• The call plus


    The Call @ Hedgeye Plus

    Our favorite, high-conviction stock ideas and CEO Keith McCullough’s Macro overlay. Exclusively on Hedgeye TV.


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


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.


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.


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