Китайские регуляторы одобрили слияние сталепроизводителей Baosteel Group и Wuhan Iron and Steel Group, сообщает Caixin Magazine.
Китайские регуляторы одобрили слияние сталепроизводителей Baosteel Group и Wuhan Iron and Steel Group, сообщает Caixin Magazine.
Китайские Baosteel и Wuhan Iron & Steel, входящие в четверку крупнейших производителей стали в стране, ведут переговоры о возможном слиянии. Обе компании в воскресенье заявили о планах провести совместную «стратегическую реструктуризацию». Поддерживающее эти шаги правительство, контролирующее компании, таким образом надеется помочь представителям отрасли, страдающим из-за избытка мощностей и слабого спроса.
Перспективы железорудной отрасли настолько мрачны, что компании этого сектора ищут альтернативные источники доходов. Так, канадская Century Iron Mines Corp. переключилась на сбыт куриных яиц из Австралии на китайском рынке, пишет агентство Bloomberg.
China's Wuhan Iron & Steel says it isn't in the bidding for Rio Tinto's (RIO) Canadian iron ore assets, WSJ reports, another sign that the miner faces few options for offloading an asset that once attracted broad interest.RIO apparently now will consider whether it should lower the price of the asset or put on hold the sales process for a deal that would have been the largest in the global mining sector in about a year.RIO began shopping its 59% stake in Iron Ore Co. of Canada last spring, but interest appears to have fizzled. Post your comment!
MA Guoqiang has stepped down as general manager of Baoshan Iron & Steel Co, China's largest listed steel company, to join Wuhan Iron & Steel Group.
Office Depot Agrees to Buy Officemax for $13.50/Shr in Stock Bulgarian Government Resigns Amid Protests (WSJ) Rome will burn, regardless of Italian election result (Reuters) Abe Says No Need for Foreign Bond Buys Under New BOJ Chief (BBG) Rhetoric Turns Harsh as Budget Cuts Loom (WSJ) Muddy Waters Secret China Weapon Is on SEC Website (BBG) Business Loans Flood the Market (WSJ) Staples May Be Winner in Office Depot-OfficeMax Merger (BBG) Fortescue Won't Pay Dividend, Profit Falls (WSJ) Key Euribor rate on hold after rate cut talk tempered (Reuters) FBI Probes Trading in Heinz Options (WSJ) Spain Said to Impose Yield Ceiling on Bond Sales by Regions (BBG) BOK’s Kim Signals No Rate Cut Needed Now as Outlook Improves (BBG) Overnight Media Digest WSJ * The Federal Bureau of Investigation has begun a criminal investigation into a big trade in the options of H.J. Heinz Co made last Wednesday, a day before the announcement of the blockbuster $23 billion buyout of the ketchup maker. * Apple Inc said on Tuesday that some employee computers were attacked by hackers, the latest episode underscoring the vulnerability of some of the world's most sophisticated technology firms to attacks. * Dell Inc's earnings fell 31 percent, but its quarterly results supported the view that the plan to take the company private undervalues the PC maker. * BHP Billiton Ltd promoted its nonferrous division head Andrew Mackenzie, a geologist with experience in both the oil and mining industries, as chief executive to succeed Marius Kloppers. * Shares in Humana Inc and other major health insurers fell on Tuesday after analysts said a government proposal for 2014 rates for Medicare Advantage - health plan for seniors - is unfavorable for the companies. * Nutritional supplements maker Herbalife Ltd, embroiled in a battle with hedge-fund manager William Ackman over the legitimacy of its business model, reported a 12 percent increase in fourth-quarter earnings and raised its profit outlook for the year ahead. * Bank of America Corp awarded Chief Executive Brian Moynihan $12 million in salary and bonus for 2012, reflecting a rebound year at the second-largest U.S. lender and vaulting him past JP Morgan Chase & Co chief James Dimon in the ranks of the best-paid U.S. financial executives. * Swiss drug maker, Novartis AG abandoned a 72 million Swiss franc ($77.92 million) exit package for its chairman, bowing to pressure from shareholders and Swiss politicians after four days of increasing criticism. * Taiwanese smartphone maker HTC Corp unveiled its new flagship device HTC One as it seeks to regain lost ground in an increasingly competitive market. FT CVC Capital Partners and BC Partners are preparing a 3.5 billion euro ($4.67 billion) bid for French catering company Elior. BHP Billiton has named Andrew Mackenzie, head of its non-ferrous metals division, as its new chief executive, replacing Marius Kloppers who will step down in May. Bumi Plc shareholder Standard Life Investments said it would support the company's board and vote against proposals from co-founder Nat Rothschild. Novartis has scrapped its controversial plan to pay outgoing chairman Daniel Vasella $78 million for a consulting and non-compete agreement, yielding to a torrent of political and shareholder criticism. Apple Inc's internal Mac systems were hacked by the same attackers that targeted Facebook and Twitter last month, the company, whose products have long been seen as more resistant to intrusion, said. Warner Music has reached a deal with two independent record label groups as it seeks regulatory approval for its acquisition of former EMI labels. The Irish government has sold insurance company Irish Life, which it was forced to nationalise during its banking crisis, to Canadian life insurer Great-West Lifeco for 1.3 