Much like a perfect storm at sea is the consequence of three converging bad weather fronts, three significant global economic trends have begun to intensify and converge in recent months: (1) a slowing of the China economy and a parallel growing financial instability in its shadow banking system; (2) a collapse in emerging markets currencies (India, Brazil, Turkey, South Africa, Indonesia, etc.) and their economic slowdown; (3) a continued drift toward deflation in the Eurozone economies, led by growing problems in Italy and economic stagnation now spreading to France, the Eurozone’s second largest economy. The problems in these three critical areas of the global economy, moreover, have begun to feed off of each other.
Despite tens of trillions of dollars injected into the global economy since 2008 by central banks in the US, UK, Europe, and, most recently Japan, real job creating investment is slowing everywhere globally. The massive liquidity (money) injections by central banks have either flowed into global financial markets speculation (stocks, bonds, derivatives, futures, options, foreign exchange, funds and financial instruments of various kinds), hoarded as cash on bank and non-bank corporate balance sheets, hidden away in dozens of offshore tax shelters from Cayman islands to the Seychelles, or invested in emerging markets like China, India, Brazil, Indonesia, Turkey, and elsewhere.
The primary beneficiaries of these central bank money creation policies have been global very high net worth investors, their financial institutions, and global corporations in general. According to a study in 2013 by Capgemini, a global business consultancy, Very High Net Worth Investors increased their investable wealth by $4 trillion in 2012 alone, with projected further asset growth of $4 trillion a year in the coming decade. The primary financial institutions which invest on their behalf, what are called ‘shadow banks’ (i.e. hedge funds, private equity firms, asset management companies, and dozens of other globally unregulated financial institutions) more than doubled their total assets from 2008 to 2013, and now hold more than $71 trillion in investible assets globally.
This massive accrual of wealth by global finance capitalists and their institutions occurred in speculating and investing in offshore financial and emerging market opportunities—made possible in the final analysis by the trillions of dollars, pounds, Euros, and Yen provided at little or no cost by central banks’ policies since 2008. That is, until 2014.
That massive tens of trillions of dollars, diverted from the US, Europe and Japan to the so-called ‘Emerging Markets’ and China is now beginning to flow back from the emerging markets to the ‘west’.
Consequently in turn, the locus of the global crisis that first erupted in 2008 in the U.S., then shifted to Europe between 2010-early 2013, is now shifting again, a third time. Financial and economic instability is now emerging and deepening in offshore markets and economies—and growing increasingly likely in China as well.
(The following analysis of China today is an excerpt from the author’s forthcoming article “The Emerging Global Economic Perfect Storm”, that will appear in the March print issue of ‘Z’ Magazine, where the Eurozone and Emerging Markets’ economies are assessed as well. For the complete article, see Z Magazine or the author’s website, www.kyklosproductions.com/articles/html.)
China’s Growing Financial and Economic Instability
Prior to the 2008 global financial crisis and recession, China’s economy was growing at an annual rate of 14 percent. Today that rate is 7.5 percent, with the strong possibility of a still much slower rate of growth in 2014.
China initially slowed economically in 2008 but quickly recovered and grew more rapidly by 2009—unlike the U.S. and Europe. A massive fiscal stimulus of about 15 percent of its GDP, or 3 times the size of the comparable U.S. stimulus of 2009, was responsible for China’s quick recovery. That fiscal stimulus focused on government-direct investment in infrastructure, unlike the U.S. 2009 stimulus that largely focused on subsidies to states and tax cuts for business and investors. In 2007-08 China also had no shadow banking problem to speak of. So the expansionary monetary policies it introduced, along with its stimulus, further aided its rapid recovery by 2010. Since 2012, however, China has been encountering a growing problem with global shadow banks that have been destabilizing its housing and local government debt markets. At the same time, beginning in 2012, the China non-financial economy, including its manufacturing and export sectors, has been showing distinct signs of slowing as well.
