Andy Xie

Re: Andy Xie

Postby behappyalways » Wed Jul 08, 2015 11:02 am

Andy Xie suggested that the “right price” for China’s main Shanghai Composite Index is around 2,500, or just 25 percent higher than where it was a year ago, when it started its heady 12-month rise.

And he said China’s high-tech ChiNext ought to be allowed to fall significantly further: “At its peak, it was trading at 130 times earnings, now it’s fallen to 70 seventy times earning,” he said, “but a normal level would be 20 times earnings!”


Experts Warn Of Economic Challenges As Chinese Government Downplays Risk Of Stock Market Fall

http://www.ibtimes.com/experts-warn-eco ... ll-1997509
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Re: Andy Xie

Postby behappyalways » Fri Jul 10, 2015 12:24 pm

Andy Xie Says China Stock Market 'Still Very Immature'
http://www.bloomberg.com/news/videos/20 ... -immature-
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Re: Andy Xie

Postby behappyalways » Tue Aug 18, 2015 10:35 am

Neither devaluation nor another stock market bubble can promote China's economic health

Andy Xie says China's misguided stock market bailout is only delaying the inevitable: critical reforms


A new bubble like that in the stock market can never be a proper tool to handle the consequences of an old one.

Has Beijing's stock market rescue been a success? The market hasn't fallen below the pre-bailout lows and some may call this a success. But it hasn't revived speculative fervour. Every attempt to ramp up the market has been punctured by a mini crash.

The 70 per cent reduction in trading volume indicates that most investors are waiting for the government to push up the market to the said target of 4,500 and then cash out. When so many think like this, the market will never get there.

The bailout is mostly a confidence game. There is no transparency about how much money the government has actually poured in. Some measures may make a little difference to the supply- demand balance.

For example, stockbrokers have been banned from selling their inventories before the market hits 4,500. But is that a large amount? State-owned enterprises have been asked to buy back shares. Again, the tidbits on the buybacks indicate tiny amounts relative to the market size.

The most significant move has probably been the suspending of margin calls. As margin loans may have accounted for a third of the floating shares at the peak, a total ban could be a big deal. But it's unclear as to who still falls under the restrictions. Stockbrokers have been cutting their margin loans.

For the numerous outside players who provide top-up margin loans, there is no transparency about who is still restricted. Chances are, most margin loan suppliers are selling. They are holding back in many cases because they are under water; they are waiting for the government to push the market above their cost to liquidate.

The government rescue efforts have manufactured hope for speculators and lenders that they could be made whole again. The hope game can't last forever. At some point, they will liquidate to cut their losses. When this tipping point is reached, no government efforts could stop the collapse.

In 2008, when the market dropped by half, similar government efforts kept the market range-bound for several months. The final collapse cut the market index by another half. This time could be quite similar.

When the market began to surge in the middle of last year, the index was near 2,000 for a long time. After a 150 per cent surge in 12 months, the economic fundamentals deteriorated sharply, and the market was saddled with mountains of debt. This combination suggests the market will eventually fall below where it came from.

As the government stakes so much on propping up the stock market, it begs the question: why? The stock market has not raised that much money relative to the investment size. It has surged and collapsed many times before with no big impact on the economy either way.

The difference this time is that a stock market boom was sold as the panacea to solve all economic ills: distressed companies could raise money to stay afloat; youths would be motivated to start businesses to cash out in the market; and retail investors would feel rich and spend more. The market collapse puts an end to such fantasy economics. And there is no plan B.

What's not real will never become so; no amount of propaganda can change that. People can suspend their belief only for a short period of time. Gravity always comes back. China's experiment with fantasy economics is a costly lesson. It has wasted precious time for real reforms and ruined another generation in the stock market.

China is in the midst of serious debt deflation. Massive debt-funded investment has engulfed the economy since 2008. It was justified on the grounds of shoring up the economy during the global financial crisis. When the global economy recovered, the built capacities could be utilised.

Unfortunately, the expected demand boom hasn't come. Instead, investment demand has been sustained to keep factories occupied - that is, building more capacity to keep the existing capacity occupied. The end to such a story is always deflation and bad loans.

