“Over the past 30 years China has become the world’s factory. For the past few weeks, the production line has been shut down by plant closures deemed necessary to halt the spread of coronavirus. Beijing fears there will be both short- and long-term damage from the outbreak.
“The country is on course for its first quarter of negative growth in decades, while earlier this week China’s ambassador to the World Trade Organization (WTO) called on other countries not to use coronavirus as an excuse to put up trade barriers.
“The fact that Zhang Xiangchen felt the need to make this appeal speaks volumes…
“Countries… get defensive when times are tough, as they have been ever since the financial crisis of 2008…
“Globalisation was sold as a way of boosting prosperity for all by making markets bigger and more efficient. For a while the model worked, but when it blew up and caused extensive collateral damage, a backlash was inevitable. Deglobalisation is the result.”
“…the Chinese economy is in the midst of a difficult and delicate transition, and the virus is weakening key forces — most especially consumer spending — that need to be as strong as possible for the change to go smoothly.
“Meanwhile, China is one of the few remaining major sources of demand in a global economy that’s still struggling to keep its head above water.”
Chinese auto sales in January declined 18% on year to 1.94 million vehicles, the government-backed China Association of Automobile Manufacturers said Thursday… “
“Auto sales in China declined for the second straight year in 2019 to 25.8 million, down significantly on the record-high 28.9 million sold in 2017. The painful start to the year could spell another full-year decline for the Chinese industry in 2020.”
With no end in sight to the health emergency… it is small corporate defaults such as this that threaten to cause big trouble for the country’s banks… China’s banking sector is already in rough shape.“
“A decade of excessive credit growth has saddled China’s lenders with heavy bad debts. Sharply declining economic growth [has]… put additional pressure on balance sheets over the past two years.
“…many small banks are deeply troubled and already have bad debt rates exceeding more than 40 per cent of their total loan books. In 2019, regional lenders including Baoshang Bank and Hengfeng Bank required government bailouts or other forms of intervention to stop systemic risk from spreading.
““The resilience of China’s banking system may be tested,” wrote S&P Global analyst Ming Tan in a report.”
President Xi Jinping proposed more fiscal stimulus, including tax cuts and other aid, to industries affected by the virus outbreak in a renewed effort to rein in the rising damage to the economy.“
“Beijing needs to “maintain stable economic operation and social harmony,” the New York Times reported, citing Xi’s comments broadcast on state television.”
the global economy was already stagnating pre-coronavirus in 2019, especially trade and manufacturing:It is important to note that
“Malaysia’s central bank says there is “ample room” to adjust interest rates after economic growth slowed to its weakest in 10 years in the fourth quarter of 2019 and the coronavirus outbreak threatened to pile on more pressure this year.
“The coronavirus epidemic in China will put further pressure on the economy this year…”
Again, this was before the coronavirus outbreak:
“India’s industrial production growth turned negative in December, contracting by 0.3 per cent, mainly on account of a decline in manufacturing sector output, official data showed on Wednesday…
“Electricity generation also fell by 0.1 per cent as against a growth of 4.5 per cent in December 2018.”
Also before the outbreak:
“Industry in the eurozone suffered a dramatic collapse in production in December as output levels dived 4.1pc compared with the same month a year earlier.
“Production has not fallen faster since the depths of the financial crisis, according to official data from Eurostat, indicating the scale of the crunch facing the sector.”
The number of job openings in the U.S. declined consistently throughout 2019 and took a nosedive in the last two months of the year… “
““Net, net, job openings around the country are plummeting in a way that we hate to say looks like a recession,” Chris Rupkey, chief financial economist at MUFG Union Bank, told CNBC.”
Federal Reserve Chairman Jerome Powell said Wednesday the central bank would fight the next economic downturn by buying large amounts of government debt to drive down long-term interest rates, a strategy that has been dubbed quantitative easing, or QE…“
““We will use those tools — I believe we will use them aggressively should the need arise to do so,” Powell said.”
“While much has been achieved in strengthening the financial system against systemic risk posed by banks, policy-makers must still do more, a report published by the International Monetary Fund says.
““Enhancing resolvability of systemic banks – at the global, regional and domestic level – is a key priority,” IMF staff write.“
“I do not think that central bankers will ever be able to pull away from this,” Mark Spitznagel, the founder of Universa Investments, explains. “They will never be able to ‘normalize’ rates… we’ve gone so far down the rabbit hole this time…”“
“He doesn’t know when the inevitable crash will come. But he knows that when interest rates start heading up again on their own, which is also inevitable, that “markets are going to crash. It won’t be pretty.””