Flexing China makes for a cheery outlook

Yet more terrific news for the Australian economy, this time with conformation that the pace of economic expansion in China is picking up from the slowdown that reached a low point around the middle of the year.

The trifecta of economic news from China was in the form of better than expected results for industrial production, fixed asset investment and retail sales. This good news is consistent with a rate of GDP growth around 7.5 to 8 per cent rather than the sub-7 per cent that was feared a few months ago as the data turned sour.

Recall that China is in the second largest economy in the world behind only the US and it takes around one third of Australia’s exports. Chinese economic news is more important to Australia than from anywhere else (Can Abbott crack China's FTA challenge?September 11).

In terms of the specifics, industrial production rose by 10.4 per cent in the year to August, up from July’s 9.7 per cent and above the 9.9 per cent consensus estimate. This was the fastest rate of increase in 17 months. Fixed asset investment rose 20.3 per cent over the year, up from 20.1 per cent in the prior month, while retail sales lifted 13.4 per cent through the year to be above the 13.2 per cent growth rate recorded in the year to July.

Commonwealth Bank of Australia senior economist Andy Ji saw the data as so positive that there is upside to the the bank's current forecast for 7.6 per cent GDP growth in 2013.

The news follows the better-than-expected international trade data and confirmation that inflation in China was still well-contained, which would allow the authorities to hold policy at an easier setting for a little longer, thereby locking in a solid rate of expansion for the remainder of 2013 and into 2014.

In last month’s Reserve Bank of Australia Statement on Monetary Policy, released days after it cut official interest rates to a record low 2.5 per cent, the bank noted that “growth in China is now unlikely to pick up much, if at all, in coming quarters. Rather, it is expected to remain at a pace that is close to the official target [of 7 per cent]”.

Clearly a lot can change in five weeks, and it is nice at last to see the surprises coming on the high side after several years of growth downgrades. The recent trends in China will no doubt see the Reserve Bank move quickly to recast its forecast for Australia's growth and terms of trade higher, and in doing so scaling back the forecast rise in the unemployment rate.

This news from China creates a new foundation for an upbeat outlook for the Australian dollar. It also means that the start of the fresh interest rate hiking cycles could be quite soon and the extent of those rate hikes much greater than just about anyone is currently anticipating.

The Aussie dollar jumped on the better news and there was also a lift in the stock market trends that spread to Europe and the US overnight. This morning the dollar is trading at US 93.15 cents, while US stocks rose around 0.75 per cent. Bond yields also moved higher. Rising stocks, bond yields and an appreciating Australian dollar are all signs of a favourable growth outlook with some upside risks to global inflation. 

Of course, there are risks ahead, as there always are in economics and financial markets. In China, there remains a perception that there is considerable excess capacity and that the shadow banking systems is sufficiently fragile that a property free-fall is being factored into some scenarios for 2014. Indeed, this looks to be the biggest risk for the Chinese economy. 

There is also the heavily intertwined risk where China’s largest buyer of manufactured goods, the eurozone, remains stuck in economic quicksand even though the run of recent news has been a little less down beat. If the hints of better news from the eurozone in recent months fade, the current round of good news from China may quickly reverse.

For now, with policy settings tilted towards growth and a recovery in export demand from slowly recovering western countries, China seems well placed to grow at a solid clip over the next 18 months and Australia once again will hang on for the ride. 

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According to Four Corners last night some of China's growth is building empty/vacant cities.

I believe we should start doing this Australia ........... measure it into our "economic growth".

Don, you're spot on, and all we're lacking is the centrepiece grand project.
If I may be so modest, as to suggest my "little" plan.
If digging holes fits the Keynesian model,..............
Then I propose the BIG HOLE initiative.
We have the skills in this area, and plenty of under utilised mining expertise.
We dig the Great Australian Lake in the centre of this Great Nation.
Dig the Hole...........and the water will come.
The Great Australian Lake, will bring life, back to life in our Great Interior.
Greening our centre, cooling our Domestic Climate, great for migratory birds.

Just putting it out there....

Colin, have you heard of the China syndrome?

The theory is that if you dig deep enough you end up in China (the center kingdom).

And a direct route for delivery of our export resources!!
I feel a Knighthood, on the way :-)

We all have our preferred growth vehicles. China builds unnecessary infrastructure. Australia uses population growth in the same manner. Both are highly dubious strategies.

Yes Andy, but Bruce's idea sounds like a lot more fun...

