Tag Archives: China

America Exposed To Immediate Impact From “Supply-Chain Shock”, Deutsche Says

In the last few weeks, ZeroHedge provided many articles on the evidence of creaking global supply chains fast emerging in China and spreading outwards. Anyone in supply chain management, monitoring the flow of goods and services from China, has to be worried about which regions will be impacted the most (even if the stock market couldn’t care less).  

Deutsche Bank’s senior European economist Clemente Delucia and economist Michael Kirker published a note on Thursday titled “The impact of the coronavirus: A supply-chain analysis” identifying the effect of contagion on the rest of the world, mainly focusing on demand and spillover effects into other countries. 

The economists constructed a ‘dependency indicator,’ to figure out just how much a country depends on China for the supply of particular imported inputs. It was noted that the more a country depends on China, the more challenging it could be for businesses to find alternative sourcing during a period of supply chain disruptions. 

The biggest takeaway from the report is that, surprisingly, the European Union is less directly exposed to a China supply-chain shock than the US, Canada, Japan, and all the major Asian countries (i.e., India, South Korea, Indonesia, Malaysia, Vietnam).

It was determined that in the first wave of supply chain disruptions that “euro-area countries are somewhat less directly dependent on China for intermediate inputs than other major economies in the rest of the world.” 

“The euro-area countries have, in general, a dependence indicator below the benchmark. This suggests that euro-area countries have a below-average direct dependence on Chinese imports of intermediate inputs (Figure 2).” 

But since China is highly integrated into the global economy, and a supply chain shock would be felt across the world. The second round of disruptions would result in lower world trade growth that would eventually filter back into the European economy.

The US, Japan, Canada, and all the major Asian countries would feel an immediate supply chain shock from China.

Here’s a chart that maps out lower dependency and higher dependency countries to disruption from China. 

To summarize, the European Union might escape disruptions from China supply chain shocks in the first round, but ultimately will be affected as global growth would sag. As for the US and Japan, Canada, and all the major Asian countries, well, the disruption will be almost immediate and severe with limited opportunities for companies to find alternative sourcing. 

“First of all, our analysis does not take into account non-linearity in the production process. In other words, it does not capture consequences from a stop in production for particular product. It might indicate that given the dependence is smaller, Europe could find it somewhat easier substitute a Chinese product with another. But there is no guarantee this will be the case.”

“Secondly, while our results indicates that the direct impact from supply issues in China could be smaller for the euro area than for other regions in the world, the euro area could be hard-hit by second-round effects. With their higher direct exposure to China, production in other major economies could slow down as a result of disruptions in the supply chain. This not only could cause a shortage in demand for euro-area exports, but it could also impact on the euro-area’s import of intermediate inputs from these other countries (second-round effects). In other words, China has become a relevant player in the world supply chain and production/demand problems in China are spread worldwide through direct and indirect channels.

News flow this week has indeed suggested the virus is spreading outwards, from East to West, and could get a lot worse ex-China into the weekend. 

We believe supply chain disruptions ex-China could become more prevalent in the weeks ahead.

The mistake of the World Health Organization (WHO), governments, and global trade organizations to minimize the economic impact (protect stock markets) of the virus was to allow flights, businesses, and trade to remain open with China. This allowed the virus to start spreading across China’s Belt and Road Initiative (BRI). 

Enjoy a riveting weekly news wrap up with Greg Hunter…

Source: ZeroHedge

China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero

In our ongoing attempts to glean some objective insight into what is actually happening “on the ground” in the notoriously opaque China, whose economy has been hammered by the Coronavirus epidemic, yesterday ZeroHedge showed several “alternative” economic indicators such as real-time measurements of air pollution (a proxy for industrial output), daily coal consumption (a proxy for electricity usage and manufacturing) and traffic congestion levels (a proxy for commerce and mobility), before concluding that China’s economy appears to have ground to a halt.

That conclusion was cemented after looking at some other real-time charts which suggest that there is a very high probability that China’s GDP in Q1 will not only flatline, but crater deep in the red for one simple reason: there is no economic activity taking place whatsoever.

We start with China’s infrastructure and fixed asset investment, which until recently accounted for the bulk of Chinese GDP. As Goldman writes in an overnight report, in the Feb 7-13 week, steel apparent demand is down a whopping 40%, but that’s only because flat steel is down “only” 12% Y/Y as some car plants have ordered their employee to return to work (likely against their will as the epidemic still rages).