مالیاتی طور پر، چین میں کل قرض (سرکاری اور نجی) 130 میں جی ڈی پی کے 2008 فیصد سے بڑھ کر جی ڈی پی کے 230 فیصد تک پہنچ گیا ہے، شیڈو بینکوں کا حصہ 25 میں 2008 فیصد سے بڑھ کر 90 تک مجموعی طور پر 2013 فیصد تک پہنچ گیا ہے۔ کل قرضوں میں بینکوں کا حصہ تقریباً چار گنا بڑھ گیا ہے اور 2008 کے بعد سے جی ڈی پی میں اضافے کے طور پر تقریباً تمام قرضوں کی نمائندگی کرتا ہے۔
اس قرضے میں زیادہ تر اضافہ مقامی ہاؤسنگ بلبلے اور اس کے ساتھ مقامی حکومت کے قرض کے بلبلے میں کیا گیا ہے، کیونکہ مقامی حکومتوں نے ہاؤسنگ، نئے انٹرپرائز قرضے، اور مقامی بنیادی ڈھانچے کے منصوبوں کو حد تک دھکیل دیا ہے۔ چین کی مرکزی حکومت نے 2011 میں مقامی حکومت کے قرض کا تخمینہ 1.7 ٹریلین ڈالر لگایا تھا۔ کچھ اندازوں کے مطابق یہ صرف 2 سالوں میں بڑھ کر $5 ٹریلین سے زیادہ ہو گیا ہے۔ اس قرض کا زیادہ تر حصہ بھی مختصر مدت کا ہے۔ اس طرح یہ انتہائی غیر مستحکم ہے، غیر متوقع ڈیفالٹس کے ساتھ مشروط ہے، اور چین میں مالیاتی نظام کے وسیع تر حصے کو پھیلا اور غیر مستحکم کر سکتا ہے — جیسا کہ سب پرائم مارگیجز پہلے امریکہ میں ہوا کرتے تھے۔
A run-up in private sector debt is now approaching critical proportions in China. A major global instability event could easily erupt there, in the event of a default of a bank or a financial product. In some ways, China’s situation today increasingly appears like the U.S. housing and U.S. state and local government debt markets circa 2006. China may, in other words, be approaching its own Lehman Moment. That, in fact, almost occurred a few months ago with financial trusts in China. Fearing a potential default by the China Credit Trust, and its spread, investors were bailed out at the last moment by China central government. According to the Wall St. Journal, the event “exposes the weakness of the shadow banking system that has sprung up since 2009.
چین میں اس کی مقامی منڈیوں میں بڑھتا ہوا مالی عدم استحکام چین کے لیے اور عالمی معیشت کے لیے بھی ایک بڑا ممکنہ مسئلہ ہے، کیونکہ چین اور عالمی معیشت دونوں 2014 میں سست ہونا شروع ہو گئے ہیں۔
Early in 2013, China policymakers recognized the growing problem of shadow banks and bubbles in its local housing and investment markets. Speculators had driven housing prices up by more than 20 percent in its major cities by 2013, from a more or less stable 3-5 percent annual housing market inflation rate in 2010. China leaders therefore attempted to rein in the shadow banks in May-June 2013 by reducing credit throughout the economy. But that provoked a serious slowdown of the rest of the economy in the spring of 2013. Politicians then returned on the money spigot quickly again by summer 2013 and added another mini-fiscal stimulus package to boost the faltering economy. That stimulus targeted government spending on transport infrastructure, on reducing costs of exports for businesses, and reducing taxes for smaller businesses. The economy recovered in the second half of 2013.
By early 2014, the housing bubble has again appeared to gather steam, while the real economy shows signs once again of slowing as well. In early 2014 it appears once again that China policymakers intend to go after its shadow bank-housing bubble this spring 2014. That will most likely mean another policy-initiated slowing of the China economy, as occurred in the spring of 2013 a year earlier. But that’s not all. Overlaid on the financial instability, and the economic slowdown that confronting that instability will provoke, are a number of other factors contributing to still further slowing of the China economy in 2014.