billion euros. Britain's electricity regulator warned that the country is heading for a "horrendous" gas supply crunch that will lead to higher energy bills for consumers. Motor insurer Esure has appointed brokers Numis and Canaccord as the company speeds up plans for a stock market launch. Telecoms regulator Ofcom is expected to reveal results of the 4G bandwidth auction on Wednesday. European banks may have to reveal their taxes and profits on a country-by-country basis in the latest twist to EU negotiations over rules to make banks safer. A U.S. company accused a Chinese military intelligence unit in Shanghai of conducting multiple online attacks on U.S. businesses. Britons hiding money in the Isle of Man have three years to come clean or face penalties of up to 200 percent of unpaid tax. NYT * Unless the Justice Department and BP reach a last-minute settlement, the British oil company will return to court on Monday to face tens of billions of dollars in civil claims from the 2010 explosion on the Deepwater Horizon rig in the Gulf of Mexico that could cripple the company for years to come. * BHP Billiton said on Tuesday that Chief Executive Marius Kloppers would retire this year after almost two decades at the company. * After Facebook Inc and Twitter announced that they were breached by sophisticated hackers in recent weeks, Apple Inc said it had been attacked, too, in a rare admission for the technology giant. * A federal judge said he was leaning toward the hedge fund manager David Einhorn's contention in a lawsuit that Apple Inc violated securities regulations by improperly bundling several shareholder proposals into one matter. * Days away from another fiscal crisis and with Congress on vacation, President Obama began marshaling the powers of the presidency on Tuesday to try to shame Republicans into a compromise that could avoid further self-inflicted job losses and damage to the fragile recovery. But so far, Republicans were declining to engage. * First centered on Britain and Ireland, the scandal over beef products adulterated with horse meat escalated across continental Europe on Tuesday after Nestle SA, one of the world's best-known food companies, said it was removing pasta meals from store shelves in Italy and Spain. * The Federal Bureau of Investigation has opened a criminal inquiry into suspicious trades placed ahead of the $23 billion acquisition of H.J. Heinz, a person briefed on the matter said on Tuesday. * Nickelodeon designed its first app as a noisy, colorful smorgasbord of animated clips, music videos and games. But there's very little actual television. * A freewheeling and almost entirely one-sided argument at the Supreme Court indicated that the justices would not allow Monsanto's patents for genetically altered soybeans to be threatened by an Indiana farmer who sused them without paying the company a fee. Canada THE GLOBE AND MAIL * Canadian Imperial Bank of Commerce Chief Executive Gerry McCaughey said Canada should reform its pension plan to allow people to make voluntary contributions that are beyond what they already pay through their salaries. The move could give many Canadians something they do not have with Registered Retirement Savings Plans and other investment vehicles tied to the markets: a predictable payout when they retire. * Alberta's projected deficit is on track to be four times larger than its original forecast, and the government argues it could not have predicted how quickly oil markets would swing against the province. The Progressive Conservatives, led by Alison Redford, expect to run a deficit of between C$3.50 billion ($3.47 billion) and C$4 billion in the fiscal year, up C$1 billion from the forecast they reiterated in December. Reports in the business section: * The British Columbia government will take another year to finalize details of its proposed tax on exports of liquefied natural gas, casting uncertainty over the fledgling industry just as it contemplates major new investments. The B.C. Liberal government last week announced plans to introduce the new LNG tax, but didn't provide details about how it would work or how much it will cost companies. * Great-West Lifeco Inc is buying Ireland's biggest life insurer for $1.75 billion, a bet that the end of the European economic crisis - which killed the same deal more than a year ago - is in sight. The Winnipeg-based insurer first eyed Irish Life Group Ltd in 2011, but walked away as waves of downgrades, bailouts and government spending cuts swept across Europe. NATIONAL POST * Presenting the B.C. government's new budget and three-year fiscal plan on Tuesday, provincial finance minister Mike de Jong said he plans to win over skeptics and "fill the gap" between billion-dollar deficits and a $197-million surplus he projects for fiscal 2013-2014. Under his plan, the surplus would more than double by 2015 to $460 million. * Montreal's city hall has been locked down and is being swept by police in one of numerous raids being conducted across the city. These latest raids in Quebec are part of a two-year-old investigation related to fraud, breach of trust, and falsified documents. A number of arrests have already been made in connection with construction corruption, which is also the subject of an ongoing public inquiry. ()) FINANCIAL POST * Up to C$35 million in grants will be made available over five years through Alberta's climate fund "to produce multiple technologies that will provide significant net reductions in greenhouse gas emissions," according to a news release. * Royal Bank of Canada is shutting down the consumer accounts of Ally Financial and integrating its operations, after acquiring the Canadian auto finance and deposit business earlier this month. The bank said customers will no longer be able to open new accounts with Ally, effective immediately. It also plans to close down the high-interest savings accounts operated by Ally on April 30. China XINHUA Film box office collections during China's Lunar New Year hit 760 million yuan ($121.71 million) for the week, with a single day high of 200 million yuan, according to the State Administration of Radio, Film and Television. CHINA DAILY -- China's Beidou satellite navigation system, a competitor to the U.S. GPS and Europe's Galileo, will reach 200 million users in 100 cities by 2020, China's vice-minister of science and technology, Cai Jialin told the official paper. The network currently has 16 satellites above the Asia-Pacific region. -- China will introduce a proactive tax on carbon dioxide emissions as it tries to curb excessive pollution, according to Jia Chen, a senior official at the Ministy of Finance. CHINA SECURITIES JOURNAL -- Wuhan Iron and Steel Co Ltd said it will raise prices of major products from 150 to 300 yuan per tonne, while Angang Steel Co Ltd said it will raise prices from 150 to 200 yuan per tonne. SHANGHAI SECURITIES NEWS -- More than 20 provincial regions in China are piloting a scheme that will allow patients to pay after they have received medical treatment rather than before: a hot topic in China where there have been reports of hosptials threatening to withhold treatment if patients fail to pay in advance. PEOPLE'S DAILY -- According to a commentary piece in the official paper, over half of domestic pharmacy wholesale firms face being weeded out under stringent new 'Good Supply Practice' rules. Fly On The Wall 7:00 AM Market Snapshot ANALYST RESEARCH Upgrades Bank of Nova Scotia (BNS) upgraded to Overweight from Equal Weight at BarclaysDaimler (DDAIF) upgraded to Equal Weight from Underweight at Morgan StanleyPNM Resources (PNM) upgraded to Outperform from Neutral at RW BairdRadian Group (RDN) upgraded to Positive from Neutral at SusquehannaRoyal Bank of Canada (RY) upgraded to Equal Weight from Underweight at BarclaysStaples (SPLS) upgraded to Neutral from Sell at CitigroupMeredith (MDP) upgraded to Buy from Neutral at CitigroupAlexion (ALXN) upgraded to Buy from Neutral at Lazard Capital Downgrades Barclays (BCS) downgraded to Neutral from Buy at GoldmanCanadian Imperial Bank (CM) downgraded to Underweight from Equal Weight at BarclaysDelek US Holdings (DK) downgraded to Market Perform from Outperform at Wells FargoExpress Scripts (ESRX) downgraded to Neutral from Outperform at MacquarieHollyFrontier (HFC) downgraded to Market Perform from Outperform at Wells FargoL-3 Communications (LLL) downgraded to Underperform at RBC CapitalOfficeMax (OMX) downgraded to Hold from Buy at BB&TSAIC (SAI) downgraded to Neutral from Overweight at JPMorganSAIC (SAI) downgraded to Underperform from Sector Perform at RBC CapitalSealed Air (SEE) downgraded to Underperform from Market Perform at Wells FargoSirona Dental (SIRO) downgraded to Neutral from Outperform at RW BairdStarwood Hotels (HOT) downgraded to Hold from Buy at JefferiesTotal System (TSS) downgraded to Hold from Buy at JefferiesWindstream (WIN) downgraded to Sell from Neutral at UBS Initiations Cytori Therapeutics (CYTX) initiated with a Buy at Ascendiant CapitalHospitality Properties (HPT) initiated with a Market Perform at JMP SecuritiesMemorial Production (MEMP) initiated with a Buy at WunderlichRoadrunner (RRTS) initiated with a Buy at Deutsche Bank HOT STOCKS HSBC (HBC) to sell HSBC Bank Panama to Bancolombia (CIB) for $2.1BBP (BP) won U.S. agreement to cut potential spill fine by $3.4B to $17.6B, Bloomberg reportsDell (DELL) not providing guidance for Q1 or FY14Sees market competitiveness and margin pressure continuing in 2013Total System (TSS) acquired NetSpend (NTSP) for $16 per share in an all cash transaction valued at about $1.4BDemand Media (DMD) exploring separating businesses into two publicly traded entitiesFedEx (FDX) sees pre-tax cost of voluntary buyout program $550M to $650MMicron (MU) and Elpida Memory given antitrust clearance in ChinaBasic Energy (BAS) sees FY13 revenue similar to FY12La-Z-Boy (LZB) confident in their business model, will continue strategic investmentsGray Television (GTN) sees FY13 local revenue ex-political up 5% to 7% vs. FY12Integra LifeSciences (IART) received warning letter from FDA EARNINGS Companies that beat consensus earnings expectations last night and today include:Marriott (MAR), SINA (SINA), Herbalife (HLF), CF Industries (CF), La-Z-Boy (LZB), Bob Evans (BOBE), Dell (DELL) Companies that missed consensus earnings expectations include:Toll Brothers (TOL), FreightCar America (RAIL),Terex (TEX), Kaiser Aluminum (KALU), Allscripts (MDRX), Clear Channel Outdoor (CCO) Companies that matched consensus earnings expectations include:Millennial Media (MM), BJ's Restaurants (BJRI) NEWSPAPERS/WEBSITES There’s a renewed willingness by some banks to lend cheaply and on flexible terms. But a new concern is emerging: Is the pendulum swinging too far the other way? So-called commercial and