However, it is the far more important – for China’s GDP – construction steel sector where apparent demand has literally hit the bottom of the chart, down an unprecedented 88% Y/Y or as Goldman puts it, “construction steel demand is approaching zero.”

But wait, there’s more.

Courtesy of Capital Economics, which has compiled a handy breakdown of real-time China indicators, we can see the full extent of just how pervasive the crash in China’s economy has been, starting with familiar indicator, the average road congestion across 100 Chinese cities, which has collapsed into the New Year and has since failed to rebound.

Parallel to this, daily passenger traffic has also flat lined since the New Year and has yet to post an even modest rebound.

And the biggest shocker: a total collapse in passenger traffic (measured in person-km y/y % change), largely due to the quarantine that has been imposed on hundreds of millions of Chinese citizens.

And while we already noted the plunge in coal consumption in power plants as Chinese electricity use has cratered…

… what is perhaps most striking, is the devastation facing the Chinese real estate sector where property sales across 30 major cities have basically frozen.

Finally, and most ominously perhaps, as the economy craters and internal supply chains fray, prices for everyday staples such as food are soaring as China faces not only economic collapse, but also surging prices for critical goods, such as food as shown in the wholesale food price index chart below…

… which in a nation of 1.4 billion is a catastrophic mix.

As the coronavirus pandemic spreads further without containment, and as the charts above continue to flat line, so will China’s economy, which means that not only is Goldman’s draconian view of what happens to Q1 GDP likely optimistic as China now faces an outright plunge in Q1 GDP…

… but any the expectation for a V-shaped recovery in Q2 and onward will vaporize faster than a vial of ultra-biohazardaous viruses in a Wuhan virology lab.

Source: ZeroHedge

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Chinese Experts Warn Of Imminent “Surge” In Coronavirus Cases: Virus Updates

China’s Fatal Economic Dilemma

Ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners.

 

(Charles Hugh Smith) China faces an inescapably fatal dilemma: to save its economy from collapse, China’s leadership must end the quarantines soon and declare China “safe for travel and open for business” to the rest of the world.

But since 5+ million people left Wuhan to go home for New Years, dispersing throughout China, the virus has likely spread to small cities, towns and remote villages with few if any coronavirus test kits and few medical facilities to administer the tests multiple times to confirm the diagnosis. (It can take multiple tests to confirm the diagnosis, as the first test can be positive and the second test negative.)

As a result, Chinese authorities cannot possibly know how many people already have the virus in small-town / rural China or how many asymptomatic carriers caught the virus from people who left Wuhan. They also cannot possibly know how many people with symptoms are avoiding the official dragnet by hiding at home.

No data doesn’t mean no virus.

If the virus has already been dispersed throughout China by asymptomatic carriers who left Wuhan without realizing they were infected with the pathogen, then regardless of whatever official assurances may be announced in the coming days/weeks, it won’t be safe for foreigners to travel in China nor will it be safe for Chinese workers to return to factories, markets, etc.

But if China doesn’t “open for business” with unrestricted travel soon, its economy will suffer calamitous declines as fragile mountains of debt and leverage collapse and supply chain disruptions push global corporations to find permanent alternatives elsewhere.

Here’s the fatal dilemma: maintaining the quarantine long enough to truly contain it (which requires extending it to the entire country) will be fatal to China’s economy.

But ending the limited quarantine and falsely proclaiming China safe for visitors and business travelers will only re-introduce the virus to workplaces and infect foreigners who will return home as asymptomatic carriers, spreading the virus in their home nations.

Falsely declaring China safe will endanger everyone credulous enough to believe Chinese officials, and destroy whatever thin shreds of credibility China may yet have in the global economy and community. That will set off chains of causality that will destroy China’s economy just as surely as a three-month nationwide quarantine.

Who will be foolish enough to believe anything Chinese officials proclaim after foreigners who accepted the false assurances of safety return home with the coronavirus?

Anyone planning to receive goods via air freight from China might want to digest this report: Persistence of coronaviruses on inanimate surfaces and its inactivation with biocidal agents Endemic human coronaviruses (HCoV) can persist on inanimate surfaces like metal, glass or plastic for up to 9 days.