Hey Bruce the first place you could start is Kingsgate Consolidated's Challenger Gold Mine in the far north of that great state of South Australia...it's a very big hole already.
And Kingsgate doesn't need it anymore because it costs just as much to dig gold out of the ground as the actual gold price.
We could have a really long pipeline coming down from the Ord River Scheme, and another one from the Brisbane river to stop the yearly floods.
Heard on the news Kevin Rudd is being promoted to Foreign Minister to Queensland...he could push the negotiations through.
Great idea Bruce...could be a knighthood in it ...

It was Bruce's idea...he passed it onto Colin the other night over a couple of glasses of South Australia's best Cab-Sav....he's always pinching Bruce's ideas.

Hey Steve 51...loved the breaking news that Steve Bracks got shafted from his new overseas job...5 minutes before he was due to start....$250,000 per year is bad enough ( but did you read he was going to be provided with a 25 million dollar penthouse!!).
I always thought my mum should have pointed me towards dentistry ( instead of my best role...emptying those bottles of fine SA red ...and for that matter browns)...but sounds like foreign diplomat is the caper!!!

Sorry for taking so long Bruce...dropped everything to apply for the job !

Good morning Don...like your thinking. ( I spent most of 2008 & 2009 building an empty super account....so can I offer to help)


China dusted off their printing press and are now delivering truckloads of money to
those provinces that lied on their productivity figures.

The Starbucks sign on the empty city was a nice touch though.

When will ausralia get with the program and refund my 35 years of taxes so I can
stimulate the economy.

I mean its not as if they really need it. They could just pick up a used printing press
on ebay like the rest of the world.

Did you ever have the feeling that the money YOU earned by, I dunno, building a
house for people to live in, was somehow different from the money governments
create by sending the U-haul-it truck around to treasury?

I think at some point the populations of the world will make that comparison.


All the economists sre still trying to convince us all that everything is fine, it seems from many of the comments on Business Spectator that they are fighting a losing battle.

Personally I am saving and preparing for GFC Msrk 2 as there is no doubt it is coming sometime in the not to long future.

Good thinking.

Prudent planning never hurt but also don't forget to enjoy the days you have.

A lot of people get caught up in what's coming down the road assuming they will be there.

They may not.

Have a great day.


And a cheery Good Morning to David,......
"Life is what happens, while you're busy, making other Plans".........
So said John Lennon......
and then a nutcase shot him.
Sums it all up really.

David I am still enjoying the days I have as you never know what is around the corner, but being prident at the same time. Sourcing value for money where I receive the benefit not someone else, holidays for me and not supporting sporting or entertainment where it only goes to make some individual already rich even richer.

When we see a world that cannot end its continous thirst for greed leading to irresponsible lending and borrowing then it is very likely that there will be something unpleasant at the end of the road.

My job is to protect myself and not worry about what others do, those that can't see what is happening will go under and individuals like me who do the right thing certainly will not come to their assistance, they need to learn the hard way. Compassion and charity are a thing of the past

In addition why not add our 'human produce' into GDP as well. After all, it is produced from application of production inputs and manufacturing thereon, using effort and energy.

Wait, are you advocating increasing our GDP through Soylent Green production?

Sure, and as well as a new food source, this may be a tool for population control too, and I think there is a none-too-small number of individuals we would like to volunter to contribute, but I was thinking not so much of the production from human remnants after life as human remnants in the course of life. This production is already occuring, its just not being recognised in GDP.

Oh, and I'd like to add that we could include the production of methane as well!

We're talking about shonky stats, can you imagine by how much the stats could be supported if this 'human production' was included too !! With about 1.3b people in China, they wouldn't need to build cities in order to push their published GDP stat.

When undertaking security analysis, it is vital to assess not just earnings, but the quality and sustainability of earnings, of a particular company over time.

Simplistically speaking, the present value of these future earnings is what gives equity its value. The market ticker establishes the equity price.

What we too often see from economists like Mr. Koukoulas, is a regurgitation of headline economic statistics (brought to you by the Department of Propaganda). Not only is the P of GDP questionable (rigged data), but the quality and sustainability of the earnings is poor (that is to say nothing of GDP as a measure of economic performance).

The key paragraph from todays Koukoulas instalment is 'In terms of the specifics, industrial production rose by 10.4 per cent in the year to August, up from July’s 9.7 per cent and above the 9.9 per cent consensus estimate. This was the fastest rate of increase in 17 months. Fixed asset investment rose 20.3 per cent over the year, up from 20.1 per cent in the prior month, while retail sales lifted 13.4 per cent through the year to be above the 13.2 per cent growth rate recorded in the year to July.'