A new bubble like that in the stock market can never be a proper tool to handle the consequences of an old one. The only path forward is to cut excess capacity, handle the resulting bad loans, and massively cut taxes to rebalance the economy.

Devaluation has been marketed as necessary for boosting the economy but the real motivation is to create room for printing money to bail out speculators. At best, this will buy time to delay the necessary reforms, but it will create a bigger problem for the future. At worst, it could trigger a confidence crisis and massive capital flight, repeating the mistake that Indonesia made in 1998.

Beijing's devaluation is a trial to see how the world will react. If there are no strong responses from the market or the US government, a big devaluation may well be coming. One likely consequence is that the US Congress could pass a protectionist bill with a punitive tariff to match the devaluation.

While China could go to the World Trade Organisation, it would be a long time before a judgment was rendered and, even if favourable, it would be too late to help.

Reform, not devaluation, or a new bubble, is the only viable path forward.

Source: South China Morning post
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Re: Andy Xie

Postby behappyalways » Fri Aug 28, 2015 4:15 pm

Andy Xie: China's Problem 'Misallocation of Resources'
http://www.bloomberg.com/news/videos/20 ... resources-
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Re: Andy Xie

Postby behappyalways » Wed Sep 23, 2015 12:57 pm

Andy Xie: China Stock Market 'Intervention' Not a Success
http://www.bloomberg.com/news/videos/20 ... -estimates
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Re: Andy Xie

Postby behappyalways » Mon Oct 12, 2015 9:52 am

Asean is in a difficult situation: Economist
http://finance.yahoo.com/video/asean-di ... 00687.html
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Re: Andy Xie

Postby behappyalways » Tue Nov 03, 2015 10:14 am

Running out of puff: China can't inflate yet more speculative bubbles to disguise the structural problems in its economy

Andy Xie says China is running out of policy options in its attempt to maintain an impossible position


China's government has just cut interest rates again, demonstrating once more that monetary policy is the country's only meaningful response to the investment bubble bursting. The move comes just weeks after a massive operation to defend the exchange rate.

At the same time, the government is propping up the stock market, the credit market, the banking system and all the industries suffering from massive overcapacities. Do the laws of economics apply at all in China?

The "impossible trinity", or trilemma, here says that a country cannot run an independent monetary policy with a fixed exchange rate and free capital flows. Some may argue that China controls its capital account. It is true that the government has shut down underground currency exchange channels, which has lessened some of the pressure on the exchange rate.

But corporate foreign debt, cumulative foreign direct investment and offshore renminbi in total are similar to the forex reserves. These monies could all be withdrawn legally. Further, every person can buy US$50,000 of foreign currency from banks per annum. That's six times the per capita income. China's capital account is really open.

China's forex reserves fell by US$329 billion in the first nine months of 2015, while the country ran up a trade surplus of US$424 billion, which would have added to the forex reserves, during the same period. These two numbers roughly summarise the magnitude of capital flight. This is possibly the biggest capital flight in absolute and relative terms that the world has seen in the past three decades.

The government is not dealing with capital flight either technically or fundamentally. When renminbi leaves, the People's Bank of China hands over the dollars and puts renminbi back into the banking system, to stop interest rates from rising. The way to fight capital flight is to raise interest rates. Running down forex reserves doesn't solve any problems.

China is employing two policy instruments that are not available in other countries: first, killing a chicken to scare the monkeys; and second, turning up the propaganda machine to manipulate perception

At the fundamental level, diminishing opportunities for profits is key. China launched a massive investment boom after 2008. It has led to overcapacity virtually everywhere, destroying profit opportunities.

The government has manufactured profit opportunities by creating speculative bubbles in the exchange rate, property, credit and stocks, to keep money inside the country.

All these speculative bubbles, perhaps with the exception of the internet bubble, are bursting. The only remaining options are to raise interest rates and undertake a massive devaluation. The former makes it worthwhile keeping money in the country. The latter realises losses upfront, making it too late to run.

Yet, instead, the government chose a worse option: a small devaluation, which sparked panic without increasing the cost of capital flight. The subsequent surge in outflows was easy to anticipate.

