44.2 China Announces 'No Sharp Turns' for Bad Economy

China's economy reported positive numbers, yet they are anything but positive. Despite being the only large economy to grow in 2020, and in spite of analysts forecasting further acceleration in 2021, the "No Sharp Turns" policy implies concern of internal fragility.

----------WHY----------
Ad Astra is Latin for "to the stars", which is where a consensus of economists believes the Chinese economy is heading.  After being the only large economy to record any growth in GDP for 2020, economists are forecasting 8% more for this year.  Indeed Beijing's "skillful" management of the Covids has convinced two economic research centers - one in Japan, the other in Britain - to forecast that China's economy will become the world's largest by 2028.

There are three problems, including the surreal acceleration in debt and a shrinking working-age population, but fundamentally, that GDP in China is a political input not an economic output. The Party picks a growth rate in December and any shortfall between economic activity is filled in by uneconomic activity by year end.  With nothing written off, GDP is whatever Beijing wants it to be.

The Chinese growth miracle is neither Chinese, nor a miracle. Instead it is a growth model employed by dozens of countries throughout the past century.  The initial growth is so impressive that it's seductive to extrapolate the model's benefits and fail to account for the costs, which come at the end in the form of a rapid write-down, as was the case with the United States after the 1920s, or prolonged stagnation, as was the Brazilian experience after the 1970s.  The Soviet Union followed this policy and grew its economy to 20% of world GDP in 1966 prompting famed economist Paul Samuelson to predict that it would surpass the USA as early as 1984.  Noted academic Ezra Vogel's best-selling 1978 book "Japan as Number One" similarly failed to anticipate the coming bill.

The Party may very well achieve its vainglorious goals.  But at what cost?  If past experience is any guide expect Ad Terra, not Ad Astra.

----------WHERE----------

----------WHEN----------
00:01 China was one of the few economies in the world to expand GDP in 2020.
02:51 How did retail sales do in China?
07:59 Chinese consumption as a percent of the economy is UNBELIEVABLY low - a sign of disorder
10:38 What does the "No Sharp Turns" policy mean for China? Does it imply economic lift off?
13:15 China's humongous trade surplus is not a sign of strength, it shows internal distortion
15:40 Where are the trade surplus dollars going? We don't see them at the PBOC or Big 4 banks
16:42 Is a rising Chinese currency good for the country with respect to its debt burden?
19:04 Question the narrative that 2021 is a reflationary, favorable, stimulus, happy rally.

----------WHAT----------

----------WHO----------
Jeff Snider, Head of Global Investment Research for Alhambra Investments with Emil Kalinowski, black tar heroin high. Ad Astra artwork by stoic Brad Pitt of the Pen, David Parkins. Podcast intro/outro is "Wondrous Things" by Mhern at Epidemic Sound.

#JeffSnider #PBOC #ChineseEconomy

[andreaspanayiotou]

Cleaned the whole kitchen to this thank u

[chriskenney]

Never mind the large floods that have destroy crops, homes, and cities. Food and energy inflation, and young people without work and going into debt. Does that not count? Much appreciate these discussions.

[stephanecaussin]

Emil, should we not speak about the lack of inflation due to the high asset price removing the purchasing power from the capital renter to the capital owner.

[chaseriddick]

Interesting conversation, thanks for sharing.

[erikkaareson]

Thank you guys for an excellent episode. Have been watching the yuan for some years now. It was in a gigantic upside down cup and handle that broke down late 2019 but now it's up again at a downward trendline resistance and is overboght on monthly TD Sequential.

I use things like that as macro indicators. An other indicator is european banks like Unicredit and Banco Santander, Commerz Bank. Also Indian banks, like Yes Bank and Punjabi National Bank. Same with the oilprice. When they get to the same downward trendline resistance. Something bad happens.

