ThePythonicCow
10th February 2014, 02:18
Here is an excellent article from The Daily Bell, in which they interview Jeffrey Tang, who has degrees from Peking University in Beijing, China and the Booth School of Business at the University of Chicago, and who specializes in studying the Asian financial and equity markets.
Jeff begins the interview saying:
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Asia, and more broadly the whole world, is affected by what is going on in China and in the US. China's growth has peaked. While slower growth in China is a consensus now, I think the potential severity and duration is under-appreciated. Demand of commodities other than food/energy has peaked and will go down. Whoever sells to China will suffer, especially if they have used leverage to build capacity. Hence, you will see Indonesia, Australia and Brazil suffer for a long time. Other nations that have over-expanded based on the low cost US$, will also suffer, the process of which depends on how the Fed wants the dollar to behave. If our call on the dollar is the dollar credit cycle has peaked, then we will see countries such as India and Vietnam go back to their natural status, which is low, single-digit growth after the credit rebalance, and export sectors in Taiwan, Japan and Korea lose money on excess capacity.
China's growth in the past decade was based on two sectors. In the first half of last decade, the economy was export driven. The 2007 US meltdown put an end to the external demand. On top of that, the fast-rising labor cost put China's unit labor cost at 3.9% above South Korea and 5.4% below Japan, which by now should be substantially higher (World Bank data 2010). These two developments put China's export at a severe disadvantage (which makes one wonder where all the export growth has been coming from). In the second half of the last decade until now, the growth has come from infrastructure build-up and property development, which is also showing signs of stress. When the unit labor cost is so high, income growth is probably going to be hard to get. In the meantime, when property decline starts, negative wealth effect will start to drag discretionary spending lower, as Japan experienced. So the much talked about domestic consumer spending will not come to the rescue, either. It is not going to be pretty.
Japan, as a pioneer financial experiment for the monetarist/Keynesian model, has reached its end. Abenomics is not a choice made by Abe; it is a predestined outcome of decades of policies. The deficit spending model reached the point of no more savings left to buy the government debt. Bank of Japan is the buyer of last resort.
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The full interview can be found at Jeffrey Tang on the Asian Markets and the Coming Deflation in China -- with Anthony Wile - February 09, 2014 (http://www.thedailybell.com/exclusive-interviews/35005/Anthony-Wile-Jeffrey-Tang-on-the-Asian-Markets-and-the-Coming-Deflation-in-China/)
My sense, after reading the full interview, is that Jeff Tang is spot on in his analysis.
Jeff begins the interview saying:
==============
Asia, and more broadly the whole world, is affected by what is going on in China and in the US. China's growth has peaked. While slower growth in China is a consensus now, I think the potential severity and duration is under-appreciated. Demand of commodities other than food/energy has peaked and will go down. Whoever sells to China will suffer, especially if they have used leverage to build capacity. Hence, you will see Indonesia, Australia and Brazil suffer for a long time. Other nations that have over-expanded based on the low cost US$, will also suffer, the process of which depends on how the Fed wants the dollar to behave. If our call on the dollar is the dollar credit cycle has peaked, then we will see countries such as India and Vietnam go back to their natural status, which is low, single-digit growth after the credit rebalance, and export sectors in Taiwan, Japan and Korea lose money on excess capacity.
China's growth in the past decade was based on two sectors. In the first half of last decade, the economy was export driven. The 2007 US meltdown put an end to the external demand. On top of that, the fast-rising labor cost put China's unit labor cost at 3.9% above South Korea and 5.4% below Japan, which by now should be substantially higher (World Bank data 2010). These two developments put China's export at a severe disadvantage (which makes one wonder where all the export growth has been coming from). In the second half of the last decade until now, the growth has come from infrastructure build-up and property development, which is also showing signs of stress. When the unit labor cost is so high, income growth is probably going to be hard to get. In the meantime, when property decline starts, negative wealth effect will start to drag discretionary spending lower, as Japan experienced. So the much talked about domestic consumer spending will not come to the rescue, either. It is not going to be pretty.
Japan, as a pioneer financial experiment for the monetarist/Keynesian model, has reached its end. Abenomics is not a choice made by Abe; it is a predestined outcome of decades of policies. The deficit spending model reached the point of no more savings left to buy the government debt. Bank of Japan is the buyer of last resort.
==============
The full interview can be found at Jeffrey Tang on the Asian Markets and the Coming Deflation in China -- with Anthony Wile - February 09, 2014 (http://www.thedailybell.com/exclusive-interviews/35005/Anthony-Wile-Jeffrey-Tang-on-the-Asian-Markets-and-the-Coming-Deflation-in-China/)
My sense, after reading the full interview, is that Jeff Tang is spot on in his analysis.