Ox Blood: Chinese Trade Data Is Nasty, But Help Is On The Way

Overnight we received more insight on the extent to which global contraction is compressing Chinese economic activity and the degree in which the 4 trillion yuan stimulus package is compensating for the implosion of export-driven growth so far. Although the trade data is ugly, Investment and credit figures show that, without a doubt, that stimulus is now coursing through the Ox’s veins

TRADE

The General Administration of Customs’ statistics revealed that the February trade gap narrowed to $4.8 billion, following January’s $39.1 billion surplus, as exports contracted 25.7%, a record, and imports fell 24.1%, reaffirming the severity and the synchronized nature of the global economic contraction.

As the collapse in exports has intensified, forcing businesses to close and increase unemployment, the government has continued to announce measures to support the export sector. This week Commerce Minister Chen Deming announced plans to gradually eliminate export taxes and to subsidize exporters in an attempt to sustain growth. Further, faced with the weakening currencies of competitors and the resultant disadvantage, the central bank governor, Zhou Xianchuan, did not rule out a devaluation of RMB, more confirmation that the Chinese government will use any and all measures to increase exports.

INVESTMENT

According to the National Bureau of Statistics, urban fixed asset investment totaled 1.027 trillion yuan ($150.35 billion), during January and February, a 25.5% increase over 2008. Investment in the primary sector increased 100.3%, while the secondary sector and the tertiary sector experienced increases in investment of 24.8% and 26.9%, respectively. Central government project investment increased 40.3% while local government projects increased 25.1%. During the first two months of 2009 real estate investment was 239.8 billion yuan, a 1% increase, down from 32.9% over the same period in 2008.

Clearly that he 4 trillion yuan stimulus announced in November is driving the increase in fixed investment, which now accounts for 40% of GDP. Infrastructure projects increased 28% y-o-y, as the government invested in railroads, agriculture and mining, including $35 billion in energy projects. The National Development and Reform Commission announced that the central government will invest 908 billion yuan in infrastructure projects in 2009, a 20% increase in fixed asset investment over 2008.

According to Su Ning, a deputy central bank governor, total lending by China’s financial institutions will exceed 5 trillion yuan ($731 billion) in 2009. The most recent People’s Bank of China release stated that domestic banks issued a record 1.6 trillion yuan in new loans in January, with February estimates in the vicinity of 1.1 trillion yuan. The Bank of China reported extending 100.45 billion yuan in new loans to small- and medium-sized enterprises (SMEs) YTD, with total outstanding loans for SMEs reaching 860 billion yuan by the end of February.

Forward

With the stimulus impact starting to trickle through the financial system, the waiting game begins as we digest any data that may provide clues to the trajectory of economic activity. We have been bullish on China consistently since December of 2009 and remain so – we are long China via the CAF closed end fund.

Andrew Barber
Director

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more