industrial loans were up 4.4% in Q4 and 16% for all of 2012, according to SNL Financial data, the Wall Street Journal reportsSome oil companies (CVX, RDS.A) are still making multibillion-dollar bets on finding crude in the deepest waters of the Gulf of Mexico. The target is called the Lower Tertiary, considered by many to be the Gulfs last frontier, the Wall Street Journal reportsBoeing (BA) has found a way to fix battery problems with its grounded 787 Dreamliner jets which involves increasing the space between cells, sources say, Reuters reports Antitrust experts said there were no guarantees that a deal to merge Office Depot (ODP) with OfficeMax (OMX) would win government approval, Reuters reportsThe biggest U.S. banks (JPM, C, BAC, STI) are lending the smallest portion of their deposits in five years as cash floods in from savers and a slow economy damps demand from borrowers. The average loan-to-deposit ratio for the top eight commercial banks fell to 84% in Q4 from 87% a year earlier and 101% in 2007, according to Credit Suisse Group data, Bloomberg reports CME Group’s (CME) decision to allow users of its interest-rate swap future contracts to avoid tougher oversight is drawing scrutiny from the Commodity Futures Trading Commission, Bloomberg reports SYNDICATE Michael Kors (KORS) files to sell 25M ordinary shares for holdersNorthstar Realty (NRF) announces offering of 30M shares of common stockPost Holdings (POST) to offer $175M of convertible preferred stockTerreno Realty (TRNO) files to sell 5M shares of common stock ACTIVIST/PASSIVE FILINGS Paulson Capital reports 4.33% passive stake in S&W Seed (SANW)Paulson Capital reports 4.67% passive stake in BioCurex (BOCX)
Authored by Daniel Cloud, (A review of Mark DeWeaver’s Animal Spirits with Chinese Characteristics) Analysts who’ve only started paying attention to the country in the last decade often seem convinced that China has no real business cycle, or a very mild one, that because its economy is centrally planned, it’s free from the fluctuations in investment that cause booms and recessions in countries that lack the scientific guidance of a Leninist single-party state. This convenient belief, however, is mostly an artifact of the period over which they’ve been observing its economy. In what’s generally, since at least the 1950’s, been a short, very high-amplitude cycle with a roughly seven year period, the period between 1992 or 1993 and 2007 or 2008 is unique. It has a “soft landing” (or as DeWeaver calls it, a “long landing”) in its middle that was unlike any other slowdown China has experienced in its post-World-War II economic history. The boom of the early 1990’s wasn’t followed by the usual bust. Instead, after a fairly mild slowdown, another boom period began towards the end of the decade, without the usual deep cyclical trough between expansions. DeWeaver’s explanation of this anomaly suggests that it is unlikely to be repeated. We’re probably living, now, with a China that’s back to the sort of violent swings in economic activity, and repeated struggles with inflation, that have been characteristic of most of its recent history. To understand why, it’s necessary to understand his explanation of the nature of the cycle itself. In the economy of a country whose political system is some form of liberalism, changes in the level of productive activity are a consequence of changes in the level of investment by private companies, which presumably reflect changing perceptions of risk, and of potential rewards. In the Chinese economy, however, which, as DeWeaver convincingly demonstrates, is still very much dominated by enterprises in which some part of the government has a controlling stake, soft budget constraints and the primarily political motivations of most participants mean that calculations about risk often play little role in economic decision-making. In the pure “prestige projects” he describes in such Kafkaesque detail, even the idea of a reward is conspicuously absent. This state of affairs, DeWeaver tells us, is exacerbated by the Chinese style of economic planning, which emphasizes the achievement of quantitative targets for things like provincial GDP. In effect, the system is a series of tournaments, in which officials are repeatedly, throughout their careers, pitted against each other in a competition to see who can outperform the plan the most in each planning period. Along with this formal system of planning is an informal system of government by “the central legitimation of local elites”, in which decisions about how to meet the quantitative targets are left to provincial and lower-level authorities, though the supposedly uniform and transparent targets themselves come down from the top. What must also always come down from the top, DeWeaver tells us, is any impulse at all to rein in or slow the pace of expansion. Since officials at all levels are competing with each other to outperform any target they’ve been given, their incentives are entirely in favor of investing as much as possible whether it makes any sense to do so or not. Not only is this their best path to promotion – something everyone, after so many rounds of this game, certainly knows, by now – but more building means more opportunities to line your own pockets, by using companies you or your relatives own as contractors. The problem with the sort of frenzied construction of uneconomic steel mills