China: o proximo desastre? - Richard Vague

To all the many great friends of delanceyplace.com,

Last July, Penn Press published my book, The Next Economic Disaster, which has done very well in no small part due to the wonderful support of delanceyplace.com readers.  I have now extended the research of that book in an article released this week in the quarterly journal Democracy titled  "The Coming Crises in China," which delves deeper into concerns regarding China's economic future.  Today's selection is from that article and here is a link to the full article:  http://www.democracyjournal.org.

I would add that Democracy has long been an important resource for me, and its editor, Michael Tomasky, is a highly regarded progressive political voice. It was a privilege to be included in this issue.

As always, thanks for your interest and support. Here's the excerpt:

"China is now sitting on top of the greatest accumulation of bad debt and overcapacity in history. According to the Survey and Research Center for China Household Finance, more than one in five homes in China's urban areas is vacant, with 49 million sold but vacant units, and 3.5 million homes that remain unsold. Behind those vacant and unsold units is private debt, both loans to developers and mortgage debt. Housing values in China increased on the same perilous trajectory as in the United States before 2008 and Japan before 1991--and they have now started a similar decline. Meanwhile, real estate was 6 percent of U.S. GDP at the peak in 2005; today, it is as much as 20 percent of China's GDP.

"There are other red flags. China produced 8 percent of the world's furnace iron in 1980; it now produces 61 percent, even though the rest of the world still continues to produce every bit as much as it has in the past. As China's iron production accelerated in the period from 2002 to 2011, iron prices increased twelvefold in response to debt-fueled demand. (Increases in debt cause increases in prices.) But now that iron capacity has piled up beyond need, prices have tumbled by over 50 percent, and the excess capacity is so great that even the demand generated by rapid credit growth can no longer prop prices up. Also, China used more cement in the period from 2011 to 2013 (6.6 gigatons) than the United States did in the entire twentieth century (4.5 gigatons).

"These are but a few of many examples. Researchers at a Chinese state planning agency said recently that China has 'wasted' $6.8 trillion in investment. Overcapacity is so significant in many sectors that it will take years for it to be absorbed by organic demand. Ironically, this problem is compounded by China's own continued high growth rates, since high GDP growth is a measure of the creation of additional capacity even if that capacity is not needed.

"Good and sound loans, by definition, result in commensurate GDP growth. So when private-loan growth outstrips GDP growth, much of that excess -- from one-quarter to one-half, based on evidence from other crises -- will be problem loans. Based on this formula, China today is likely to have an estimated $1.75 trillion to $3.5 trillion in problem loans -- a figure well in excess of the $1.5 trillion of total capital in China's banking system.

"Of course, China's banks and shadow lenders are not reporting bad loans close to this amount. But neither did U.S. banks: On the eve of the U.S. crisis, banks were making loan-loss provisions at very low levels. Lending booms create the false appearance of prosperity, and fraud and corruption can make the picture even prettier.

"Some dismiss these warning signs, noting that many economic prophets wrongly made the same dire predictions for China during the late 1990s. But there's a big difference: In 1999, China's overall level of private debt was 111 percent of GDP; today, it's almost double that, at 211 percent. In 1999, it had plenty of room to power growth through continued private-debt expansion, and the debt boom in the West fueled unprecedented export demand. The opposite is true today."

Author: Richard Vague
Title: The Coming Crises in China

Publisher: Democracy A Journal of Ideas
Date: Spring 2015

And here is the book:
 
The Next Economic Disaster: Why It's Coming and How to Avoid It
Author: Richard Vague
Publisher: University of Pennsylvania Press
Copyright 2014 University of Pennsylvania Press

