China works through tough economic climate
Many thanks to Owen Davis from the International Business Times for again including me in his article, whose link is here. China is going through some trying times but eventually will recover. The challenge is that they’re getting it from all sides, such as YumBrands splitting China into its own separate company due to recovery being “below our expectations.” See New York Times link.
In preparation for today’s interview, here are some thoughts on China and statistics:
Observations:
- This interest rate cut is the latest card China’s government is playing in order to right its economic ship. Up until now they’ve adjusted investment & banking policies, exchange rate and effected other interest rates adjustments. They’re making this cut to further ameliorate the situation.
- They want to avoid going into deflation— paying today’s obligations with ‘yesterday’s dollars.’ (See WSJ article).
- Even as the world’s 2nd largest economy and one that’s centrally planned, every economy goes through its 8-10 year requisite boom & bust cycles. China unfortunately isn’t immune to this and its economy is currently at the low point of this cycle.
- Looking at the bigger economic picture, the IMF has *again* trimmed its forecast for the world’s economy. Europe is improving, albeit slowly, the US is in the midst of its own correction and China’s economic issues are now involved, too, as they have been for several months.
- Lower interest rates add liquidity into the system— people can take on new debt or refinance existing debt.
- I’m seeing more transparency from the Chinese government than I ever have in recent years— they’re acknowledging the 1) environment needs to be improved, 2) graft / corruption needs to be dealt with more proactively and 3) unless domestic consumption improves, the economy will not keep growing larger.
- We went through this in the US during ’08, ’09 and ’10, and many of us thought then that it was an economic maelstrom. We slowly recovered and so will China. But, the process takes TIME.
Statistics:
- This interest rate cut is the 6th since November. Interest rates were 4.5% in 2010, rose to 6.5% in 2012 and are back to 4.35%. (See WSJ article).
- China’s quarterly growth rates (i.e., quarterly check in regarding its annual growth rate) were as high at 8% in Jan / 2013 and are down as low as 6.9% in July 2015. On track for 7% for 2015. (See Trading Economics).
- IME global growth is 3.1%, down from 3.3% from July. (See CNBC article).
- Shanghai composite index (i.e., stock market index) was 3,129 on 11/2010. It hit a 5-year high of 5,166 in 06/2015. Current value is 3,412. (See Bloomberg chart).
- Renminbi / US dollar was 6.67 in 10/2010 and now is 6.34. The lowest point was 6.04 in January / 2013. (See XE chart).
