China estimate of the day

by on February 25, 2016 at 1:10 pm in Current Affairs, Economics | Permalink

Consider that China’s National Bureau of Statistics reported that China’s migrant population (defined as Chinese people that have left their hometown to seek employment or education elsewhere in the country) decreased by 5.7 million people in 2015. This was the first reported decrease in 30 years.

That is from the Bass letter outlining a bearish case on China, too bearish from my point of view.  But still I am worried.  On related matters, here is Christopher Balding on whether China in fact still has a trade surplus.

1 Keith February 25, 2016 at 1:19 pm

I love listening to Kyle Bass. He might be wrong but he sure is clear and informed.

My own opinion is China will have a Japan-style lost decade(s) that will start with a banking collapse. Kyle Bass’ assertion is that the banking collapse is already starting. Seems plausible.

2 Jacob February 25, 2016 at 1:28 pm

Michael Pettis seems to agree with you Tyler

3 Dots February 25, 2016 at 1:37 pm

Does the migrant population decrease mean that a bunch of people went back West, or that the flow to the cities was smaller thanlast year’s? 6 million people is a lot!

4 chris purnell February 26, 2016 at 3:10 pm

How many people actually trust any statistic coming from China? And especially their ‘growth’ figures.

5 mulp February 25, 2016 at 1:52 pm

Interesting that economists can’t come up with any viable economic plan going forward for China.

Can’t build infrastructure because that requires too much debt.

Can’t raise taxes to build infrastructure because taxes will cut gdp more than the wages to build infrastructure will increase gdp.

Can’t export way to growth because labor costs have risen too much because China is too advanced technologically.

Can’t consume way to growth because the lack of safety net requires saving too much.

Can’t create safety net like US because that will cut growth more than increased consumer spending from less savings.

Can’t spend savings buying real assets like housing because that creates a bubble in housing.

6 dearieme February 25, 2016 at 3:04 pm

“Can’t create safety net like US”: surely they could design a safety net that’s far more intelligent than the US’s?

7 Nathan W February 25, 2016 at 11:06 pm

From what I`ve seen, discussions about the safety net in China presently revolve around portability of pensions. The problem is that your pension payment depends on where you are registered. So, you get people who pay rather lots into urban pension schemes but then only qualify for rural levels of pension. This basically means that the most disadvantaged in the urban labour force are paying large sums into schemes that they cannot benefit from.

I haven`t heard anything about any sort of Medicaid or broader welfare schemes being seriously considered anywhere. GDP per capita still isn`t that high, and I think the government is very cautious to create expectations that it may not be able to fulfill in the future.

8 MOFO February 25, 2016 at 4:50 pm

I cant figure that Balding article out, if China’s trade deficit is actually mis-billing, wouldnt that imply money secretly flowing into China, the exact opposite of what we would expect and what Balding concludes? Or am i just being a total brick?

9 coketown February 25, 2016 at 6:36 pm

It was a little confusing (which may be the whole point, so good job China money movers) but it seems the mis-billing is moving capital in the other direction. The difference between China’s and Hong Kong’s respective values of Hong Kong exports to China, for example, means Chinese firms ‘paid’ for $10.2 billion in imports that were never actually imported. But this trick has only a small impact on the data. The greater discrepancy is between China’s official value of imports and what Chinese firms reported paying for imports–a difference of ~$900 billion. China’s trade surplus data comes from the reported value or imports and exports, but Balding points out that these reported values are at odds with foreign data and data from China’s domestic firms. At least that’s what I made out of it. I enjoy Balding a lot but he could use an editor.

10 Justin Kelly February 25, 2016 at 6:34 pm

Well, Kyle Bass wasn’t right on Greece defaulting, and he hasn’t been right on Japan…. yet…

11 coketown February 25, 2016 at 7:04 pm

I’m not sure that migrant data is very illustrative of anything–or, at least, that it illustrates China’s hard landing has started. Bass says the slowdown ‘signals a slowdown in urban labor opportunity,’ which may be true, but that doesn’t in itself portend economic catastrophe. 5.7 million fewer migrants is, after all, just 2-3% of China’s migrant population. Some reasons a few migrants might be staying home: China’s factories are starting to automate; China’s workforce numbers are declining as it ages; China’s urban areas no longer offer the only opportunities in China (I recall reading somewhere that business creation in rural areas is accelerating). Migrants who acquired education and expertise in China’s cities may find more abundant opportunity in the rural areas, which soon will become new urban areas. In short, maybe it’s not the supply of labor opportunity that has weakened but the demand.

Which isn’t to say the first migration drop in 30 years isn’t a big story–it is. But there may be a lot more interesting things going on than “China’s hard landing.” Which may also be happening; I found the rest of his letter persuasive. China is slowing and it may have a hard landing, and eventually it will become the macroeconomic case study we have all wanted it to be.

12 Benjamin Cole February 25, 2016 at 7:42 pm

China January auto sales up 7% YOY.

I find Western commentary on mainland China to be like blind men discussing the elephant they are touching.

And if China is importing more than it exports, well has the United States done differently?

As for banks failing, commentators seem to forget that China has this instrument called the People’s Bank of China. They print money. They can buy good debt and exchange money for bad debts. That can go on until inflation is too high, which in China is not the problem.

I do wonder if China is simply too large to manage. Governmental entities seem to work better when they are small.

Pegging the yuan to the hysterically tight US dollar is probably a mistake.

13 Tom Warner February 26, 2016 at 12:12 am

Some of these are the same charts I used back in August ( But I do think Bass overstates a few things. He is after all selling a bearish contrarian fund.

Nobody really knows how bad the credit losses in Chinese banks are or will be, and it depends on future policy decisions. Treating TBRs as a proxy of hidden losses, as if that were the only reason to issue them, seems misleading. Also I don’t buy the argument that to bail out its banks China’s central bank would need to issue reserves in a ratio to the losses similar to the ratio of US QE to 2008-2009 US bank losses. I think that in China’s system of centralized control over the central bank and most of the commercial banking system, bank losses can be monetized with new reserves at a 1:1 ratio. But even at a 1:1 ratio the number could be very big and might lead to a bigger devaluation than people are prepared for.

But I agree with Bass that devaluation is needed. Could China continue to resist devaluation by tightening capital controls, as Pettis and others argue? Maybe, but only if China also brought back dual exchange rates or some other restriction on the general population’s access to imports. I don’t see any sign that authorities are willing to go that far. They are in a state of indecision, leaking capital flight at an unsustainable rate and seemingly hoping the need to act just magically goes away.

The big fundamental change that can’t be manipulated is that exports are no longer growing in dollar terms. China had a lot more leeway to expand credit rapidly and not worry about losses or devaluation when they were growing exports at an average of 11% a year in dollar terms, as they did from 1999 to 2014, according to the customs data of China’s trade partners.

14 Nathan W February 26, 2016 at 12:48 am

Capital flight may also imply large holdings of foreign assets. It is not all bad.

15 Tom Warner February 26, 2016 at 11:01 am

The point is the central bank is propping up an overvalued yuan, so there’s an incentive to take the central bank up on its offer, convert yuan to FX and buy imports or foreign assets. That suppresses domestic economic activity and eventually the CB runs out of FX and the yuan devalues anyway. There’s not really any advantage to propping up a currency.

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