Higher Interest Rates will be short lived !
Data Shows China’s Economy Crashed in Q4
By Valentin Schmid, Epoch Times | December 17, 2015
Last Updated: December 20, 2015 8:51 pm
Workers unload goods from a ship at the port in Lianyungang, in east China's Jiangsu Province, on Feb. 12, 2014. (STR/AFP/Getty Images)
Last time around in the third quarter, the China Beige Book’s survey of thousands of companies provided a glimmer of hope for the Chinese economy. It painted a picture of stability rather than collapse.
In the fourth quarter of 2015, this is no longer the case.
The results “tell a story of pervasive weakness, national sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure all weaker on-quarter,” the report states..
Stimulus Doesn’t Work
CBB, however, finds that both monetary and fiscal stimulus don’t work, as two classic outlets for government spending (transportation and transportation construction) had profits disappear and revenues plunge. The shipping industry fared the worst, with more companies reporting a drop in revenues rather than an increase.
On the monetary side, China cut interest rates six times this year, but CBB says the credit transmission mechanism is broken, because companies don’t want to borrow. “The share of firms borrowing hit a record low of 14 percent, despite a lower cost of borrowing from banks,” the report states. Over the four years of the survey’s existence, the percentage of firms that said they were borrowing money fell by two-thirds.
This is “good for restructuring, bad for short-term growth.” Not surprisingly, the number of firms reporting an increase in capital expenditure also fell to a record low.
In financial markets, the CBB report shows a remarkable decline in appetite for credit, as yields rose to 9 percent and issuance halved compared to the third quarter. Safer bank loans yield less compared to last quarter, where riskier non-bank loans yield more. A classic case of selective lending only to safe creditors who don’t need any money.
Real estate was more or less stable; residential construction even showed an increase in firms reporting gains.
Another relative positive was retail spending, which increased at 46 percent of the firms, but the increase was lower than last quarter’s. So the consumer is not dead, but it’s also not coming to the rescue as policy makers would have you believe.
As the Epoch Times reported recently, the regime is stimulating on all fronts to stem the tide. But CBB is not too optimistic that it will work out and urges the regime to really reform the economy.
“Some policy choices simply will not work. … It’s past time the ‘stimulus mafia’ rethinks its Pavlovian responses. Reform or bust.”