China’s Economic Rebalancing and Credit Squeeze: All Part Of The Plan

China’s GDP growth came in just above expectations: “full-year growth in 2013 was 7.7 percent, steady from 2012 and just slightly above market expectations for a 7.6 percent expansion, which would have been the slowest since 1999…Monday’s data from the National Bureau of Statistics showed China’s 56.9 trillion yuan ($9.4 trillion) economy is still very much dependent on investment for growth…To be sure, the gentle fall-off in growth is welcomed by most experts as a must-have in China as it transits to better-quality development…most analysts agree that the fruits of reforms, if reforms are to succeed, are unlikely to juice the Chinese growth engine any time soon.”  Meanwhile, China’s central bank injected $42bn into the money market on Tuesday, “easing concerns over financial risks in the world’s second-largest economy.”  But injections of liquidity like this are all part of the plan.  If the People’s Bank of China wants to curb lending in China they will have to let borrowing costs rise, but they don’t want them to freeze up.  Therefore, periodic liquidity injections to relieve the system of a credit crunch may be an effective tool for slowing credit growth.  That being said, “mega defaults” probably aren’t part of the plan.  Here’s something else that could affect the plan: an overvalued yuan.  “The rebalancing from investment towards consumption given the overvalued yuan would be made easier if the currency is allowed to depreciate as capital flows are liberalised fully.”  Also, a new report by CLSA suggests that America is still a top destination for Chinese tourists: CLSA estimates more than 5.7 million Chinese will visit the United States in the year 2020.  Furthermore, Chinese tourists “spend an average of $4,400 per trip on everything from high-end hotels to cosmetics.”  “That’s all good and nice, but how do they feel about fully-automatic weapons?” says Bob Irwin (presumably), the “pioneer of machine gun tourism” in Las Vegas.

US Banking: Regulation Promotes A Shifting Landscape

“Several big banks are exiting the small dollar, short-term loan business after federal regulators warned that they would look into whether these high-interest, payday-like loans violate consumer protection laws.  Wells Fargo, U.S. Bank, Fifth Third and Regions announced last week that they would discontinue their so-called deposit advance products.  These are typically short-term loans of a few hundred dollars or less that are automatically repaid from a customer’s checking account each pay period…A report from the Center for Responsible Lending found that advance loans issued by banks carried an average term of 10 days, with a fee of $10 per $100 borrowed — amounting to a 365% APR.”  Meanwhile, in the wake of JPMorgan’s $13 billion settlement over mortgage backed securities, most other big banks are building up their legal reserves.  Also, the Financial Stability Board is moving forward with “planning the world’s first common rule within three years to value hard-to-price assets (derivatives) held by banks after unexpected revisions have unsettled investors.”  Meanwhile, Morgan Stanley’s decision to shrink and take less risk appears to be paying off as new capital and trading rules from regulators are squeezing traditional trading profits.  Also, other big Wall Street investment banks are taking a page from Morgan Stanley’s playbook in another way: banks like JPMorgan, Bank of America and Credit Suisse “are increasingly catering to closely held technology startups, especially in Silicon Valley.”

EU: European Banks Face $1 Trillion Gap Before Review

“European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the European Central Bank’s probe into the financial health of the region’s lenders, according to a study.  French banks show the biggest gap of 285 billion euros, followed by German lenders with as much as 199 billion euros…the figures assume a benchmark capital ratio for otehr book measures of leverage of 7 percent.”

Asia: Putin Orders Lower Borrowing Costs For “Productive” Russian Companies

Russian President Vladimir Putin has called on the central bank to work on “stimulating a lowering of the level of interest rates on rouble loans provided to organizations active in the productive sphere,” which doesn’t sound like oligarchy at all, OK?  Nothing to see here.

Global: Guess Who’s Coming To America?

“Based on customer data from UniGroup Relocation, the international arm of the United Van Lines, 15% more people moved into the U.S. than left the country.  That’s up from 7% in 2012.”

Japan: An Alternative Way Of Viewing Who’s The Giant Amongst Global Manufacturers

Looking at value-added manufacturing in the World on a per-capita basis reveals Japan has a lot to offer.


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