If you read that really fast, and don't think about it, it sounds wonderful...

The contributors to the conversation, however, have a tendency to think about these things.

'the specifics' referred to above, are not actually specifics, they are simply headline numbers.

The proportion of GDP which these elements make up, is of vital importance.

Far and away the biggest element of GDP in China is Fixed Asset Investment.

Coming off an already (sustained) high, historically unparalleled in other developing economies, base, of well above 40% of GDP, fixed asset investment has grown again, YOY by +20%.

This follows all of the announced rubbish that China is 'transitioning' to a consumption and services driven economy.

Evidence to the contrary.

'Transitioning'... is hard... takes systemic, structural, regulatory...(etc.)... change... it also takes time... and that is one thing that the Chinese haven't got.

So... the easy path, of speculation on real estate, roads to nowhere, bridges over plains, empty buildings, high speed rail and other uneconomic riggings, is taken, for social harmonic purposes of course... but now, these investments are being funded by debt, both via traditional banking, and shadow banking channels.

So, funding anything with debt indefinitely cannot occur, because the debt has to be repaid, and these investments aren't going to make a return, so how will that happen anyway? and fixed asset investment is already at an amazingly high proportion of GDP and can't be sustained (either with debt or savings)....

So why all the cheerleading from 'retail' economists? Where is the critical thought and questioning?

I would offer that, rather than good news, these economic statistics should be setting off alarm bells in Australia.

They mean that the Chinese are continuing behaviour, which they (and others) know to be unsustainable, in an effort to maintain the status quo (power).

We all know what happens when too much hot air is blown into a bubble....

No... Australia truly is the lucky country, but the clock is ticking, we have a closing window of opportunity to get our house in order, before the consequences of over inflated bubbles, finally hit.


Whoa!!........that's a really potent unwelling of weeks of pent up pressures.
Great post......
Better out than in, eh?

I feel 10kg lighter...

Keyser, thankyou for your post. If I may add a little to it in my usual obscure manner.

Stephen K, is right, you are right, Stephen N is right, David Doyle is right, Bruce 55 is right. So whats the problem? the problem is that we have not developed the right question to ask.

For example: Stephen K, referred to an RBA meeting (5 weeks ago), that eluded to a lower cash rate, he was surprised (according to his statement) that the RBA now sees a higher cash rate in motion (and the parallel of inflation).

The question, that I pose to Stephen K. is why were you surprised that the RBA was not projecting its thoughts clearly.

Myself and several others, stated absolutely and continually, that the cash rate was too low and that inflation will become a problem. Now that is not "after the fact" conjecture on my part, my posts have consistently stated (along with others) that the cash rate is too low!

OK, regarding China, what question, do we need to ask? The question is a purely mathematical one. It is: what is the electrical production of energy? is it rising or falling?

So, lets see if that question, is relevant to an immutable law.

Newtons first law of motion states that:" Objects in motion tend to remain in motion, unless an external force is applied".

Now China has accelerated its electrical output, so the question becomes, why?

Lets now refer to Newtons 3rd law of motion: "For every action, there is an equal an opposite reaction".

The relationship between law 1 and law 3 implies that the slowing down of the Chinese economy has been negated by the larger reaction of increased energy input.

That means accelerating growth. But why refer to Newton? He was the man that, developed economics. He also developed calculus, modern banking, based on the gold standard. But most important of all, he understood fundamental energy and nothing exists without fundamental energy.

So, live today, while there is still a spark in your battery and let the philosophers philosophize but realise that it is not fundamental knowledge.

Ken...yes...we share a common frustration with the RBA. They cut too many times on the way down and just watch them botch up the path back upwards.
( In the previous period of increasing the cash rate, the only things going up, where the utility prices, mortgage payments , council rates and state taxes....and this is not a monty python sketch...but not only don't any of those things react to changes in interest rates...as in...does your electricity suddenly get cheaper as the interest rates go up...? obviously no....and how about the gem of including increasing mortgage repayments as a sign of inflation....yes...increasing interest rates sure does a lot to hold back mortgage repayments...NOT.
The RBA is so badly out of touch with reality...I'd much prefer Stephen Nordstrom's suggestion....fix the cash rate at 5% ...and lock it in.

North Korea, would be proud.
See,.......State planning ,....Does work!!

Not so funny...central bank manipulating interest rates...that's straight out of North Korea.

As I was discussing with SN yesterday, to profit from these things in markets, one must be on time. If one is too early/late... it therefore follows that one is not in fact, right. (in the present tense)

What we are all debating are prospective different futures. We can therefore all be right in the present.

