Tuesday's Top 10 at 10: 'Dear politicians: Just lay off the RBNZ on first home buyers'; Chilling infrastructure; Old retailing dogs learning new tricks; The speech of the year; Dilbert

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 watch today is #10. It's the UN speech by Malala Yousafzai, the 16 year old girl shot in the head by the Taleban for wanting an education. Watch it all. Simply extraordinary. As a parent of a 19 year old daughter, I can imagine how proud her parents were of her. 

1. Not much has changed - Yesterday's Chinese GDP growth slowdown figures seemed to suggest that China might be managing its slowdown and its planned switch away from infrastructure-heavy investment to services-based consumption, which would be bad for Australia (iron ore and coal) and good for us (food and tourism).

But maybe not...

Here's Izabella Kaminska at FTAlphaville dredging through the detail of the Chinese GDP figures to find that not that much has changed.

It may even have gotten worse.

This again raises the risk that an eventual grinding to a halt in China's infrastructure spending/lending spree might have a more dramatic impact than anyone wants.

Here's the detail from Capital Economics via FTAlphaville:

5.9 percentage points (pp) of Q2’s growth came from investment, a massive increase on the 2.3pp contribution in Q1, and the highest since Q2 2010. The contribution from consumption dropped from 4.3pp to 2.5pp. Net exports had a negative contribution for the first time in a year.

We previously argued that there seems to be a seasonal pattern that elevates consumption in Q1. As such, the apparent slowdown in Q2 may not be as dramatic as first appears. The big picture though is that investment, rather than consumption, remains the key driver of growth. We estimate consumption growth at 5.6% y/y last quarter, the lowest in three years.

All in all then, today’s figures were arguably something of a relief, despite being in line with consensus. But we would be more confident if we could see that China’s slowdown was being accompanied by a shift in the drivers of growth from investment to consumption. As long as investment remains the key driver, China’s economic imbalances continue to worsen. This in turn raises the threat of a disorderly unwinding of imbalances further down the road.

2. Chinese expect currency depreciation - The increasing pressure on China's exporters and factory sector is raising expectations the Chinese authorities will act to halt the aprreciation of the Renminbi and try to fix their growth with a good old devaluation.

That's certainly what Chinese people are expecting. Again courtesy of FTAlphaville.

Why is Bitcoin, gold (and London property) so popular in China?

We’d argue, a) because in relative terms these alternative stores of value are cheap in renminbi terms for Chinese investors, who have seen their purchasing power increase somewhat synthetically. And b) it’s a reflection of the fact that the Chinese have less confidence in the renminbi’s valuation than the rest of the world.

In short, it seems increasingly like the Chinese are expecting devaluation, notappreciation.

3. 'Lay off the RBNZ' - Econoblogger Matt Nolan writes well over at TVHE in defending the RBNZ's apparent reluctance to give first home buyers an exemption from its new 'speed limit' on high LVR lending. I'm with Matt on this.

When we talk about an issue of “financial stability concerns” we are explicitly saying that individual banks will be taking on too much risk relative to what the “system as a whole” should be taking on.  As a result, there is some sort of negative externality from said lending.  Guess who the risky borrowers are (in terms of defaulting on a banks loan, especially following a aggregate decline in house prices), are? They the property investors who either aren’t borrowing from the banks or already have significant equity … nope.  Are they the people selling their old property and buying a new one with significant equity … nope.  Are they the first home buyers, who are leveraging themselves up by putting down tiny deposits and crossing their fingers hoping house price keep going up … bingo!

Any regulation to deal this risk will have a significant impact on highly leveraged lending, which is what first-home buyers are – so the Reserve Bank can ignore their financial stability mandate, or they can respond to this.  If you “take out” the change in financing options for first home buyers then you are “taking out” the financial stability gains as well  

4. 'Let's pay off the losers' - Fellow econoblogger Eric Crampton riffs further on Matt's piece over here at Offsetting Behaviour and makes some interesting points out how to break the deadlock whereby property owners prevent the expansion of housing supply. Compensate the losers?

