Thursday, January 12, 2012

Société Générale's Albert Edwards: China's collapse 'will bring economic crisis to climax in 2012' (Jan. 12, 2012)

And then broad sunlit uplands, eh Albert?
Following up on yesterday's "Société Générale's Annual Strategy Seminar: Albert Edwards, Dylan Grice and a Cast of Thousands".
First up, the Guardian:
Leading City of London analyst says next 12 months will be one of 'pain and disappointment' if Chinese economy crashes

A looming hard landing in China will bring the financial and economic crisis of the past five years to a climax in 2012, one of the City of London's leading analysts has warned.

Albert Edwards, head of strategy at Société Générale and one of the UK's leading "bears", said the next 12 months would be the "final year of pain and disappointment".

Predicting a sharp slowdown in activity in the world's fastest-growing emerging economy, Edwards said: "There is a likelihood of a China hard landing this year. It is hard to think 2013 and onwards will be any worse than this year if China hard-lands."

Although China emerged rapidly from the downturn of 2008-09, Edwards said the recovery had been the result of a massive reflationary package by the Chinese government. Beijing, he added, could not afford another big stimulus to offset a weakening of the economy. Falling imports have led to a widening of China's trade surplus, but Edwards said exports were set to slow and a trade deficit was looming.
He added that despite the recent run of more upbeat economic news from the United States, the risk of another recession in the world's biggest economy was "very high". Growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the "stall speed" that historically led to recession. It was unlikely that the economy would muddle through, Edwards said.

China has grown by around 10% a year on average over the past two decades, making it the world's second-biggest economy, but the threat of a double-dip recession in the west, coupled with signs of over-heating in the Chinese property market, have caused some analysts to predict severe problems ahead.
Edwards's view was supported by the historian Edward Chancellor, who said China's recent economic performance conformed to the pattern of previous manias and bubbles in history. These included an uncritically assumed growth story, easy money and credit expansion, investment booms and the misallocation of capital, and conspicuous consumption....MORE
And from ZeroHedge, Chart Mania:
China Enters The Danger Zone, SocGen Presents The Four Critical Themes
As both anecdotal, local and hard evidence of China's slowing (and potential hard landing) arrive day after day, it is clear that China's two main pillars of strength (drivers of growth), construction and exports, are weakening. As Societe Generale's Cross Asset Research group points out, China is entering the danger zone and warns that given China's local government debt burden and large ongoing deficits, a large-scale stimulus plan similar to 2008 is very unlikely, especially given a belief that Beijing has lost some control of monetary policy to the shadow banking system. In a comprehensive presentation, the French bank identifies four critical themes which provide significant stress (and opportunity): China's economic rebalancing efforts, a rapidly aging population and healthcare costs, wage inflation and concomitant automation, and pollution and energy efficiency.  Their trade preferences bias to the benefits and costs of these themes being short infrastructure/mining names and long automation/energy efficiency names....MORE

So (Theme #1) Rebalancing Is Key - The Only Way Forward
And China Is Slowly Heading Towards Mass Consumption (Which Changes Commodity Demands)
Mining - The Hardest Hit