Spotlight China: Shipping Downturn; Hong Kong Recession; Credit Squeeze Prompts Suicides; HK Home Sales Fall Over 50%; Factory Closure Wave Looms

I have been meaning to write about China for days, but news stories about Europe keep getting in the way. I will rectify that tonight with a "Spotlight" on China.

Global Shipping Downturn Worse Than 2008

Reuters reports Global Shipping Downturn Worse Than 2008

November 3
Global shipping is in a downturn even worse than during the 2008 financial crisis, China's transportation minister said on Thursday, with the outlook for the industry made increasingly uncertain by the European debt crisis.

The shipping industry, a bellwether of economic activity because of its role in world trade, saw freight rates plummet from mid-2008 to the end of that year.

"The shipping industry is in a downturn, which is worse than the financial crisis in 2008," transportation minister Li Shenglin told the conference. "This condition may last for a relatively long period of time."

The supply glut, made worse by economic woes in the United States and Europe, has pushed rates for dry bulk vessels that transport goods such as iron and coal below 2,000 on the Baltic Exchange , less than a fifth of the 2008 peak.

On the flip side, rising fuel and other costs have squeezed operators' margins. Global benchmark Brent crude has averaged more than $100 this year for the first time ever.

"The industry is double hit by the supply and demand imbalance and rising costs, especially fuel costs," Li said.

China Plans ‘Orderly’ Delivery of New Ships to Combat Shipping Glut

Bloomberg reports China Plans ‘Orderly’ Delivery of New Ships as Glut Hits Rates, Earnings

November 3
Rates for carrying both commodities and containers have tumbled over the past year as the launch of new vessels outpaces demand for shipments. China contributed to the glut by offering financial support for orders during the global recession to help secure jobs at its roughly 3,000 domestic shipyards.

“We will guide the orderly arrival of new container and dry-bulk ships in the market,” Transport Minister Li Shenglin said today in a speech at a conference in Hainan province.

The current slump in the shipping market is worse than in 2008, during the global recession, and it may last for a “relatively long” period, Li said.

Hong Kong Home Sales Fall Over 50% in October

Shanghai Daily reports Hong Kong Home Sales Fall Over 50% in October

November 3
HONG Kong's home sales fell for a 10th straight month, dropping by half in October from a year ago as buyers put off purchases.

The value of transactions last month declined 50 percent to HK$22.5 billion (US$2.9 billion), the city's government said in a statement on its website yesterday. Sales of residential units shed 2.2 percent from September, it said.

"Transactions slowed down quite significantly particularly in the secondary market," said Buggle Lau, analyst at Midland Holdings Ltd, Hong Kong's biggest publicly traded realtor. Lau said while transactions in the primary market rose last month, it wasn't enough to offset the slide in used home sales.

Hong Kong Tips Into Recession

This is a prediction but Hong Kong Tips Into Recession, Most Accurate Forecaster Says

November 7
Hong Kong’s economy, a barometer of global growth, probably sank into recession with a contraction in the third quarter, according to Daiwa Capital Markets Ltd. and Australia & New Zealand Banking Group Ltd.

Gross domestic product shrank 1.5 percent from the previous quarter, seasonally adjusted, said Kevin Lai, a Hong Kong-based economist at Daiwa. The report is due Nov. 11. Lai came closest in a Bloomberg News survey to predicting the 0.5 percent contraction in the second quarter.

Hong Kong’s exports declined in September for the first time in almost two years, and the benchmark Hang Seng Index plunged 21 percent in the third quarter, the biggest loss since 2001, as Europe's debt crisis roiled global markets. Donald Tsang, the city's chief executive, warned yesterday in New York that there’s a 50 percent chance of a world recession in the coming year.

“The economy is faltering on a rapidly deteriorating external environment,” said Raymond Yeung, an economist at ANZ in Hong Kong. Hong Kong is “the nerve center of regional economic activities” and “any degeneration may signal a global economic downturn,” Yeung said.