Air freight takes 12 to 24 hours, add another few hours for packaging, handling and last-mile delivery and that leaves 6+ days for the virus to spread to anyone who touches goods handled by an symptomatic carrier. Maybe the odds of catching the virus via surfaces are low, but maybe not. No one knows, including anyone rash enough to claim that the risk is negligible.

Source: by Charles Hugh Smith | Of Two Minds

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“Angry People Will No Longer Be Afraid” – 1000s Of Chinese Miltary/Police Quarantined, Dozens Diagnosed After CCP Lies

How Xi Jinping’s “Controlocracy” Lost Control

Chinese Dealmaking And IPOs Freeze Amid Virus Outbreak 

“They Said We Didn’t Qualify”: Wuhan Hospitals May Have Turned Away 1000s Of Seriously Sick Coronavirus Patients

 

China Home Sales Crash

Bloomberg cited a new report via China Merchants Securities (CMSC) that said new apartment sales crashed 90% in the first week of February over the same period last year. Sales of existing homes in 8 cities plunged 91% over the same period.

Wuhan, Hubei, China Sunrise

“The sector is bracing for a worse impact than the 2003 SARS pandemic,” said Bai Yanjun, an analyst at property-consulting firm China Index Holdings Ltd. “In 2003, the home market was on a cyclical rise. Now, it’s already reeling from an adjustment.”

Long before the coronavirus outbreak, China’s housing market has been on shaky grounds amid declining demand, stricter mortgage requirements, and price discounts.

The latest shock: two-thirds of China’s economy has come to a standstill, could generate enough pessimism to pop the country’s massive housing bubble. 

The CPC failed to stimulate the economy last year, with credit impulse not turning up as expected. The virus outbreak has allowed the CPC to scapegoat the slowdown and the inevitable crash.   

Real estate transactions have been forbidden in many cities. This means fire sales could be seen once selling restrictions end.  

E-House China Enterprise Holdings Ltd.’s research institute said four units per day were being sold in Beijing last week, and this is down from several hundred per day during the same period in the previous year. 

China International Capital Corp. analyst Eric Zhang said demand could pick back up in April, assuming the virus outbreak is under control. 

However, residents in major cities are frightened by the virus outbreak and how easily it spreads in apartment buildings

The downturn in China’s property market could get a lot worse, and without proper liquidity from the central bank, once selling restrictions end, it could trigger a liquidity gap where housing prices face a deep correction. 

But remember, the CPC can now blame the virus for a housing market crash or a downturn in the economy. 

Source: ZeroHedge

China Suddenly Has Another Major “Virus” Problem, As Soaring Food Prices Put A Lid On Central Bank Intervention

Soon the only food that will be affordable in China, is coronabat stew.

With over 400 million people across dozens of Chinese cities living in lock down as a result of the Coronavirus pandemic, crippling global supply chains and grinding China’s economy to a halt, it is easy to forget that China has been battling another major viral epidemic for the past two years: namely the African Swing Fever virus, aka “pig ebola” which killed off over half of China’s pig population in the past year, sending pork prices soaring, and unleashing a tidal wave of inflation.

Well, earlier today, the world got a stark reminder of this when China reported that in January, its CPI jumped by whopping 5.4% Y/Y, the highest print in nine years…

… driven by a surge in pork prices, which reversed a rare drop in December when the slid by 5.6%, rising 8.5% in just ont month, and a record 116% compared to a year ago.

This unprecedented surge in pork CPI meant that China’s food CPI rose a record 20.6% in January, also the highest on record, as China’s population, now ordered to live under self-imposed quarantine, suddenly finds it can no longer afford to buy food.

Needless to say, this is suddenly a major problem for China, whose central bank has in the past two weeks unleashed an unprecedented liquidity tsunami, including the biggest ever reverse repo injection…

… in hopes of stabilizing the stock market. Well, oops, because some of this liquidity now appears to be making its way into the broader economy, and is making already scarce food (aside from bat stew of course) even more un-affordable, and the already depressed and dejected Chinese population even more hungry, and angry.

There was one silver lining in today’s data: after spending half a year in deflation, China’s Production Prices, a proxy for industrial profits and overall price leverage, finally printed in the positive, rising 0.1% Y/Y, and better than the expected 0.0%

So far so good, however, with China’s economy now on indefinite lock down, expect the correlation shown in the chart above to break any moment now, with industrial profits crashing as a result of the coronavirus putting countless Chinese factories on lock down at least until the coronavirus is contained. When that happens is anyone’s guess, but one thing is certain: at the rate food prices are exploding, soon the only food China’s population will be able to afford will be the experimental bats used by the Wuhan Institute of Virology, one of which may or may not have been accidentally sold to the local fish market last December triggering what is now the worst viral pandemic in decades.