I agree with Matt that most of the demand side schemes are horribly misguided. But current housing policy prevents substantial expansion of current supply, inducing large regulatory transfers to those who bought houses when supply was less constrained. In a world where supply could expand (both with increased density and expansion in the suburbs), we wouldn't get the kinds of price run-ups now being experienced in Auckland. Matt's right that more people, and especially young mobile people, should rent rather than buy.

What we really need to figure out are policies that pay off the losers while expanding supply. We have something of a transitional gains trap in housing policy. Current homeowners do get some direct benefits from regulations preventing both them and their neighbours from developing: NIMBY is NIMBY for a reason. But another large effect is that the NIMBY regs keep up house prices as a whole. Sufficiently expansionary housing policy would impose capital losses on homeowners. And we tend not to have easy ways of implementing those kinds of policy changes without compensating those adversely affected so that we can move towards the more efficient equilibrium.

5. China's real growth rate - There's an argument that China's GDP stats can't be trusted anyway so the best thing to look at is power consumption, which rose just 6.3% in June from a year ago, MNSI reports. 

6. 'Just let the bubble burst' - Even some Chinese officials are now saying China would be better off having a good old cleanout of the bad debts and dodgy projects.

Xia Bin, an economist with the State Council's Development Research Center and government advisor, said Beijing needs to stop using bland rhetoric about "stabilizing the economy" and focus on tackling a debt burden whose interest payments alone tally nearly CNY6 trillion a year.

Although monetary printing presses have kept the worst of the crisis at bay, the central government needs to face up to China's debt problem and brace the market for a deep and painful adjustment, he told a forum here at the weekend.

"We need to find ways to let the bubble burst and write off the losses we already have as soon as possible to avoid an even bigger crisis," Xia said. "Deep adjustment means economic growth slows as costs are paid, it means hard days, it means the bankruptcy of some companies and financial institutions and it means reform," he said.

7. 'It's not all about productivity' - Ross Gittins is a well known economics commentator working for Fairfax in Australia. In this piece he starts worrying about Australia's ability to keep growing, but not from a productivity point of view. He also asks some tough questions about where productivity might come from.

I worry a lot more about whether our existing high material standard of living is compatible with the preservation of a healthy natural environment - including one that avoids excessive global warming - than about how we can drive our consumption levels even higher. The origins of the very resources boom we're struggling to adjust to - and our hand-rubbing contemplation of Asia's rapidly growing middle class - ought to be making us wonder whether the globe's natural resources and ecosystem will be able to cope with so much affluence.

So if we fail to get productivity improving at the rate of 2 per cent a year rather than 1.6 per cent, I won't be shedding too many tears. Apart from ecological sustainability, I give improving our non-material quality of life a much higher priority than increasing the number of cars, TV sets and gadgets per home.

8. A chilling infrastructure - This piece in The Atlantic about the depth and complexity of the cold storage infrastructure underpinning America's food chain is thought provoking. 

"The diet of the average American is almost entirely dependent on the existence of a vast, distributed winter--a seamless network of artificially chilled processing plants, distribution centers, shipping containers, and retail display cases that creates the permanent global summertime of our supermarket aisles."

That's Nicola Twilley, one half of Venue and a contributor to this site, talking about her new installation at the Center for Land Use Interpretation in Los Angeles, "Perishable: An Exploration of the Refrigerated Landscape of America."

This is an infrastructural truth that it's possible to take as a kind of metaphor or hyperbole because it's almost impossible to believe the scale and complexity of the systems that undergird our lives. 

9. Here come the old dogs learning new tricks - This Economist piece on the changing world of online retailing is useful. It shows the offline retailers are rapidly catching up by becoming online retailers as well.

 Bricks-and-mortar retail may be losing ground to online shopping, but it remains more profitable. The physical world is also increasingly capable of taking the fight to its online competitors. Last year online sales of shop-based American retailers grew by 29%; those of online-only merchants grew by just 21%.

10. Totally the most amazing speech of the year. It's from the 16 year old Pakistani girl shot in the head by the Taleban.  

The wise saying, “The pen is mightier than sword” was true. The extremists are afraid of books and pens. The power of education frightens them. They are afraid of women. The power of the voice of women frightens them.