5 ‘real world’ signs of the coming Chinese apocalypse

By Pamela Heaven

From shrinking trade to stalling factories to surprise rate cuts, signs are mounting that China is headed for a hard landing.

Tuesday investors fretted as China’s imports in June grew at half the expected pace, entrenching concerns that domestic demand in the world’s second-largest economy is cooling quickly.

The news was also not a good harbinger for China first-half GDP data to be released later this week.

While economists crunch the latest numbers, Trefor Moss, writing for Foreign Policy magazine, provides “real-world signs of China’s economic malaise.”

The stimulus that China pumped into the economy during the 2009 downturn is coming home to roost for local governments.

Municipalities are being asked to repay their debts and local officials, who indulged in fancy fleets among other luxuries during the boom years, are feeling the pinch.

The city of Wenzhou is planning on auctioning off 80% of its vehicles this year, 1,300 cars, with similar fire sales being held nationwide.

About 30 people were hurt and two police cars were smashed last month when a riot broke out in Shaxi township in Guangdong province — known as the ‘world’s factory floor.’

As exporters go bust and factories cut shifts, tensions between migrant workers and locals over layoffs and wage cuts are mounting. Migrant workers are the elbow grease of China’s growth and their disaffection could be its undoing, writes Moss.

More than half of China’s millionaires are either considering emigrating or have already taken steps to do so, a survey by Bank of China and wealth researcher Hurun Report revealed. And if they haven’t moved yet they are spending their money elsewhere.

Another survey by Allianz China Life Insurance says China’s wealthy are losing confidence in the domestic market and socking money into cash and less into stock, real-estate and other investments. Sales of luxury goods inside China are down, but investment in high-end property overseas is up.

A ‘naked official’ is a term in China that refers to an official who has sent his family and money abroad and is poised to make a getaway himself. And their numbers are rising.

Chinese prosecutors say 18,487 officials, including executives from state-owned companies, have been caught during the last 12 years while allegedly trying to flee overseas with ill-gotten gains, the Los Angeles Times reports.

As Moss points out, China’s wealthy are often members of the same family, and if China really does go into recession, a lot of rich people may decide to cut and run.

China’s ports are piled high with surplus coal as businesses and citizens try to save on electricity bills. Factory production cuts have contributed to the slump in demand.

The national price of coal is down 10% since late last year, a drop that will hit the global economy and in turn cut demand for Chinese exports.

Last year pork prices skyrocketed 57% in response to the growing Chinese appetite for meat, but over the past four months that demand has slipped. So much so that the hog-to-corn price ratio which measures whether rearing pigs is profitable dipped into the red and the government had to step in. At the same time the price of eggs has shot up so quickly that shoppers now call them ‘rocket eggs’ and Chinese consumers, shaken by the faltering economy and food safety scares, are opting to grow their own food.

World cools towards Barack Obama

International approval of US President Barack Obama's foreign policy has dropped sharply during his term in office, a Pew Research survey suggests.

Among the 21 countries surveyed, the largest drop in approval - from 57% to 27% - was seen in China, the Global Attitudes Project reveals.

Most respondents in almost all countries opposed US drone strikes.

Despite these numbers, confidence in Mr Obama remains high among US allies, especially in Europe.

"I think where you see the real disappointment is when you deal with specific policies," said Richard Wike, associate director of the Pew Global Attitudes Project.

He added that the survey showed big gaps between expectation levels and action over Mr Obama's policies on climate change and treatment of the Israeli-Palestinian conflict.

Economic power

According to Mr Wike, confidence in Mr Obama and approval of his international policies has trended downward during the course of his presidency, but has not dropped sharply in a single year.

Besides China, the largest declines in foreign policy approval by 2012 included long-term ally Japan and neighbour Mexico.

Among five European countries surveyed both in 2009 and 2012, approval of Mr Obama's international policies dropped from 78% to 63%. In five Muslim countries surveyed in both years, the approval rate dropped from 34% to 15%. Russia also joined the countries with double-digit declines, from 40% of respondents approving US international policies to 22%, an 18% decrease.

While Mr Obama generally has higher approval ratings than President George W Bush did at the end of his second term, their approval ratings are now matched in Pakistan and Mr Obama's remain only slightly better in Lebanon.

Among the countries surveyed there was widespread opposition to US drone strikes. At least 50% of respondents in 17 countries disapproved of such strikes, with the largest percentages in the Middle East, Mexico and Greece.