Just as concerning, if only for Beijing, is that if the surge in food prices isn’t “contained” very soon the arms of the PBOC will be tied and any hopes that China will reflate its economy – and the world – to offset the economic crunch resulting from the coronavirus, will be weaponized and vaporize right through the HVAC, just like any number of manmade viruses currently being developed in Wuhan, as pretty soon China’s population – starving and quarantined – will have no choice but take matters into its own hands.

Source: ZeroHedge

China Braces For “Unprecedented” Default Of The Massive State-Owned Enterprise, Tewoo Group

Something is seriously starting to break in China’s financial system.

Smog is seen over the city against sky during a haze day in Tianjin, China (Stringer Network)

Three days after we described the self-destructive doom loop that is tearing apart China’s smaller banks, where a second bank run took place in just two weeks – an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year – the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.

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The Great Decoupling From China Has Finally Begun

Before a complete fracturing of the US and Chinese economies, there have already been numerous signs of decoupling that are currently taking place behind the scenes.

But before we tell you about the decoupling and the latest evidence we’ve found. You must be asking: Where are we in the trade war? Beginning innings? Imminent trade deal?

The flurry of trade headlines from the US and China over the last 15 or so months have certainly been confusing. The fact is, there’s so much fake trade news that it’s hard to tell exactly the progress between both countries.

But what’s certain is that the trade war is in the beginning innings and nowhere near being resolved. Yes, there’s a Phase 1 deal being floated around, but that’s only for President Trump to save Midwest farmers and to create positive sentiment ahead of the 2020 election to pump the stock market. 

In reality, the trade war is a winner take all game, it’s really about empire, and how Washington is attempting to prevent China from becoming the next global superpower. Hence the reason for tariffs, which is an attempt by President Trump, the Pentagon, and US corporate elites to limit China’s ascension. 

The decoupling will be slow at first, then rapid. We’re already seeing small to medium-sized Chinese companies being denied IPOs on Nasdaq. President Trump has already banned Haweui access to key US markets. And now, the next evidence that the decoupling is gaining momentum comes from the US Department Of The Interior. 

The Department has grounded its entire fleet of 800 drones for fear that Chinese hackers could spy on critical infrastructure, reported The Wall Street Journal.

“Secretary Bernhardt is reviewing the Department of the Interior’s drone program. Until this review is completed, the Secretary has directed that drones manufactured in China or made from Chinese components be grounded unless they are currently being utilized for emergency purposes, such as fighting wildfires, search and rescue, and dealing with natural disasters that may threaten life or property,” the Department told The Verge via an email statement. 

US officials worry that the Department is relying too heavily on Chinese drones and has put critical infrastructure at risk of being spied on by the Chinese. 

Last month a bipartisan bill was introduced that would limit federal agencies from purchasing Chinese drones. 

Several years ago, the Department of Homeland Security warned federal agencies from purchasing Chinese drones, specifically ones made by Shenzhen-based SZ DJI Technology Co., Ltd.

A DJI spokesperson told The Verge in a statement that the latest grounding of their drones by the Department Of The Interior is rather “disappointing.” 

“We are aware the Department of Interior has decided to ground its entire drone program and are disappointed to learn of this development…As the leader in commercial drone technology, we have worked with the Department of Interior to create a safe and secure drone solution that meets their rigorous requirements, which was developed over the course of 15 months with DOI officials, independent cybersecurity professionals, and experts at NASA. We will continue to support the Department of Interior and provide assistance as it reviews its drone fleet so the agency can quickly resume the use of drones to help federal workers conduct vital operations,” the DJI spokesperson said.

The Department’s decision to ground Chinese drones is a clear trend of what’s to come in the year ahead: more groundings across a wide array of agencies. 

Just wait until the groundings start hitting state and local municipalities and lower-level agencies. It’s going to be a nightmare. 

Nevertheless, when the government starts banning certain Chinese products from consumers, you’ll know the great decoupling between the US and China is imminent. 

For this to all happen, the Trump administration will need to ramp up Sinophobia propaganda to convince the American people that decoupling is the right move. 

Source: ZeroHedge