O Brasil anda ruim? Ainda nao; vai ficar muito pior: analise de investidores

Como se trata de material protegido por copyright, ou por direitos exclusivos aos assinantes do serviço, não posso revelar nem a totalidade da análise, nem os dados editoriais do material abaixo, do qual eu selecionei apenas alguns trechos para que as pessoas tenham uma ideia mais fiável do que se anda dizendo sobre o Brasil no exterior.
Sei, por conhecimento direto, que fundos de investimento baseados em Nova York já tomaram a decisão de "desembarcar" do Brasil.
O que significa isto?
Significa vender o que for possível vender com um mínimo de perdas, retirar o dinheiro, enquanto o câmbio ainda não se deteriorou de vez, e não mais investir por aqui pelos próximos cinco anos, pelo menos.
É preciso saber que, à diferença dos verdadeiros especuladores de curto prazo, que atuam sobre ganhos de seis meses, fundos de investimento, que possuem uma carteira de vários bilhões de dólares -- tipicamente, um desses fundos médios, possue uma carteira de 5 a 10 bilhões de dólares apenas para mercados emergentes -- geralmente fazem planejamento de médio prazo (de 5 a 15 anos), com uma expectativa de ganhos de dois dígitos, pelo menos, do contrário não vale a pena correr o risco.
Dois dígitos significa entre 15 e 25% de valorização no ano, e isso pode ser ações, debêntures de empresas privadas, equity participations, e até títulos do governo com taxas atrativas, mas basicamente investimentos reais (tipo infraestrutura, empresas prometedoras, algumas até estatais).
Pois bem, o que acontece quando as coisas chegam ao ponto em que chegaram no Brasil, sem qualquer previsão de ganhos nos próximos dois anos?
Os fundos simplesmente fazem bagagem e vão embora, e deixam o país em questão até dois anos depois que as coisas estiverem estabilizadas e os negócios restabelecidos na perspectiva do crescimento. Ora, isso é impossível de ocorrer no momento.
É por isso que eu disse, no começo, que pode e deve ficar pior, como aliás é confirmado por este report, de que transcrevo estes trechos agora.
O analista que escreveu o relatório diz que se trata da PRIMEIRA VEZ, desde 1929-1931, que o Brasil enfrenta dois anos seguidos de recessão.
Paulo Roberto de Almeida


How bad can Brazil get? Much, much worse. 
A visit last week for a round of discussions with investors, government officials and scholars confirmed an extraordinary deterioration in Latin America’s biggest economy in just the last six months, one that is nowhere close to playing out.
(...)
The proximate cause was the collapse in the oil price, which suddenly rendered the US$130bn debt of state-owned oil behemoth Petrobras an untenable burden. Unluckily this coincided with the culmination of a scandal in which Petrobras executives and public officials stand accused of collecting millions of dollars in bribes from construction companies in exchange for contracts.
(...)
Petrobras’s implosion is also an economic disaster. The firm accounts for nearly 10% of the nation’s fixed investment, so its recently announced plans to slash capex by 30% this year will lop off 3% from total national capital spending. Its vast supplier relationships are an important part of the economic fabric, and these suppliers have been badly hurt by the firm’s inability to pay its bills: its payment terms have quadrupled from 28 days two years ago to 120 days today.
(...)
Brazil’s resource woes do not stop with Petrobras. Vale, the big mining firm that depends heavily on iron ore exports to China, is struggling because of the end of China’s construction boom, which has driven the iron ore price from an average of US$134 a ton in 2013 to around US$60 today.
(...)
The combined effect of all these negative economic factors, the necessary but painful fiscal tightening, and the lack of any other plausible sources of near-term growth, is that Brazil’s economy will likely contract by -1-2% this year, with another somewhat smaller drop in 2016. This would be the first time since 1929-30 that Brazil’s economy has shrunk for two consecutive years. On top of that, inflation is accelerating, and at 7.7% is at its highest rate since 2005.
(...)
Markets have already reacted, pushing the real down to 3 against the dollar, its lowest rate in a decade and nearly a third below its peak. The Bovespa index is 19% off its August high. But deeper selloffs are in store. Many major Brazilian institutions sold their domestic equity positions months ago, and private wealth is streaming out of the country. A common theme in our talks with investors was perplexity that foreign money continues to flow into Brazilian stocks. Once foreign investors wise up, equity prices and the real will both tumble much further.
(...)
Policy is unlikely to provide much help. Dilma is weak, politically isolated and committed to the PT’s strategy of buying votes through welfare populism. She is terrified of a credit-rating downgrade that would reduce Brazil’s debt to junk status, which is why she authorized Levy to tighten up the budget. Even if Levy succeeds in staving off a downgrade, the government has no strategy for re-igniting growth. And there is no guarantee that Levy will succeed: his austerity measures must pass a Congress that is now paralyzed by the Petrobras scandal, and whose leaders have no incentive to cut hard fiscal deals with a half-hearted Dilma. Levy himself has no political clout and will find it hard to act without strong backing from his boss. There are low but rising odds that he could resign by the end of the year.
(...)
The only good news is that most people seem to think the Petrobras scandal marks a turning point in the treatment of corruption: in a few years Brazil will emerge with a significantly cleaner political system. And the economy is large and diversified enough that it can weather a period of contraction without a severe decline in absolute living standards. For the next year or two, though, there is little reason to expect anything other than more pain.
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