Debt Street 2016, China Down

I always had this feeling inside that “Made In China” never lasts. Well, this time it is their economy. While I was still thinking about my New Year resolution (which is 1920 x 1080 ) I received a flash update from Century Financial Brokers showing a 7% decline in Chinese stock markets. It has become like an entrance theme for China equities to crash first and then take the rest of the indices with them. And by the way it hit the circuit breaker twice in four days, I mean serious-lee (pun intended). By the end of the week, the main stock index of the second largest economy was already down by nearly 12%.

The plunge in equities was the result of announcement done by the People’s Bank of China about devaluing Yuan against dollar. To correct myself, the initial plunge was due to the announcement but the second dip was due to a panic caused among investors after a circuit breaker was put during the first dip. After the regulators realised, they removed the circuit breaker but the damage was being done already. This by far has been the second biggest mistake after the crazy popularity of Donald Trump. And that made, China to join my infamous list of countries who screwed my Happy New year.

Countries that screwed my Happy New Year

1.) Saudi Arabia- Just when I thought, they are busy producing oil about a zillion barrel per day, some folks killed 47 people along with prominent Shiite cleric Nimr al- Nimr which woke up Iran.

2.) Iran- Now, they had to take revenge because that is how things are settled in a gang war. So, they put Saudi embassy on fire in Tehran. And then Saudi Arabia attacked Yemen. But why Yemen? They must be picked last to attack alphabetically.

3.) North Korea- Perfect timing!!! It was like, i am drinking a cocktail with a high percentage of alcohol. A hydrogen bomb test by North Korea led to an earthquake measuring to 5.1 magnitudes in China, Japan and South Korea. Now this was a strange way to wish new years.

4.) China- Not only, they pushed the markets to near rock bottom but then they put a circuit breaker too which panicked investors and create suspicion on the fragile recovery of the economy.

While, I am writing this, another nutcase in Istanbul has blown himself into ashes killing 10 people. The list would never end so i say that we deal with one ridiculous problem at a time. Talking of which let us begin with some Chinese soup for the soul.

China Issues – Internal-lee and External- lee

From last 30 years China had shown double digit growth in GDP but since 2011 the figures have shown a consistent decline. Last year the economy grew at a growth rate of 6.9% lower than 2014. The outlook for 2016 is already reduced to 6.5% from 6.7%. The surprising part is that Chinese numbers doesn’t show any signs of distress. It is like me writing my own report card in order to pass exams. The political interruption by the communists’ leaders in manipulating such significant numbers is remarkable (if you know what i mean). The government also interrupts in the stock markets when the market falls which accelerates the anxiety among investors.

Adding to their internal problems is a sumo size property bubble and a huge pile of debts from local government banks. These debts were taken to create profits from the state owned enterprises which didn’t produce expected results. Those debts were taken during the golden phase of China which are to be paid back now i.e. pitch black phase of China. A large number of working population in China is ageing and the public spending by government has been on waste. During 2008 recession, Chinese kungfoo-ed their way out by pumping $585 billion in the financial system, But those were the times, when the interest rates were high enough to be pulled down. Since,November, 2014 China has cut their benchmark rates 6 times so please take the hint. And then there is slow industrial production, falling PMIs with ultra-flat inflation due to fall in commodity prices. 

Now, the external factor mostly comprises of the late devaluation of Yuan against dollar. During 2014,when Euro, Yen, Korean Won and other major currencies were falling against dollar, the Chinese yuan shaolined themselves. This resulted a decline in the exports as compared to other economies. In August 2015, China devalued yuan against dollar and they are doing it again because it was not sufficient, So, basically, they are correcting their mistake. They also reduced their foreign exchange reserves in the attempt to control the fall of yuan in December; I would not do that if I was China.

Those who relate oil price fall with China down should know that falling commodity prices will never hurt a manufacturing economy like China. It would screw the major commodity exporters like Brazil and Canada.

Sol-Leu-Shans Call-Ling

To recover from this state, China firstly has to devalue yuan which they have already started. They need to clear their domestic debts and try to focus on achieving inflation and unemployment targets like most of the developed nations do. The state- owned enterprises or I should say zombie companies should be improved but not shut down because that would create a mass unemployment of at least 30 million people. 

The access to private companies in the field of telecommunication and insurance should be encouraged more. They have to clean their financial system and the corrupt nature of political leaders should be taken care off. The monetary stimulus has always been a primary tool for China to boost up the economy. They have to inject money and improve their exports in order to get back on track.

Also, the youth in China is more inclined towards self-employment. The Chinese authorities are developing their 13th five-year plan, which must contain the steps to encourage youth and also focus on the less noticed areas like climate change policies, focus on the service sector and domestic consumption. The retail venture like Alibaba is a very good example of the shifting focus of youth.

Comments from the Joe-ker (haaa-iy-aa)

Hello Audience, the year 2015 was a blast and this year has started with a bang too .The famous “divergence” of policies have reached to a whole new level. This time it is Europe and Japan on the monetary easing side with USA and UK on the rate hike side. This also creates new challenges for China who should be worried not about their internal problems but also about the possibility of a decline in US industrial production due to rate hikes.

This year the joker believes that oil would return to its original levels of $50-$65, I swear if I see any further decline, I would start drinking oil to boost up the so called demand. Nigeria has reported an emergency meeting by OPEC members would take place. As much as I hate to say that but the middle-east is acting all beast so China has very less time to clear their mess and take advantage of a low energy era.

How can we leave the stock markets behind? The Chinese have to open their eyes (literally) and avoid the interruption of government in controlling the stock market. It is not a leading indicator in China but the use of circuit breakers only reduces the confidence among the investors and rattle the global markets.

Last but not the least, before Donald Trump gets elected as the President of United States and pisses off people to an extent of a third world war, its time to fix things which can be fixed.

Will China fight back to the economic slowdown???

Will Geo-political unrest continue???

Will Oil break the $30 levels???

Will Donald Trump ever shut up!!! Wait… Do not answer that.


For everything else, Follow the …TRADE JOKER                                                                    


Sources and References: The Financial Times, The Globe and Mail, South China Morning Post, The New York Times, Forbes, Business World,CNN, Asia one,The Wall Street Journal, World Economy, The guardian, The Washington Post
All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.


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