VACACIONES OCTUBRE 2016 (CLICK ON LINK)
A sponge wrung dry
China’s private investors keep their hands in their pockets
ORDERS from on high can shape the Chinese economy. In 2013 Xi Jinping, the president, said cities should be more like sponges, sopping up rainwater for reuse when parched. China is now working on some 30 “sponge cities”. Then in 2014 Mr Xi said the government should encourage businesses to invest in state projects. Since then China has announced plans for thousands of “public-private partnerships” (PPP), including sponge cities. But investors do not seem interested. Sponge cities are struggling to soak up private capital.
This month Guyuan, a city in Ningxia, a north-western region that is dry most of the year, launched China’s first sponge-city PPP. However, as is the case with others that are in the works, the “private” side of the partnership was not all it was cracked up to be. The investor, Beijing Capital, is in fact a government-owned firm. And to make the deal viable, the government pitched in a subsidy worth nearly one-fifth of the 5 billion yuan ($750m) total cost.
This points to a bigger problem: a sharp slowdown in private investment in China. New data on September 13th underlined the trend. Over the first eight months of 2016, private-sector investment rose by just 2.1% from the same period a year earlier, virtually the lowest rise since records began in 2005. Meanwhile state-backed investment has soared (see chart). It might seem unsurprising that the government is driving China’s economy. But it marks a big shift: the private sector was responsible for roughly two-thirds of investment over the past decade.
And since investment accounts for nearly half of GDP, private caution clouds the growth outlook.
The simplest explanation for the slowdown is that the state has crowded out the private sector.
Government-backed entities have long had better access to banks. In the past private companies have compensated by using their own earnings and tapping shadow lenders. Both routes are harder this year. Profits are not growing at the heady double-digit rates of not long ago. At the same time regulators have curbed shadow banks, leery of the risks brewing inside them. A side-effect has been to deprive some private firms of financing.
Yet that is only part of the problem. Many companies have money but are not spending it, says Zhu Haibin of JPMorgan Chase. They are keenly aware of the overcapacity in industries from coal mining to solar-panel making. Returns on capital have fallen by a third since 2011 to about 7%, according to Société Générale. With average bank lending rates just a touch lower at 5.25%, many are holding back, hoping profitability will improve. State firms can afford to pay less attention to the bottom line. Despite weaker returns than their private peers, they have kept investing.
The politics of big infrastructure projects are also a stumbling block. Local governments are reluctant to cede their most promising projects to private investors. Many officials are suspicious of private firms. Beijing municipality recently signed a PPP agreement for a new highway, and picked China Railway Construction Corp, a mammoth state-owned enterprise, as its partner. The official in charge suggested that private companies had neither the ability nor the capital necessary. And with ventures such as the sponge cities, it is not clear to private investors how they will make returns. Unlike toll roads or power stations—normal fodder for PPP deals—better drains and reservoirs are not easily converted into profits.
This being China, there are, as ever, questions about the quality of the data on investment. Some economists believe the public-private gap is exaggerated because of the government’s stockmarket rescue last summer, when the state acquired bigger stakes in companies. As these ownership changes filter into the data, they may be adding to the apparent increase in state investment. Separately, catastrophic numbers from Liaoning, a north-eastern province, have wreaked havoc with national statistics this year. Investment there is down by nearly 60%, but this may largely reflect a clean-up of previously embellished figures, not an economic disaster.
The government itself, however, is certainly behaving as if the problem is more than a statistical accident. This summer it dispatched teams of inspectors to 18 of China’s 31 provinces to see why private companies were not investing. Earlier this month the cabinet unveiled measures to encourage them to spend more. It promised to treat private firms the same as public ones when investing in sectors such as health and education. It called on banks to lend more to them. And it said it would roll out more PPP projects, enticing private investors with larger state subsidies.
These pledges may well show some results in the coming months, especially now that the government is talking so openly about the need to spur private investment. But many economists say that bigger changes are needed. To begin with, China could make it easier for private businesses to invest in state-controlled sectors such as finance and transportation. The government could also break up some of the state-owned enterprises that currently dominate these sectors. For the time being, though, it is moving in the opposite direction, merging state firms to create even bigger national champions.
The silver lining in all this is in what it says about the acumen of China’s private investors.
Their caution reveals how big a role market forces, as opposed to top-down orders, now play.
The government would love to see companies open their wallets. Instead, they are behaving like sensible businesses anywhere. They are conserving their cash and waiting for better opportunities than sponge cities to emerge.
When The Music Stops: Why The U.S. Consumer Will Cause The Next Crisis
by: Theo Vallee
- The market is materially mispricing the strength of the US consumer whose weakness will lead the US economy into a recession in Q1 2017.
- The deterioration of lower and middle income consumers indicates that the top is next to roll.
- The Federal Reserve has its hands tied, which will lead to lower yields and a bid for gold.
The Decline of Austerity Politics
More pressing issues have taken the place of belt-tightening.
By Lili Bayer
In September 2011, German Finance Minister Wolfgang Schäuble wrote a piece in the Financial Times entitled “Why austerity is only cure for the eurozone.” But in reality, Schäuble’s stance was that austerity in southern Europe was the only cure acceptable for Germany – Europe’s largest economy and a major creditor, whose economy depends on the stability of the eurozone. However, there are now growing indications that Germany is being forced to shift its commitment to austerity. Several key factors are contributing to this evolution. Germany’s export crisis, lower interest rates, the refugee crisis and political changes across the Continent have led to a change in Germany’s constraints and priorities.
Over the past few years, the debate over austerity had serious implications for European politics. One of Germany’s top preoccupations was debt levels in some European economies. Berlin pushed some European governments, especially in southern Europe, to adopt harsh austerity measures. Southern European leaders have long fought against Berlin’s insistence on austerity.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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