As China’s foreign exchange reserves threaten to tumble below the critical $3 trillion mark, there are fears that it will set off a vicious cycle of more outflows and currency depreciation. China has stepped into both its onshore and offshore yuan markets to shore up the yuan, but if forex reserves continue to be depleted at a fast pace and capital flight continues, some strategists believe China may have to sanction another big “one-off” devaluation that could set off competitive currency devaluations by other struggling emerging economies.
A five-year plan, 2016-2020, to save energy and cut emissions was issued by the Chinese State Council, setting a goal to cut energy consumption by 15 percent in 2020 compared with 2015. A carbon emissions trading market will be set up in 2017, and supportive policies will also be pursued, including a pricing mechanism for resources, monetary and tax incentives and financing support; an environmental protection tax will also be levied. Recyclable energy sources will be encouraged, as well as some substitution of coal by gas.
The Chinese Ministry of Commerce and the National Development and Reform Commission are revising the foreign investment industry catalogue. Areas that will be opened up to foreign companies in the services sector include road transportation, credit surveys and ratings; and in the manufacturing sector include rolling stocks, automotive electronics, motorcycles and corn processing. China expects that the foreign companies will pass on their expertise to domestic companies, thus not contradicting the “Made in China 2025” strategy that calls for core technologies to be mastered by domestic industry.
The Chinese economy stabilized during the middle of 2016, but there is disagreement about the country’s growth outlook. Three forces are likely to determine economic trends in 2017: property development, infrastructure spending and manufacturing investment, but they bring with them much uncertainty about the future of economic policy. China’s challenge is not how to support the creation of new industries but how to facilitate the smooth exit of old industries. And this begs the question: will the government have the courage to bankrupt those inefficient and unprofitable zombie State Owned Enterprises?
China has lost the top position as an investment destination to India, and has now opened up more sectors for foreign investors in order to catch up in the race between the two countries. It is offering a slice of tightly controlled segments like public transport and railway equipment to foreign players. But what prompted Beijing to bite the bullet despite resistance from state-owned enterprises is not just slipping numbers of foreign direct investments, but worries about US President-elect Trump using China’s partially closed market as a reason to launch negative trade actions.
According to the director of the Center for Economic Diplomacy, Fudan University, Shanghai, China’s reputation as the world’s factory is increasingly threatened by rising costs, the accelerated manufacturing resurgence in various developed countries and the growing competitiveness of emerging economies. This situation has prompted numerous Chinese manufacturers to move their factories offshore. Manufacturing has long been at the foundation of China’s rise into a global economic power and the country needs to consolidate this manufacturing foundation. Otherwise China will risk hollowing out its real economy before it grows strong enough.
In 2016 there were more than 260 anti-dumping measures or investigations against Chinese goods. This year’s number represents a roughly 17.7% rise from 2015. The measures were aimed at a wide range of Chinese goods but the main target was Chinese steel products. “All these countries like to blame China for their own problems in the steel industry, but China didn’t create the problems for them, it’s sluggish global demand amid weak economic growth that caused the problem,” said a research fellow at the China Institutes of Contemporary International Relations.
According to the National Bureau of Statistics of China’s preliminary estimates, the country’s gross domestic product in the first three quarters of this year was 52,997.1 billion yuan, a year-on-year increase of 6.7 percent. The value added of primary industry was 4,066.6 billion yuan, up by 3.5 percent year-on-year; the value-added of secondary industry was 20,941.5 billion yuan, up by 6.1 percent; and that of tertiary industry was 27,989.0 billion yuan, up by 7.6 percent. Third quarter GDP rose by 1.8 percent on a quarter-on-quarter basis.
Crude oil inventories are near record high levels and are rising on a year-on-year basis. Gasoline and ultra-low-sulfur diesel inventories are increasing to a lesser extent. Inventories of all three remain near seasonally-adjusted record highs. However, the pace of this increase – even though still growing – is slowing rapidly, and this is, on balance, welcome news for energy producers and those who have financial exposure to them. It’s a sign that energy supply and demand are moving more closely into alignment.
One of the structural flaws driving China’s instability is the existance of a investment situation where profits of state-owned enterprises, known as SOEs, are largely privatised to SOE personnel and losses of SOEs are socialised on to the state budget. This is the cause of the large amount of excess capacity in China’s heavy industries today, and also of the serious non-performing loan problem in state-owned banks. The growing presence of “zombie” firms coincides with the downward trend in the growth of productivity. The social pain resulting from necessary economic adjustments will have to be addressed.
Hillary Clinton is promising to revitalize Pennsylvania communities hurt by a downturn in the coal and steel industries. With regard to the coal industry she asked whether there was a technology that could create clean energy from coal, and stated that she would revitalize the coal producing areas. Earlier in the primaries, Donald Trump made his position clear on the coal industry saying that he wanted clean coal and that the country would, in his words, have an amazing mining business.
OEF REVIEW:Oil investors are buying contracts that will only pay out if crude oil rises well above US$100 a barrel over the next four years – a clear sign some believe today’s bust is sowing the seeds of the next boom. The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch. Over the last month, investors have bought call options for late 2018, 2019 and 2020 at strike prices of US$80, US$100 and US$110 a barrel. Previously, some investors had already built super-bullish positions. The options deals suggest a concern about shortages as demand begins to outstrip production – the traditional boom and bust commodities cycle.