Thus spake, or rather, wrote, Ambrose Evans-Pritchard in The Daily Telegraph. His article reminds us that there is no hiding place in this new, 21st century, global economy. The old British saying that if America sneezed we caught a cold is completely out of date. Today, economic disasters in one area spread round the world with the speed of the 1918 influenza epidemic. I have mentioned before my doubts concerning the Chinese economy when I provided reports on all those brand, new cities which had been built on borrowed money and which were deserted. It reminded me of southern Spain in the late '90s when all you could see for miles and miles along the coast line were hundreds of cranes and block after block of empty flats and villas. A E-P quotes a Chinese economist:
"While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy. Persistent deflation can be poisonous," said Xianfang Ren from IHS Global Insight in Beijing.
A good indicator of the financial sense of well-being amongst affluent, middle-class Chinese is the casino revenues in Macau. The Chinese have gambling fever the way we have 'footie' fever. A E-P reports that the revenues have dropped 11% in June. He points us to the very informative Also Sprach Analyst site which provides 10 big indicators that all is far from well 'out there':
1: Heavy equipment makers who provide financial deals for their customers to purchase are finding it increasingly difficult to collect their dues.
2: Steelmakers' profits have collapsed for lack of demand.
3: Some steelmakers are producing but many steel traders further down the line are going out of business.
4: Through lack of demand from heavy industry coal stocks are enormous and some warehouses are almost full.
5: Both coal miners and steelmakers are diversifying into new businesses - including selling pigs!
6: The cotton inventory at the ports is huge partly due to speculators coming unstuck as the price of cotton fell.
7: As mentioned before, the Macau casino revenues have dropped.
8: When the Chinese government tightened policy last year bank loans were hard to get so a new and shadowy system of 'Trusts' grew up but now the companies who used these devices are finding it increasingly difficult to repay. Many of them are real estate developers.
9: Yet another dodgy banking practice has come to light inone province when a fair-sized company went broke. Unfortunately, many smaller companies were accessing bank loans on the basis of another company guaranteeing their borrowing. It turns out, (natch!) that all the companies in this particular area were all guaranteeing each other's loans. Cue falling dominoes!
10: The Chinese yuan/renmimbi is falling. The government is happy for that but it still indicates problems.
A E-P sums it up thus:
But at the end of the day, the country is bursting with industrial over-capacity. As Caixin reported recently, eight of the ten largest shipyards did not receive any new orders in the first five months of the year.
Albert Edwards from Societe Generale said the danger now is that China suddenly lurches into a deeper downturn, unleashing a flood of excess goods onto global markets and sending a powerful deflationary impulse across the world.
Well, if they do release a flood of cheap goods at least my tailor, 'M. A. Talan', will be able to keep me in the style to which I have grown accustomed with chinos for £14 or less, perhaps!