China Credit Squeeze Prompts Suicides

Bloomberg reports China Credit Squeeze Prompts Suicides

Nov 6, 2011
Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands.

They wanted to take over one of the pharmacies in a chain he’d built by borrowing from private lenders. Instead, he made an offer of traditional retribution in this eastern Chinese city, known for loan sharks who have sometimes meted out violence to bad debtors.

“If you like, you can cut off one of my fingers instead,” Zhong, 42, says he told them.

Giving up the store would have made it impossible to pay back another 130 creditors, Zhong said. He’d borrowed 30 million yuan ($4.7 million) at interest rates as high as 7 percent a month to expand the business. Many of the lenders were elderly neighbors who’d mortgaged their homes.

At least 90 bosses in similar situations to Zhong have fled the city since April, and two killed themselves, according to Zhou Dewen, head of a small business association in Wenzhou. One was shoemaker Shen Kuizheng, who jumped to his death from his 22nd-story home on Sept. 21, he said.

The suicide story is not new except perhaps to Bloomberg reporting about it. However, the story is picking up steam and additional suicides. Here are my previous links on the suicide story:

September 29: China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear

October 14: Chinese Banks Deteriorate; Loan Sharks Come Knocking; Copper Ponzi Financing Revisited; 5 Reasons to Expect Lower Commodity Prices

Cash Crunch Reported by Ministry of Railways

The Standard reports Rail Authority Faces Dire Cash Crunch

November 7
The Ministry of Railways could be facing a shortfall of up to 800 billion yuan (HK$980 billion), putting many projects on hold, mainland media reported.

The ministry's latest funding request has come as a shock to officials at the Ministry of Finance, National Development and Reform Commission, and the China Banking Regulatory Commission, the Economic Observer reported.

It said the railways ministry had sought 400 billion yuan in addition to 400 billion yuan already requested from the MoF. "How can we provide such a huge sum of 400 billion yuan?" a source close to the MoF told the daily.

Projects encompassing 10,000 kilometers have been held up due to a dearth of capital, the report said.

A Railways Ministry source said that it is indebted to the tune of 2.09 trillion yuan - consisting of 637.7 billion yuan recurring loans and 1.45 trillion long-term debt.

Factory Closure Wave Looms

Reuters reports Gloomy Outlook for China Exporters as Factory Closure Wave Looms

November 8
Up to a third of Hong Kong's 50,000 or so factories in China could downsize or shut by the end of the year as exporters get hit by cost rises and darkening global demand for Chinese goods, a major Hong Kong industrial body said on Tuesday.

The Federation of Hong Kong Industries, which represents around 3,000 industrialists running factories in China, said it expected orders in the second half of this year and the first half of 2012 to fall between 5-30 percent.

The European debt crisis and a fragile U.S. economy have depressed this year's Christmas orders, Stanley Lau, deputy chairman of Hong Kong's leading industrial promotion body, told a news briefing.

He said a consolidation was on the cards, with around a third of Hong Kong's 50,000 or so factories in China likely to scale down operations or close by year-end.

"We feel that this is not an overestimate," said Lau, who is also the owner of a Hong Kong watch factory in China, citing higher raw material costs and rising factory worker wages, which had already risen up to 20 percent this year.

"Many (factory owners) can't see when the market will have a rebound so they are trying to cut their losses by closing, before all their money is gone," Lau said.

China No Global Growth Savior

Anyone expecting China to disconnect from a slowing global economy is not thinking clearly, nor are they looking at the increasingly grim facts.

Europe is in recession and Europe is China's biggest export market. The US is slowing as well, just not as rapidly.

Moreover, and as I have reported on numerous occasions, a regime change is coming in China in 2012. That regime change is highly likely to be more focused on an overheating property bubble as well as China's unsustainable dependency on a heavily overbuilt infrastructure model.

Even if the Chinese economy as a whole does not crash, the real estate and infrastructure sectors will. If so, commodity prices will come down, and that in turn will pressure the hard asset currencies of Australia and Canada.

An outright global recession is likely, led by Europe.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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