Jobs growth in the US is back. Over the past three months, official statistics show that the US has added more jobs than in any such period since September-November 1997, at the height of the Clinton boom. The freefall in oil prices is over. The European Central Bank has acceded to market wishes and resorted to “QE” bond purchases. The strong dollar has wrought less damage on US corporate profits than feared. What could possibly go wrong?
The answer, in a word, is “China”. The world’s second-largest economy contributes more towards world growth than any other, and has many tools — due to its enormous foreign exchange reserves — with which to avert a crisis. But the litany of economic indicators flashing reasons for concern is growing longer.
Economic growth numbers themselves are notoriously prone to revision. Diana Choyleva of London’s Lombard Street Research, a long-term sceptic on China, estimates that Chinese real growth in domestic product dropped to 5 per cent last year, once the impact of “missing” output “almost equal to the size of Malaysia’s economy” added to the data at the end of last year is stripped out. This would represent a startling slowdown from the trend of the past two decades.
经济增长数据本身向来有修正的余地。伦敦朗伯德街研究(Lombard Street Research)的黛安娜•乔伊列娃(Diana Choyleva)长期以来对中国抱怀疑态度，她估计，一旦考虑“近乎相当马来西亚经济规模”的“遗失”产值对中国去年年底发布的数据的影响，其去年的实际国内生产总值(GDP)增长率就会降至5%。这将意味着，与过去20年的增速相比，中国经济增长出现了惊人的放缓。
Electricity output, a “truth-telling” indicator that is hard to manipulate, is negative for the first time since the crisis year of 2009. Steel production is also its weakest since 2009. The monthly ISM survey of purchasing managers, a great economic leading indicator where figures above 50 indicate that the economy is expanding, while figures below it suggest contraction, has dropped below 50 this month. The prices of the commodities most sensitive to the recently insatiable Chinese demand, iron ore and copper, have fallen severely over the past year.
Most concerning should be measures of the financial system. The growth in Chinese bank assets appears to have stalled, following an increase of some $17tn in total debt in the banking system over the six years since the crisis. Managing this number gently down is a priority; the vital question, as ever, is whether the Chinese authorities can do it. The change in banks’ reserve requirements this week, an effective monetary easing, was part of this process, but there is a long way to go.
Atul Lele, chief investment officer at Deltec International, estimates flows of “hot money” by taking the change in foreign exchange reserves, and subtracting the changes that can be explained by trade flows and by foreign direct investment. The balance is “hot money” in that it can be moved swiftly by investors, and it appears to be sharply negative.
Deltec International首席投资官阿图尔•莱勒(Atul Lele)，通过将外汇储备变化数值减去贸易及外国直接投资所引起的变动值来估计“热钱”流动的规模。其余额就是“热钱”，因为这部分资金可以被投资者迅速转移，如今这个数值似乎出现了非常大的负值。
Where has it gone? Some of it fuelled the rally at the end of last year, which saw the Shanghai stock exchange gain some 40 per cent in a matter of months. And much will have returned to the booming asset markets of the US.
This is a disquieting scenario. The Fed’s decision on whether to raise rates this summer is a finely balanced one, which is dependent on the data. Friday’s strong jobs report, which also helped show that various data points weighing against a move to more normal rates were either flukes or errors, unarguably raises the probability that US rates will indeed rise this summer.
This matters for emerging markets, particularly China, which are driven by flows of dollars. When money started to flow back to the US in May 2013 when the Fed talked of “tapering” off QE bond purchases, many emerging markets instantly sold off. A rise in US rates would intensify such problems.
All of this is a reversal of fortune. In late 2008, it was the aggressive fiscal stimulus by China that helped pull the rest of the world through the Great Recession.
Now, China needs help from exports to the US. The stronger US economy, and the stronger dollar and demand that it implies, should therefore be helpful. But foreign exchange could be a crucial stumbling block. China, long castigated for an artificially weak currency, has allowed its currency to appreciate gently against the dollar over the past five years. With other central banks aggressively easing monetary policy, and thus weakening their currencies against the dollar, this has sharply reduced China’s competitiveness, as the chart shows.
China has let its own currency weaken by about 3 per cent against the dollar over the past year. Further dollar strength may force a more aggressive weakening — which could entail an intensified “currency war,” and financial stress within China.
Playing this out for investors remains difficult. As I said earlier this year, the valuations on offer in the US and emerging markets suggest that a steady move from the former to the latter should pay off over the next decade or so. Abandoning emerging markets altogether is unlikely to pay off.
But the disjunction between the strengthening US and the rest of the world is deepening. Any big shifts in asset allocation would be unwise until that disjunction works itself out.