The outflows have eased lately as the government has been intervening in the onshore and offshore market to manufacture a mini trend of appreciation, which slowed outflows as people paused to wait for more appreciation. But, when the uptrend ends, outflows are likely to resume. The latest cut in interest rates further increases the incentive for taking money out.

China is employing two policy instruments that are not available in other countries: first, killing a chicken to scare the monkeys; and second, turning up the propaganda machine to manipulate perception.

The first option is usually reserved for someone who takes money out of the country illegally. The recent crackdown on underground money exchange channels falls into this category. In 1998, some influential people were caught up in this classic tradition of making an example out of someone. This hasn't happened recently, but probably will.

The trilemma is an impossibility when people are rational. Yet, the Chinese government seems determined to invalidate this assumption. The propaganda machine preys on people's struggle between fear and greed. Whenever people are about to run, the machine spews out all those stories of money-making opportunities and examples of people getting rich. When words alone don't work, the government spends money to manufacture an uptrend like a good pump-and-dump artist.

While the little people can be confused into inaction, those at the top won't be. A disproportionate share of China's wealth, mainly in property and cash, are in the hands of a small elite. They are driving the capital outflows.

In 1997-98 a similar elite in Southeast Asia, not the little people on the street, chose to abandon ship and take their wealth offshore. If China wants to prevent a similar crisis, its anti-corruption campaign has to turn towards the core vested interest group soon.

The fifth plenum of the Communist Party's 18th central committee has raised hope for reforms, especially in the context of the new five-year plan. But recent announcements show there will be no serious changes, at least in the near future. China went through a round of radical changes in the 1990s that laid the foundations for its subsequent prosperity. Since 2002, the system hasn't been able to deal with emerging problems, so has allowed them to fester and has manufactured bubbles to hide the consequences.

The reality is that the political imperative is in conflict with economic needs. To move beyond an investment-led economy, China must cut taxes, shrink the government and reform state-owned enterprises. But political insecurity is driving resources further into the government's hands. The alternative model is for stability to depend on people's goodwill, not an iron fist. It is hard to see such a shift any time soon.


Source: South China Morning Post
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Re: Andy Xie

Postby behappyalways » Tue Dec 22, 2015 10:51 am

For China’s struggling economy, 2016 may be worse than 2015

Andy Xie foresees more pain ahead for an economy mired in structural inefficiencies and in the grip of a government that is only half-hearted in pushing reforms

China is closing out 2015 with probably the weakest growth rate in a quarter of a century. Unfortunately, 2016 will be more difficult. Financial bubbles have kept afloat unviable companies and speculative spending.

But, as the renminbi comes under increasing devaluation pressure, the resulting capital outflows may deflate these bubbles despite the strong support from official propaganda.

Nothing reflects better China’s economic difficulties than the collapsing commodity market. After a 15 per cent decline in 2014, the CRB index dropped another 27 per cent in 2015. China-dependent iron ore has seen its price halved again in 2015 after halving in 2014, and the price of Brent crude is down by two-thirds in 15 months.

To extricate itself, China must develop a comprehensive plan to stabilise the economy, absorb cyclical losses and rebalance the economy

Financial markets have been hoping for a government stimulus to reverse the trend whenever disappointing numbers are released, even though such hopes have been dashed again and again for the past three years.

The pattern is likely to persist into 2016. The government has tried monetary stimulus, a stock market bubble, and now a bond market bubble. Nothing has worked.

China’s economy is mired in a structural and cyclical quagmire. To extricate itself, China must develop a comprehensive plan to stabilise the economy, absorb cyclical losses and rebalance the economy. Piecemeal measures only increase confusion and dig a deeper hole for the future.

To improve the short-term economic outlook, the only effective measure is to shift income to the household sector by decreasing contributions to social welfare funds, and cutting consumption and income taxes.

The shift must be over 3 per cent of gross domestic product. For example, the contributions to social welfare and insurance funds should be cut by half for three years.

Playing with monetary policy just doesn’t work. It is intended to boost investment demand. But, with so much overcapacity everywhere, why would anyone want to add more? Instead, it destabilises confidence in the exchange rate.

