane yesterday at which we deliberated for a long time to leave the cash rate unchanged.
The Fonterra plan has to balance two objectives: How to add more value to the NZ milk pool - which is expected to grow by a further 2.5 billion litres by 2020 - and make good on a commitment to sustainable dairying.
"We're going to give the plan to the Government in August, "says Spierings.
"We will go in on an area-by-area approach over the country. But it's a national plan and what we really ask Government is that, if we land this plan, we go hand-and-hand with Government on a national approach rather than a multi-council approach.
"Because the multi-council approach is going to kill us and it's going to kill growth because you have different debates all over the country and you need national ownership here."
Not only has the aluminium market been in surplus for the last seven years — driven by aggressive production expansion in China’s northern and western regions — there’s now reason to suspect output growth in Xinjiang will surprise to the upside, according to Goldman Sach’s Roger Yuan and respective team.
And while China’s aluminium market posted a small deficit in the second quarter of 2013, the analysts reckon that this was mostly because China’s strategic reserve (the SRB) bought 300kt worth of metal between March and May. There were also a number of production cuts by high-cost domestic producers.
10. Totally John Oliver on Edward Snowdon's little holiday.
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