In recent weeks, Mr Obama has become more closely associated with the US drone programme, with a New York Times report noting he personally approves each strike, and that the US keeps a "kill list" of potential strikes against militants.

In addition to changes in sentiment towards Mr Obama and his policies, the survey records a shift in the way economic power is perceived.

Majorities in Germany, Britain, France and Spain now regard China as the world's leading economic power, not the US. In the UK, this percentage has doubled since 2008.

Mr Wike told the BBC the US had seen a downward trend in its perceived economic power since the 2008 financial crisis and subsequent recession, despite Mr Obama receiving "reasonably good marks on global economic issues".

However, American "soft power" gets higher marks, especially among young respondents.

The American way of doing business is popular in the Middle East, with more than 50% in Lebanon, Tunisia, Jordan and Egypt saying they like this part of US image.

Majorities or pluralities in 18 of 20 countries admire US science and technology, according to the survey. American ideas about democracy are more popular among respondents under 30 in several countries, including Tunisia and China.

Americans’ wealth plummeted 40 percent from 2007 to 2010, Federal Reserve says

By Ylan Q. Mui

The recent recession wiped out nearly two decades of Americans’ wealth, according to government data released Monday, with middle-class families bearing the brunt of the decline.

The Federal Reserve said the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010. That puts Americans roughly on par with where they were back in 1992.

The data represent one of the most detailed looks to date of how the economic downturn altered the landscape of family finance. Over a span of three years, Americans watched progress that took almost a generation to accumulate evaporate. The promise of retirement built on the inevitable rise of the stock market proved illusory for most. Homeownership, once heralded as a pathway to wealth, became an albatross.

Those findings underscore the depth of the wounds of the financial crisis and how far many families remain from healing. If the recession set Americans back 20 years, economists say, the road forward is sure to be a long one. And so far, the country has only seen a halting recovery.

“It’s hard to overstate how serious the collapse in the economy was,” said Mark Zandi, chief economist for Moody’s Analytics. “We were in free fall.”

The recession caused the greatest upheaval among the middle class. Only roughly half of middle-class Americans remained on the same economic rung during the downturn, the Fed found. Their median net worth — the value of assets such as homes, automobiles and stocks minus any debt — suffered the biggest drops. By contrast, the wealthiest families’ median net worth rose slightly.

Americans have tried to rebalance the family budget but have found it difficult to reverse the damage.
The survey showed that fewer families are carrying credit card balances, and those who do have less debt. The median balance dropped 16 percent, from $3,100 in 2007 to $2,600 in 2010. The Fed also found that the percentage of Americans who have no debt rose to a quarter of families.

But that progress was undermined by other factors, leaving the median level of family debt unchanged. The report said more families reported taking out education loans. Nearly 11 percent said they were at least 60 days late paying a bill, up from 7 percent in 2007. And the percentage of families saddled with debts greater than 40 percent of their income stayed the same.

Not only were Americans still facing significant debts, but they were making less money. Median income fell nearly 8 percent to $45,800 in 2010. The median value of stock-market-based retirement accounts declined 7 percent to $44,000.

But it was the implosion of the housing market that inflicted much of the pain. The value of Americans’ stake in their homes fell by 42 percent between 2007 and 2010 to $55,000, according to the Fed.

The poorest families suffered the biggest loss of wealth from the drop in real estate prices. But middle-class Americans rely on housing for a larger part of their net worth. For some, it accounts for just more than half of their assets. That means every step downward is felt more acutely.

Rakesh Kochhar, associate director of research at the Pew Hispanic Center, calls this phenomenon the “reverse wealth effect.” As consumers watched the value of their homes rise during the boom, they felt more confident spending money, even if they did not actually cash in on the gains. Now, the moribund housing market has made many Americans wary of spending, even if their losses are just on paper.

According to the Fed survey, that paper wealth — or what is officially called unrealized capital gains — shrunk 11 percentage points to about a quarter of American’s assets.

The findings track research Kochhar released last year that showed a dramatic drop in household wealth during the recession, particularly among minorities. That study found record-high disparities between whites’ wealth and that of blacks and Hispanics.

“It was turning the clock back quite a bit,” Kochhar said.

The Fed’s survey is conducted every three years. Although there have been some signs that the recovery has picked up — housing prices have begun to stabilize and unemployment has fallen — Fed economists said those improvements largely do not change the survey results.

“Recovery from the so-called Great Recession has also been particularly slow,” the report said.