The resulting capital outflows are making economic management that much harder and may even precipitate a financial crisis similar to the 1997-98 Asian financial crisis. One lesson from history is that, when the financial system is precarious, don’t play with the currency value.

China may have overinvested up to 40 trillion yuan (HK$48 trillion) since 2009. Its physical manifestation is in empty buildings and industrial overcapacity. Several prominent steel industry executives believe the industry should produce 20 per cent, or 160 million tonnes, less per annum.

On top of that, the industry is rumoured to have 200 million to 400 million tonnes of overcapacity. The dire situation is common among all commodity industries. New industries like smartphone manufacturing already have a large overcapacity. Even power plants are hugely underutilised.

To get out of the vicious spiral of China’s investment-led economy, the government must loosen its control on the economy, especially financial resources.

To stabilise the financial system, the government must establish special teams to enforce capacity reduction and absorb the resulting bad loans. The inability to accept the financial consequences of past mistakes is a major barrier to meaningful economic reforms. In that regard, political decisions must be made on how to mete out punishment for past mistakes.

If the right reforms are instituted, the economy will boom for the next decade. If no reforms are carried out, stagnation, instability and crises await us

China’s overcapacity is a consequence of enormous forced savings due to government policies. Household savings account for less than half of net savings and a third of gross savings.

As a savings glut exerts deflationary pressure on the economy, the government has tried to promote investment to support demand, which makes the future worse. This is the vicious spiral of China’s investment-led economy.

Declining efficiency and rising forced savings are two sides of the same coin. To get out of the vicious spiral, the government must loosen its control on the economy, especially financial resources. Government spending and that of state-owned enterprises account for about half of GDP. The level must come down by half for the economy to be stable.

China has enormous potential. Its labour productivity is comparable to that associated with per capita income of US$20,000, 2½ times the current level. The huge gap is to pay for the system’s inefficiencies. China’s current economic difficulties are entirely due to the inefficient governing system.

If the right reforms are instituted, the economy will boom for the next decade. If no reforms are carried out, stagnation, instability and crises await us.

The current trend on the reform front is not encouraging. The piecemeal approach isn’t making progress. The economy requires a systemic and coordinated approach to reverse the trend. Collateral damage scares off the implementation of any piecemeal measures. This is why, for three years, we have heard loud talk and no meaningful action.

The current trend on the reform front is not encouraging. The piecemeal approach isn’t making progress

More fundamentally, the required reforms are in conflict with the political trend to strengthen the state. The economy is suffering because the state’s share in the economy is too large, and improving the economy requires the state to reduce its role. Yet, politically, China is heading in the other direction. It is hard to see how the economic ills can be cured.

If we assume that there are no meaningful reform measures, the deflationary trend in the industrial sector will continue, which pushes more and more companies into a negative cash flow. The government has to find more measures to keep them afloat.

The financial bubbles are vulnerable to capital outflows. China has been reporting record drops in foreign exchange reserves despite a US$500 billion trade surplus. If the outflows are not stopped, the resulting financial instability may make 2016 a very painful year.

Source: South China Morning Post
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Re: Andy Xie

Postby behappyalways » Thu Mar 03, 2016 1:44 pm

Don’t listen to the ruling elite: the world economy is in real trouble

Andy Xie says those attending the G20, Davos and other wasteful meetings are wrong to try to pin the blame for the turmoil on people’s psychology; all signs point to a prolonged period of global stagnation and instability


Unfortunately for the elite, the world is catching fire and the blaze will eventually reach their Davos chalets.

The G20 working group meeting in Shanghai didn’t come up with any constructive proposals for reviving the global economy and, instead, complained that the recent market turmoil didn’t reflect the “underlying fundamentals of the global economy”.

The oil price has declined by 70 per cent since June 2014, while the Brazilian real has halved, and the Russian rouble is down by 60 per cent. The global economy is on the cusp of another recession, and these important people blamed it all on some sort of psychological problem of the people.

Over the past two decades, the global economy has been blessed with the entry and participation of 800 million hard-working Chinese, plus the information revolution. The pie should have increased enough in size to make most people happier. Yet, the opposite has happened.

The world has gone from one crisis to another. People are complaining everywhere. This is due to mismanagement by the very people who attend the G20 meetings, the Davos boondoggle, and so many other global meetings that waste taxpayers’ money and put inept leaders in the limelight.

