Economic forecasts - Chinese vs Western style

China Analysis: China economic forecasts: go herbal or Western? - Wei Gu



Reuters' Wei Gu wrote a insightful op-ed in today's news. He proposes a clever analogy in the form of a question:

"Which would you believe when it comes to diagnosing the health of China's economy -- the pulse taking of the herbal doctor or the lab tests of Western medicine?

When it comes to economic forecasts, Chinese planners favor using such economic indicators as shipping indexes like the Baltic Dry Index or more concrete measures of economic activity such as domestic power output / consumption.

Western forecasts on the other side tend to be based on more "mainstream" economic data such as money supply, loan growth and fixed asset investment.

Wei Gu argues such measures may not be as useful as experts in the West believe at measuring a transitioning economy such as China.

Gu elaborates his point by explaining that China is heavily dependent on the rest of the world for energy, therefore if energy output in China is increasing, it has to be buying it from somewhere. Raw output and consumption data offers a means in which to back check the accuracy of the data released from the Chinese government.

Gu writes, "Its beauty is that it is not distorted by inventories, is difficult to manipulate and is available almost real-time. Chinese banks routinely check the utility bills of their clients to make sure that factories are still busy."

Shipping offers another insight into the Chinese economy. Developed economies are generally more focused on service industries rather than manufacturing and exports. This helps to explain why Western economists favor looking at money supply and fixed investments.

However, considering Western economists remain a powerful influence in the global economy, it is important to pay attention to their own observations and forecasts.

This year, as Gu explains, the Baltic Dry Index "offers a less telling read on China's demand for raw materials because the State Reserves Board has embarked on a commodities buying binge. Thus commodity imports might just be sitting in the reserves instead of going to factories.

After China's money supply surged a record 25.5 percent in March as banks ramped up lending, foreign investment banks' knee-jerk response was to upgrade their forecasts for China GDP."

Perhaps this is a sign that an economic recovery -- which has caught the imagination of economists and investors but has yet to convince Chinese leaders -- is on the way, but its actual start might be later than what the market believes."

Click here to access Wei Gu's complete article

Singaporeans remain cautiously optimistic

A interesting article hit my WSJ reader this afternoon. From the title "Singaporeans stay buoyant in Asian storm," I was not too sure which direction the article would take.

Here's my take of the article.

The financial crisis has hit Singapore hard. The city-state after all is home to the largest container shipping hub in the world. When global trade slumped, inevitably so would the Singaporean economy.

The Financial Times in this article seems to agree with a observation I have made on my business trips to the city. The average Singaporean works very hard, earns a decent yet not absurdly salary, receives subsidized housing and generally speaking... LIVES WITHIN THEIR MEANS

Much like the average citizen, The city-state has also lived within its means. The Singapore Sovereign Wealth Fund is worth around $100 billion, which Singapore saved up during the good years.

This has transpired in the form of confidence, at least for Singaporeans that is. Foreign expats have ironically been the hardest hit by the crisis, suffering a major exodus after the fall of Lehman Brothers last year. Singaporeans on the other hand are holding up quite well, continuing to spend while waiting for a recovery.

“We suffered a fall in business, particularly among expats, after the collapse of Lehman Brothers in September. But the slack has since been taken up by locals who still have money to spend,” said Chris Churcher, the owner of the Red Sea art gallery.

Cem Karacadag, an economist at Credit Suisse in Singapore, said that Singaporeans are used to living within their means since he estimates half of the working population makes S$2000 ($1,354, €1,022, £914) or less a month in one of Asia’s most expensive cities. About 85 per cent of the population lives in publicly subsidised housing, leaving little risk of foreclosures.

“We are a resourceful people,” said Jeffrey Tan, who owns a small printing company. When business orders started drying up, he decided to take a part-time job as a taxi driver. “It is a flexible job so I have time to devote attention to my business when I need to. The only problem is that fewer people are taking taxis.” Mass transit use has risen as people try to cut costs on incidental expenses.


Click here to access the FT article which was used in writing this post.

Deutsche Bank sees hope in the commodity markets

The global head of Deutsche Bank's commodity unit, David Silbert, announced today the bank (Germany's largest bank by market share) will be expanding its commodity team by roughly 10% this year.

DB will be adding new assets of coal, European natural gas and shipping to its balance sheets.

DB has seen its revenue from commodities quadruple over past two years. The bank seems confident this trend can continue and that as global stimulus packages hit the market and the general global economic outlook improves, commodity demand will once again head north.

“With hope of an economic rebound, crude, base metals prices are going to be higher than now,” said Silbert.

Bloomberg does a pretty good job in this article of contrasting DB's strategy vs tha to Zurich-based UBS AG.