2014-06-16

What Happens in July? MoF Accelerates Spending of 2014 Budgets; Market Signals Mixed

If China was more transparent we'd be able to know what is really going on behind the scenes. I still expect reforms to move along, but the stories below are not very supportive of those expectations.

The Ministry of Finance wants governments to spend:

China eyes big construction projects to keep economy growing
As it is, Beijing has already instructed local governments to spend all of their 2014 budget by the end of June to shore up the economy, or risk losing the funds. As a result, separate data on Wednesday showed fiscal spending surging 25 percent in May alone.

What's the plan for July through December?

Then there's Li Keqiang on the man-made GDP number:

China to meet this year’s 7.5pc growth target: Li Keqiang
"China’s economy needs to grow at a proper rate, expected to be around 7.5 per cent this year," Li wrote. "It is slower than the past, but normal."

"Despite considerable downward pressure, China’s economy is moving on a steady course. We will continue to make anticipatory and moderate adjustments when necessary. We are well prepared to defuse various risks. We are confident that this year’s growth target will be met."
China's real estate investment growth rate is headed to the single digits by July or August unless there's a major reversal in the trend from March through May.

Then there's the fact that the spending push started back in March:
China Unleashes Treasury Deposits in March Emergency Spending Push
The national treasury saw outflows of 1.7 trillion yuan in January and February, then spent 1.3 trillion yuan in March. Over 90% of the money was spent by local governments.

Also: Xi Jinping takes charge of China's economic reforms
"The president is becoming much more visible than Premier Li [Keqiang]," said Richard Harris, the chief executive of consultancy Port Shelter Investment Management.

Harris wrote on so-called Likonomics in July last year, when he forecast Li might become a strong "change leader", with shades of prominent Western economic reformers such as Ronald Reagan of the United States or Britain's Margaret Thatcher. Harris has since reviewed this assessment after seeing some of the reforms pledged by Li fall short of expectations.

Some experts have shared the frustration, citing lacklustre consumption, slow progress in financial liberalisation and persistent state dominance.
Things seem to be moving along at China pace from where I sit, but maybe Xi wants to slow the pace of reform.......

Meanwhile, Barclays Raises China Growth Forecast, Sees Upside Risks
Barclays raised China’s second quarter growth forecast to 7.4% on Friday, with upside risks to their 7.2% year-ending GDP forecast thanks to better economic data flowing out of the world’s No. 2 economy.

......Stabilizing industrial activity and consumption and a moderate slowdown in fixed asset investment (FAI) growth as China pares down spending, particular in manufacturing and real estate. FAI growth slowed modestly to 17.2% year-to-date in May compared to the same period last year when it was 17.3%. Most of the growth in investment continues to be on large infrastructure.
Rising consumption is part of the rebalancing act, but rising consumption will slow economic growth because it is a much smaller part of the economy at the moment.

The market is sending a mildly bullish signal on emerging markets:

The pattern is an ascending triangle, a bullish pattern, but emerging markets are in a bear market. A significant problem in China would not leave emerging markets unscathed, but a break above the line would be bullish for emerging markets at least in the short-run.

China's mainland market remains in the doldrums though. This chart of new account openings tells the story:

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