One major complaint that people have is that the system is rigged – that is, the rising income concentration is not due to free market competition, but a rigged system that favours the politically powerful. This is largely true.

The new billionaires over the past two decades have come mostly from finance and property. Few made it the way Steve Jobs or Bill Gates did, creating something that makes people more productive.

Few made it the way Steve Jobs or Bill Gates did, creating something that makes people more productive

The most important factor in the rigged system is monetary policy being used to pump up financial markets in the name of stimulating growth for people’s benefit. This is essentially the trickle-down wealth effect, that is, making some people in the financial food chain rich while the spillover gives people a few crumbs.

Yet, instead of crumbs, the wealth effect has pumped up property prices in Manhattan, London and Hong Kong, as well as the price of modern art. Essentially, the wealth effect has stayed within the small circle of the wealthy. And these people show up at Davos to congratulate policymakers on their “successes”.

Wasting resources is an equally important factor in making the global economy weak and prone to crisis. After the 2008 financial crisis, the US government and Federal Reserve spent trillions of dollars to bail out the people who created the crisis.

Instead of facing bankruptcy and jail, these people have become richer than ever. Predictably, they have used their resources to rig the system further.

After 2008, when Beijing launched a massive investment push, the global ruling elite all praised China for saving the global economy. China has increased credit by over US$20 trillion to finance the construction of factories and homes. However, investment does not guarantee final demand.

The process of building up a factory creates demand. But, when it is completed, it needs to sell its goods to someone. What China did was build even more factories to keep this factory occupied. This Ponzi scheme couldn’t last long. We are just seeing the beginning of its devastating consequences.

A mountain of debt is floating on a commodity Ponzi scheme that is floating on China’s investment Ponzi scheme

China’s overinvestment has pumped up commodity prices, which has led to another Ponzi scheme. As major central banks cut interest rates to zero, credit demand didn’t respond in general, as businesses didn’t see growing demand from people who were suffering income erosion.

The commodity boom justified credit demand for the time being. Trillions of dollars were poured into the energy sector, and trillions more into other commodity industries. Businesses in emerging economies that were pumped up by rising commodity prices borrowed US$9 trillion.

This mountain of debt is floating on a commodity Ponzi scheme that is floating on China’s investment Ponzi scheme. Its bursting is just the beginning. Its impact on the global financial system could be bigger than the 2008 financial crisis.

In addition to the bursting of the global commodity bubble, China’s overcapacity bubble will kill global capital expenditure for many years to come. Even though Chinese investment isn’t growing like before, investment at half of gross domestic product is still adding overcapacity by over US$1 trillion per year – the problem is getting bigger.

All indications are that China wants to export the overcapacity. And why not? China overinvested to bail out the global economy. It shouldn’t pay the whole price for the mistake.

China’s strategy would lead to de-industrialisation in most of the world, in particular middle-income emerging economies. Weak capital expenditure would lead to weak employment and labour income. The resulting bankruptcies may further weaken the global credit system.

Economic managers will resort to the same tricks of pumping up the financial markets with liquidity, to no avail

The global economy is facing years of stagnation, deflation and financial crises. The current economic managers will resort to the same tricks of pumping up the financial markets with liquidity, to no avail. In the meantime, political instability will spread around the world. It will take a long time for the right leaders to emerge.

Initially, populists will win. Their policies, unfortunately, will focus on protectionism and rolling back the World Trade Organisation system. That will lead to further economic turmoil in the global economy. Protectionism may suddenly jump-start inflation that will quickly become hyperinflation, which would certainly lead to violent revolutions.

The world is on the cusp of a prolonged period of stagnation and instability. Our ruling elite is blaming it on people seeing things. Their strategy is to change people’s psychology. Unfortunately for them, the world is catching fire and that fire will eventually reach their Davos chalets.

Source: South China Morning Post
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Re: Andy Xie

Postby behappyalways » Mon Mar 14, 2016 10:18 am

Is There More Pain Ahead for China's Economy?
http://www.msn.com/en-us/money/watch/is ... vi-BBqgUrK
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