China’s Private Investment Goes to Negative and RMB Slump

 

 

Update Jun 13, 2016: China private fix asset investment from Jan to Jun at 2.8% year-over-year; taking Jun 2016 alone, private fix asset investment is negative -2.7%, this is down from about 10% in Dec 2015, spectacular tumbling.

This consistent with wealth exodus from China continue and Bitcoin price about 5% higher in China than outside. private fix asset investment was never below 10% only 6 months ago, and since the decline is so dramatic and sharp, seems to indict private enterprises/bosses are moving their money out of the country en masse, scared by the RMB devaluation expectation.

Also GDP growth at 6.7%, at the cost of about 12%M2 increase (about 34%GDP amount of credit/cash). Quite amazing when you consider 34%GDP of credit create 6.7% GDP growth. Even though government might stimulate but quite some government ministers/”authoritative people” have expressed that it is unlikely large scale stimulus that can revitalize the bull again. The worst is that more printing and stimulation such as 34%GDP credit growth, will further scare private investor of devaluation of RMB and to get out of the country.

 

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The most worrying sign was a continuing steep drop-off in private fixed-asset investment growth in China. This increased by just 3.9% year on year in January–May, down from 5.2% in January–April. We can deduce from this data to get data for May 2016 at negative 1.3%:

 

3.9% * 5 – 5.2% * 4 = -1.3%

 

Chinas-Fixed-Asset-Investment-2016-06-20

 

This decelerating trend of weakening RMB and consistent wealth outflow, as ~70% high value Chinese business people have a foreign passport, this can be a big trend in the making. As private investment account for 65% of total in China. Even though government investment of 23.3% in May can balance the down of private investment and end a total investment to 9.6% for May, but more printing to invest by China government may further scare business people on devaluation and accelerate wealth exodus. 5 year trend of continue weakening global economic and price trend. US FED’s trending rate up. continue lower bond price. All point to a EM market, as well as global markets, facing an end of credit expansion and bust. Moreover, China’s foreign reserve is about 10.6% of M2, a currency devaluation and exodus looks inevitable.

 

The quadruple of China high debt at 282% (as April 2014), devaluation of YUAN, and newly falter of stimulus, default waves ahead, make any attempt to further stimulating unlikely as central bank will be busy combating currency issues. China’s vice premier Zhang Gaoli said at a forum in Beijing on the past Wednesday that further stimulus unlikely. Thus this could be the top of real-estate bubble and last failed attempt to stimulate by China and the end of 30 years of credit expansion.

 

China’s total debt has quadrupled, rising from $7 trillion in 2007 to $28 trillion by mid-2014. At 282 percent of GDP, according to estimates from McKinsey. That is about 28 trillion USD of the future wealth are spent before those wealth are created by China. And Significant amount of these debt are borrowed by local government or its investment vehicles, and use land sales as collateral, which may drop to zero as housing slump.

 

Global central banks and government had done too much printing and stimulus, now they are at the peak of a bubble they created and they are out of bullets. China and EM burst will impact EU more, the later also tangled in mess of BriExit. Looks like a global reset looks more likely than ever.

 

Editor,
Topcools and Macropp CTO

July 5, 2016

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