and international airports and amusement parks and solar farms and palatial government buildings and so on that this impulse results in is that there really isn’t much about the process that would make it likely that the mix of goods and services the Chinese economy actually needed, to embark on the next stage of modernization, was the one that happened to be produced by it. What is far more likely to be produced is some other mix of goods, perhaps of acceptable quality, if quality was one of the explicit plan targets, but not really the right mix, because its composition is largely the result of short-term gaming of the planning system by the officials responsible for interpreting and implementing the plan, rather than any sort of general market equilibrium. Consequently, booms, in China’s post-war economic history, have tended to end in shortages of key commodities, or bouts of severe inflation, as the inappropriate mix of goods produced resulted in excess demand for the under-produced ones. The central planners have had no choice, at this point, but to tighten policy in various drastic and clumsy ways, so these booms almost always ended in busts. (Though not in the middle and late 1990’s.) Since the incentives for investment DeWeaver describes are insensitive to risk, however, many projects get carried on despite these contractions in activity and demand, so cyclical troughs have tended to be marked by extreme gluts of particular goods, pig iron or rolled steel or windmill farms or office buildings, often the ones most emphasized by the planners in the previous period. (As China’s economic miracle unfolded in the ‘80’s and ‘90’s, the tendency towards gluts seemed to have permanently eclipsed the tendency towards shortages - until, that is, towards the top of the last cycle in ’07 or ’08, suddenly everyone in the world began to talk about peak oil…) Aside from really spectacular ones like the Great Leap Forward, few of these booms and busts have been heard of by many people outside of China. Certainly few in the West now remember the so-called Great Leap Outward of the late 1970’s, though that was the precursor of everything that’s happened since. In that event, an economic expansion was prolonged slightly past the point when shortages would normally have forced its termination, by a policy of opening to the outside world, which allowed the import of scarce parts and supplies. Political sponsorship for the trade initiative came partly from the so-called “oil faction”, which had both hard currency, and a pressing need for outside help. The problem with this strategy, then, was the country’s lack of foreign exchange, and its chronic trade deficit. But if it could follow the same path as its capitalist East Asian neighbors, and use its highly literate and very inexpensive workforce to become an export powerhouse, the imperfections in the mix of goods and services the planning process always resulted in could be redressed in world markets. Under-produced goods could be imported, prolonging booms, and during cyclical troughs, overproduced goods could be exported. Market prices would be supplied to the Chinese economy from outside, giving planners some rough idea of what a genuine equilibrium would actually look like, and the imperfections in their estimations could be dealt with through trade. So that is what Deng Xiaoping and the rest of the people running things, after the Gang of Four were disposed of, decided to try to do. The move closer to an equilibrium mix of goods and services, and the ability to correct gluts and shortages by using world markets, greatly improved the efficiency with which scarce commodities were allocated, and laid the foundations for the economy’s boom years. (I suppose one could call this economic model “parasitic planning”, since it is central planning that relies on the existence of undistorted price information from the outside world for its viability, but it might make just as much sense to call it the “Japanese model”, given the level of planning MITI engaged in, back when its plans still mattered.) A certain amount of market liberalization, and the partial privatization of, first, agricultural, and then other kinds of land, added momentum to the long expansion. Most Westerners seem to be under the impression that exports were the “engine of growth” for China’s economy, in this period, that it’s demand from the outside world that has fuelled the rapid growth of the last two decades. The truth is more complicated. China is a large country, with a large economy, and value added to exported goods has never been a large enough fraction of GDP to directly account for very much of its growth. The real role of the export sector seems to have been the more complex one described above – it served as a guide to relative equilibrium prices, and a source and sink for under-produced or over-produced commodities. This role is not too different from that played by the Japanese export sector, during that country’s postwar period of rapid economic growth. In its early phases, DeWeaver tells us, there were some difficulties with the implementation of this strategy. Trying to build export industries without doing enough for domestic consumers led to renewed shortages and severe inflation in the late 1980’s, culminating in the demonstrations by workers and students in 1989, and their brutal suppression. But by the early 1990’s