[kalebgriffiths]

Emil, idk if you agree, but I think this past week was a major Minsky Moment, and not because "WSB robinhooders robbed the hedge funds and got robbed themselves", but because it (to those who're paying attention with a year's worth of Eurodollar University knowledge) exposed detrimental cracks in the plumbing of domestic side of the repo market, specifically between hedge funds, brokers, and clearinghouses. Can''t wait to see Jeff get to the bottom of this once a bit more information starts to get out, but for now I'm definitely uneasy and am starting to think the unwind is approaching us.

[amurray]

Hey Emil Jeff, instead of the dollars showing up on the big 4 or the PBOC could they just be converting the excess into gold (off books) ???

[uberimmer]

Hi Jeff & Emil - please see Russell Napier's new interview on Macro Voices and explain to us what he's predicting - inflation soon, financial repression, China-style controls, other scary things. I am so OD'd on macro shows I can't understand anything anymore!

[nathantrest]

I'm a huge fan & student of Eurodollar University, so thank you for the great content; please keep the videos coming!

[michaels]

@Emil, I just noticed when I glanced again at your cartoon that "ad terra" should be "ad terraM, " since even I can still recall from my high school Latin that it is a common first declension Latin noun and "ad" takes the accusative case. But since you first put this cartoon up a few days ago, you probably have been bombarded by obvious corrections such as mine, so perhaps I should not pester you. You see, we DO look at those cartoons!

[bestfriendhank]

What do you know about illicit drugs Emil? 😉

[johndouglass]

I agree that Richard Vague's Brief History of Doom is data based excellent assessment of when future economic depression occur. Hence China is doomed by private debt/GDP over 20% growth per year is way beyond Vague's 20% private debt growth over 5 years.
Here, Australian mineral exports are going to be hit by China's future decline.

[Michael-qyjz]

Love Jeff and Emil, Amazing knowledge, even though us unsophisticated sometimes dont agree. :) Massive Deflation coming unless Fed Laws/Rules change.

[yanyannyaany]

interesting take on China's GDP re-orientation. True, the idea is to keep more people in the country side to create eco-friendly economy with food security and cultural '"inwardness", basically like Japan. This would create an aggregate smaller Chinese economy compared to one that outsourced all low-productivity industries abroad. What I don't get is why anyone would prefer an imperialist Chinese empire over Xi/Japanese vision of an ethnic nation state that's relatively technologically advanced but still in harmony with nature as much as possible... do you really want to be a cog in a Chinese imperial machine?

[catcar]

😌 I’m so glad I met bitcoin...in 15 years this craziness has done nothing for my money growth. Btw, Emile, you gave me a good laugh at 11:00...

[jorgeponce]

Hi Emil, interesting vid. A question, does a stable total USd cash (equivalents) in the PBoC balance sheet mean they are not getting flows in / out? I tend to believe much of the inflows become outflows that are used to finance the Belt and Road Initiative, as well as imports of raw materials into Mainland China, which keeps USd reserves stable. We should not confuse stocks and flows.
The reality is that corporate America keeps investing there. Wall St is eager to take advantage of China's still limited and cautious opening of their expanding local bond, pension, and insurance markets to foreign investors. Moreover, Wall St is eager to help finance the 5G rollout. If you allow me to post a link here, I can show a CNBC vid earlier this week in which Steven Wieting, the Global Chief Investment Strategist at Citi, says (quote): "If you think about hyperconnectivity, what’s happening IN ASIA with 5G rollout, it is going to be MUCH FASTER AND LARGER THAN IT IS GOING TO BE IMMEDIATELY IN THE WEST. These are opportunities.”
(Citi is as nationalistic as the US dollar)

[amanarora]

Cover Chinese repo crisis of last week in next episode.... A logical continuation to previous video !!

[kingcountyband]

Woohooo! Woops 😆 I came for the analysis, I stayed for the out takes.

[tqbrowne]

I can’t help but see this recent “turn” or lack thereof in the Chinese economy as perhaps an early sign of one of the scenarios mentioned in Peter Zeihan’s “Disunited Nations.” If this is true, expectations management for the CCP internally will be crucial.

[XX-wnxv]

Americans are entertaining themselves again