معیشت کے حالیہ مالی محرک اور اس کی زیادہ گرم ہاؤسنگ مارکیٹوں کے علاوہ، چین کی اقتصادی ترقی کا دوسرا بڑا ذریعہ اس کا مینوفیکچرنگ سیکٹر اور خاص طور پر مینوفیکچرنگ برآمدات ہیں۔ اور وہ بھی سست ہے۔ مینوفیکچرنگ اور برآمدات میں سست روی کی وجوہات چینی معیشت میں داخلی ترقی کے ساتھ ساتھ یورو اور ابھرتی ہوئی مارکیٹ کی معیشتوں میں بڑھتے ہوئے مسائل ہیں۔
چین اپنی کرنسی یوآن کی بڑھتی ہوئی اجرتوں اور شرح مبادلہ میں کمی کا سامنا کر رہا ہے۔ دونوں اس کی پیداواری لاگت کو بڑھا رہے ہیں اور اس کے نتیجے میں اس کی برآمدات کو کم مسابقتی بنا رہے ہیں۔ پیداواری لاگت میں اضافہ یہاں تک کہ چین سے عالمی کثیر القومی کارپوریشنز کے اخراج کا باعث بن رہا ہے، جو ویتنام، تھائی لینڈ اور دیگر جگہوں جیسی سستی لاگت والی معیشتوں کی طرف بڑھ رہے ہیں۔
چین کی برآمدات کا زیادہ تر حصہ یورپ اور ابھرتی ہوئی منڈیوں کو جاتا ہے، نہ صرف امریکہ کو اور ابھرتی ہوئی مارکیٹ کی معیشتوں کی رفتار سست ہونے کی وجہ سے چین کی تیار کردہ اشیا کے لیے ان کی مانگ اور برآمدات میں کمی آتی ہے۔ اس کے برعکس، جیسا کہ چین خود اقتصادی طور پر سست ہوتا ہے، وہ ابھرتی ہوئی مارکیٹ کی دنیا (نیز آسٹریلیا اور کوریا جیسی کلیدی منڈیوں سے) اجناس، نیم تیار شدہ سامان، اور خام مال کی درآمدات کو کم کرتا ہے۔
چین اور یورو زون کے درمیان تجارت سے متعلق اسی طرح کے اثرات موجود ہیں۔ درحقیقت چین اپنی برآمدات کے لیے جرمنی کا سب سے بڑا ذریعہ ہے، یہاں تک کہ یورپ کے باقی حصوں میں جرمن برآمدات سے بھی بڑا ہے۔ لہٰذا اگر چین سست روی کا شکار ہوتا ہے تو اسے یورپ سے کم برآمدات درکار ہوں گی، جو پہلے سے جمود کا شکار یورو زون کی معیشتوں کو مزید سست کر دے گی۔ اسی طرح، جیسا کہ یورپ جمود کا شکار ہے، اس کا مطلب ہے کہ چین کے سامان کی کم مانگ اور اس طرح چین کی مینوفیکچرنگ میں مزید کمی۔ دوسرے لفظوں میں، چین کی داخلی سست روی یورپ میں جمود اور افراط زر کو بڑھا دے گی، اور ساتھ ہی ساتھ ابھرتی ہوئی مارکیٹ کی دنیا میں تیزی سے اقتصادی سست روی میں بھی حصہ ڈالے گی۔
Slowing will result as well from government policies designed to structurally shift the economy to a more consumption driven focus. That shift to consumption will begin in earnest following the Community Party’s March 2014 meeting. But consumption in China represents only 35% percent of the economy (unlike 70 percent in the U.S.), while چین government investment is well over 40 percent of GDP. And it is not likely that consumption can grow faster enough to offset the reduction in investment, at least not initially.
So a long list of imminent major developments and trends in China point to a slowing of growth in that key global economy of almost $10 trillion a year. What happens in China, the second largest economy in the world, has and will continue to have a major negative impact on an already slowing Emerging Markets and a chronically stagnant یورو زون
How the U.S. economy responds to the emerging global perfect storm will prove interesting, to say the least. But with evidence of US slowing in housing, manufacturing, job creation, auto and other retail sales, and with real family median income in decline and the real likelihood of further spikes in food and gasoline prices in the months immediately ahead, the ‘perfect storm’ emerging offshore does not portend well for the still fragile US economy now in its fifth year of below average, ‘stop-go’ economic recovery.