the plan was working. Exposure to the quality discipline of world markets, as well as the information about relative scarcities and marginal rates of substitution encoded in their prices, and the advanced technology of the capitalist world, along with some market liberalization in an economy that nevertheless remained dominated by the State, produced rapid gains in in productivity at the same time. Asset markets overheated in some parts of the decade, but goods markets never really got tight, and in the long slowdown, the almost infinite capacity of the foreign consumer to absorb Chinese goods meant that surplus production could be exported, rather than simply destroyed. In effect, China now seemed to face infinitely elastic supply and demand curves for every tradable good, and didn’t need to be anywhere near general equilibrium, in isolation, to experience the very rapid growth its highly educated and very inexpensive labor force made possible. Under these fortuitous but inherently temporary circumstances, the remarkably long expansion that took place between the early ‘90’s and ’07 or ’08, with a “long landing” in the middle, was possible – once. Why only once? There are two practical problems with the strategy in the longer term. The first is that you may well be building the wrong thing. Becoming a very specialized cog in the global manufacturing system, in this particular way, doesn’t quite seem to set you up for the transition to a knowledge society, perhaps because all you’ve had to do, to get to this point, is solve a bunch of engineering problems. You’ve got the external trappings of modernity – without a Parliament, or real laws, or a Newton, or independent universities, or genuine newspapers, or a working system for the protection of patents and other kinds of intellectual property, or any of the other vital organs of a real modern society… Because those things take a little longer to develop, and require a somewhat different political system. So there’s a transition needed, at this point, to another, rather dissimilar kind of society, and many new opportunities for failure, or very qualified success, along the way. Unfortunately, the sort of planning process DeWeaver is describing isn’t likely to ever result in transition even to a consumer economy, let alone a knowledge society, partly because all the incentives are skewed in the other direction, towards investment, not consumption, or the nurturing of individual creativity, towards the more Stalinist or Maoist approach of trying to use the sheer quantity of investment to make up for its poor average quality. The whole mechanism is designed to extract the consumer’s surplus, and use it for the goals of the State. In fact, what a consumer-driven economy must do is just exactly what such an economy doesn’t do. It doesn’t produce the things it consumes, and it doesn’t consume the things it produces, because it produces some rather arbitrary mix of goods, an artifact of a politicized planning process that is nowhere near the market clearing basket of goods and services. Perhaps more relevant to readers in the rest of the world, at the moment, however, is the other long-term problem with the strategy. Simply put, it’s that the price elasticity of demand and the price elasticity of supply for particular goods in the world economy aren’t ever actually infinite. Sooner or later, you will need so much oil, or copper, to continue growing at the same rate, or must export so many personal computers and televisions and phones and other useless little screens, that your own actions start to affect the prices of these commodities. You become so large, relative to the world, that it isn’t possible to analyze the world economy without taking your own actions into effect, any more - so the imbalances in your economy simply become imbalances in the economy of the world as a whole. The strategy of letting the outside world absorb your mistakes and correct your deficiencies can’t work any more, at that point, because there no longer is an actual “outside” world, there’s just the one globalized world you’re now the beating heart of. In retrospect, there was at least one unmistakable sign, in the second half of the last decade, that we had already reached this point with China. (Besides the apparently geometric increase in the number of useless little screens per American consumer.) As the impact of the country’s expected growth trajectory on global demand and supply became clearer, the price of oil continued to move up and up and up from its low of only a decade earlier, well below twenty dollars, to a price much closer to a hundred and fifty dollars a barrel. China’s absolute consumption of crude was still only half that of the United States, but with the Chinese economy growing so much more rapidly than any developed one, a very large fraction of the marginal addition to demand in each period was coming from it. There was no corresponding new source of supply. It was becoming obvious (to everyone but the people who make policy in developed countries, who seem to perceive only what organized interests encourage them to perceive) that things couldn’t go on like this indefinitely, that soon there wouldn’t be enough oil to go around. In the end, it was the price mechanism that adjusted demand to supply, by triggering a financial crisis that reduced consumers’ incomes, in the developed world, to