Submitted by Taps Coogan on the 18th of November 2019 to The Sounding Line.

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Leland Miller, CEO of China Beige Book International, recently spoke with Real Vision in a wide ranging discussion about the present state and future trajectory of China’s economy. Mr. Miller notes that economic data from the third quarter in China that suggests the largest credit provisions in Chinese history has failed to stimulate growth and that Chinese leadership is preparing to acknowledge a long term downgrade in China’s likely growth rate.

 

Some excerpts from Leland Miller:

“We’re the only large scale independent data (on China). So, all these other leading indicators that you see, data troves that people present to you, they’re all derivatives of the official data, which means they are all derivatives of the story that Beijing tells you and wants you to know… They don’t like big dips. They don’t even like big accelerations because that means that they have to acknowledge the dip in the first place…”

“The third quarter was the worst quarter of 2019 (for China), and it wasn’t even close. We saw almost all of our headline metrics fall. We saw almost all of our key metrics fall. Manufacturing was the worst of these. You saw revenues, and profits, and pretty much everything that had been going pretty stable for a while, fall in the third quarter. You also saw some even scarier trends. Borrowing in the manufacturing sector is at an absolutely sky high and unsustainable level… This is a sector that should be getting less capital, slowing down, but that is something that the Chinese are very worried about so there is an enormous amount of policy support being pushed through the sector.”

“(In the fourth quarter of 2018) you saw every sector worse off, every region in China worse off, every headline metric worse off. It was the worse data that we’ve seen, other than the end of 2015, in the history of China Beige Book. I think, at that point, there was a decision made in Beijing to cushion the economy at all costs… The first quarter of 2019 was a remarkable recovery… We saw typically disadvantaged firms, like private firms and small and medium enterprises, out-borrowing other firms in the economy. We saw (loan) rejection rates at the lowest level in China Beige Book history. Clearly the message from Beijing was ‘Get these guys credit, keep them afloat at all costs.’ That was Q1. Q2 was something very interesting, we saw the return of shadow banking. The last two quarters, Q2 and Q3, we’ve seen the highest share of shadow banking, as a percentage of overall borrowing, that we’ve seen in the entire history of China Beige Book… Now the interesting things about the third quarter is that despite the continued provision of this much credit. Six year highs in corporate borrowing, the highest bond sales we’ve ever seen going up five straight quarters, despite the resurgence of shadow banking that’s at the highest levels we’ve ever seen in the history of the survey, the economy still turned downwards and every sector still turned downwards… This could be an inflection point for the Chinese economy because what they have been doing up until this point, which is not been the big infrastructure investment of 2016, all of our construction sub-sectors look very bad right now…, but what they are doing is providing an enormous amount of credit to firms, including firms that don’t merit that type of credit access… but it wasn’t enough and things slowed anyway…”

“The promise that the party has made to its people for decades now has been ‘we will bring you out of poverty and we will make you richer.’ And that is not going to happen in terms of aggregate GDP growth being kept at a very high level… Now, because of the dynamics of the global economy right now, and specifically because of Trump’s trade war, the Chinese now have an external excuse for why things are slowing… So this is not a coincidence that a bunch of sell-side institutions, a lot of banks, are out there with growth figures for the next year in the (5% range). This is because Beijing has told them its okay to release that sort of information… This is a long term slowdown…”

There is more to the discussion, so enjoy the full video above.

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