a level consistent with a more stable oil price. Now, four years later, the world economy seems to be able to grow at whatever pace would keep the price of Brent below $110 – but not any faster than that. Each successive bout of monetary stimulus has had to be abandoned once the price gets much over that point. With that price now creeping up over $113 dollars per barrel, again, the Fed is already beginning to make unnerving comments about ending its now supposedly “eternal” commitment to QE a bit early, say later this year. They may have to. If they just blindly persisted in the stimulus, as they’ve previously threatened to, they’d be likely to simply push the price of oil up to a new all-time high, which would both cause another recession, and make the nature of the underlying problem painfully obvious to the voter, so it seems quite likely they’ll flinch, again, this time, in the end, just as they did on the last two occasions. The apparent inability of Western policymakers to even perceive the “super-spike” of oil prices in the summer of 2008, which immediately preceded and very probably precipitated the financial crisis in the United States later that year (by forcing low-income consumers to choose between buying gas and paying their mortgages) as an oil shock is somewhat bizarre, but the inappropriate nature of the policy response, which has mostly consisted of printing money, raises the suspicion that it reflects genuine confusion, and not the disingenuous refusal to engage with reality it looks like from the outside. Since the Fed never seems to have understood that an oil shock was the problem it encountered in 2008, in the first place, the thing that burst the housing bubble it had deliberately inflated, it may never have even occurred to them to worry about the growth of Chinese demand. Oil prices have stayed rather high for most of the period since, rising every time more monetary stimulus is applied, and then falling a bit when the authorities back off. The tightness in supply that has caused these high prices seems to have come as such a surprise to the rest of the world that they still have trouble seeing it as real. But for those of us who were already familiar with China’s business cycle, and aware of the growing contribution of Chinese growth to growth in the world economy as a whole, it is more or less what we expected. At this point, it is perfectly natural for the saw-toothed pattern of the normal Chinese business cycle to begin to superimpose itself on the longer, slower cycles of the Greenspan-era, US dominated world economy, because much of the growth in the world economy is now coming from China. In this scenario, shortages of key commodities at the top of the cycle, and gluts of certain other commodities at its bottom (including, sadly, labor) are just exactly what you’d expect to see. What is perhaps a bit more unexpected is the situation we’ve all seen in the last four years, when we’ve had both things – a glut of (rather artificially) cheap labor, and manufactured goods, and a simultaneous shortage of oil. It’s tempting to call this situation “stagflation”, but the official inflation rate, in the developed world, has remained fairly low. Partly this is an artifact of the way inflation is measured – basically all of the “growth” that the US economy has had in the last four years is a product of the hedonic adjustment, an unsatisfactory solution to an impossible measurement problem, which shows the inherent limits of economic analysis in general. But the Yuan’s peg to the dollar means that the Fed is also, in effect, making monetary policy for China, since the Chinese authorities must mirror the Fed’s actions to avoid changing the price of a Yuan in dollar terms. In China, the Fed’s policies have been much more inflationary. Wages and prices in the US are held down by competition from cheaper workers and lower-cost producers in China – but China itself has no such sink to dump its inflation on, so when Bernanke prints, to prop up the value of assets owned by rich consumers in the developed world, and finance the profligacy of the American State, it’s poor migrant workers in Wuhan who go without supper. This inflationary impact has been exacerbated by the response of China’s own economic policy-makers to the crisis. By 2008, after a decade and a half of rapid and relatively smooth growth, the institutional memory of the old business cycle had apparently been largely lost, as a result of the natural human tendency to assume that any good thing that lasts longer than originally expected will, therefore, last forever. Consequently, the response to the oil price super-spike of 2008 was not to tighten policy, as it might have been in previous iterations of the cycle. This was China’s moment in the sun, and nothing so trivial as brute facts about the scarcity of particular physical things could be allowed to mar it. Instead of tightening, the planners applied massive stimulus, mostly in the form of easier credit for whatever career-advancing (but quite probably uneconomic) projects local government officials wanted to start. The problem was apparently conceived of as one of managing another soft landing, and bringing forward the next leg of the long expansion. If many of the projects would have a very low return, in the end, well, the government could absorb any losses, and pass them on to taxpayers, or to depositors, once a long boom was again underway. (Like the US, China funds its bankers’ incompetence by encouraging them to collude in repressing returns to private savers.) Unfortunately, there was no protracted boom this time. There was only a relatively short one, peaking in 2009, which rather swiftly resulted in increased inflation. China’s exports were now so large, relative to the economies of its customers, that only increased, and increasingly distorting subsidies would produce any more growth on that front. The resource constraints epitomized by the global oil price (although other vital commodities – clean air, for example – were becoming scarce as well) couldn’t be made to go away just by printing money, as they could have been when the price elasticity of supply for the commodities China imports was effectively infinite, back in the ‘90’s. As a result, this last cyclical upswing was unusually short – the authorities had to start tightening again after only a year or two of renewed expansion. That meant that the hope that the eventual losses resulting from the low-quality local-government projects undertaken as stimulus could easily be absorbed by the banks (or rather, their depositors) during another long boom was revealed as a forlorn one. Eager to get rid of these increasingly dangerous white elephants, the banks began securitizing the loans they’d made to these projects in the form of “wealth management products” that would allow individuals to take over the loans, and earn a higher interest rate than they could with a bank account. Local government projects that were on the verge of default could simply sell more bonds to the trusts associated with these WMP’s. Of course, they would then have to sell even more bonds, at some later point, to some other WMP trust, to pay off the interest and principal on those bonds, but that was a problem for later… In 2012, loans made by these sorts of trusts, according to UBS, made up almost half of all credit extended in China. Few people outside of the country seem to have quite focused on the inevitable compounding of loans to pay the interest of loans to pay the interest on loans to un-economic projects that this implies, but the problem, considered in terms of the share of the banking system that’s involved in it, is obviously much worse than the sub-prime problem ever was in the US. It has all of the features of a classic financial crisis, since the WMP’s, in the final analysis, are probably mostly just complex Ponzi schemes. While money was still flowing out of bank accounts and into WMP’s, the game could keep going, but now that almost half the bank accounts have been used up in this way, there’s nothing left in the cookie jar. A ponzi scheme always collapses once there’s no new money left to be sucked into it, and we seem to be close to that point, so the short-term outlook isn’t bright. An anomalously long expansion, in the ‘90’s and the first three quarters of the next decade, was followed by an anomalously short one, because of an inappropriate policy response based on expectations built up during the long expansion. The new short cycle may still have another bounce left in it, if we’re lucky, but given the rate at which WMP loans are growing, a financial crisis or panic, somewhat analogous to the events in Japan at the beginning of the 1990’s, seems equally likely as an immediate outcome. Even if the authorities do find some way to print enough money to get out of this particular trap, though, from a longer-term perspective, the illusion of a smooth and uninterrupted growth trajectory is now over. If the Chinese economy can continue growing rapidly at all, in the face of persistently high oil prices and the incompetence of the country’s policy makers, it will now once again begin to do so in a saw-toothed way, with each peak marked by a spike in world oil prices (which will eventually explore new highs) and each trough marked by more exported unemployment, as the country continues to try to dump its mistakes in management onto an already-crumpling world economy. The problem with Deng Xiaoping’s plan is that it has succeeded – not in permanently solving the Chinese economy’s problem with the wildness of its tutelary animal spirits, but in sharing that problem with the rest of us, so we can all have the pleasure of living with the colorful though inconvenient consequences of Maoist central planning. The remarkable lack of interest in China’s business cycle, by analysts outside the country – many China “experts” seem locked into the role of permanent booster or apologist, or else of perennial Sinophobe, and miss such tiny nuances as the violent fluctuations that have typified the post-war history of the world’s second largest economy – make Deweaver’s book, and its explanation of the nature and causes of those cycles, a very useful one, perhaps the most useful book on the subject to come out since Gavin Peebles’ masterful Money in the PRC. The book’s only major defect – one it shares with many of the products of publishers like Palgrave – is its price, which puts it out of the reach of the casual reader. But if understanding the cycles and likely future of China’s economy is actually an urgent practical problem for you, it may be worth investing in a copy anyway. The book is available from Amazon; the URL is http://www.amazon.com/Animal-Spirits-Chinese-Characteristics-investment/...