(I've got a headache and might have a lie down)...

But before I do... the Chinese are a great, creative and industrious people... if there is a game to be rigged, they will find the most effective way to do it... having worked out that the rest of the world puts economic statistics announced by the department of propaganda in the bin, and looks at other indirect evidence of economic performance like electricity consumption as a proxy for activity... they have gone into the electrical load bank business (adds to GDP), and scooped up every available load bank on the planet (adds to import earnings), and connected these load banks to the electricity network to goose up electricity demand.

Given that these load banks are effectively just big bar heaters, this has had the unintended effect of adding to global warming... The Chinese have agreed to use 2013 as their baseline emissions year, for future carbon trading schemes, so that in the future they can reduce their emissions profile and once the heaters are turned off, will point to their contribution to the reduction of global warming.


Hey Keyser,.......that means, that if China just hooked these Load Banks, up to Big Air Conditioners, that's pretty much Climate Change all sorted. :-)

Brilliant... the greatest moral challenge of our time.... sorted...


AND,............All before Lunch.......................Brilliant.

Colin & Keyser....I reckon you're onto something here. ( And Ken...this is truly intended with very good intentions....but a bucket load of your super cooled electrons to boot...and global warming is done & dusted).

Absolutely Bruce, I bet K.S. and Colin have heard of, Dark Energy.

We can just take one of Keysers', banks of energy and super cool it.

Dark energy is minus 0.000000000000000000000016 degrees Kelvin and it holds the entire universe together. Now that is a proven fact and the Chinese definitely know about it.

Use your energy, before your battery goes flat, there ain't no second battery :)

You're a good sport Ken...keep up the good work!!

Just confirming, that's about minus 273.15 degrees celcius?

Inspirator, close enough to. Einstein was a time travaller, because he could not have known about dark energy, yet he knew about super cooled electrons, just like future generation will know about space/time warps. As I said he had a problem with the concept of time, as it is almost irrelevant in physics.

OK, here is the problem, we cannot measure something that does not exist. However if we cant measure something, then we dont know if it exists. So, how can we prove it exists?

The old miasma effect (think of a black hole), we cant see it, we can't measure it but we can see what it does to other things.

Getting your head around a number that is so small, will require the miasma effect for analogising.

When a 40 megaton hydrogen bomb explodes, in 5-6 thousandths of a second, it emits an electromotive pulse, that destroys are electrical apparatus within a 20 klik diameter.

Thats a lot of electrons, being emmited from a fusion reaction. Now think of how many electron volts are required to produce that pulse and you will understand the power of dark energy.

Post script. If you have an internal combustion engine, that combines air and petrol to produce power, then the temperature of the air used in the combustion stoke, will determine, power output.

Example air at 20 degrees C plus petrol = x power.

Air at 10 degrees C plus petrol = x plus y units of power

Air at 5 degrees C plus petrol = x plus 2y units of power

Air at 2.5 degrees C plus petrol = x plus 4y units of power

This scenario exist because of the increased expansion of the cooler air

So, how does that work with electrons? Electrons emit an electromotive force (that is measured as capacitive reactance when travelling in copper, this force becomes heat energy and resits the energy of the electron. However a super cooled gas removes this reactance and the total energy of the electron is realised.

In deep space the temperature is around absolute zero and electrons clump to form gravitational fields. Welcome to the twilight zone :)

Without the specifics that is where my commentary would have been heading.

? Isn't this the current path the US is on with taps on?

Keyser, I read your reference site (from yesterday - re energy backing for currencies), that is mandatory for all contributors to this sight.

Thankyou for that, maybe now I wont look like a space traveller :)

Hi Ken,

My pleasure, it's a good alternative to fiat currency, or a return to (a revised and improved) gold standard... my 'money' (pun intended) would be on a return to a pseudo-gold standard, particularly witnessing the way that the Chinese are accumulating gold...

He who has the gold, sets the rules.


The Aussie dollar has gone back up to 93.15 US cents. All those forecasts by almost all economists of 80 US cents, have proven to be premature.

That my friend ,.......is the power of Tony's economic might........LOL

Colin...are you attending Tony's "walking on water" demonstration latter today ? ( Shouldn't joke ...should I...that friggin' pommy magician does it!!)

That Pommy magician is good ,.....isn't he.
He should try Politics.

I tried that trick of his ( trying to hang on the side of the bus) and scared the living be-jesus out of the old duck sitting inside the bus.

Love it.............You've made my day.
Without a good laugh,.......where would we be....

Oh yeh!!.......the Backbenches.

Wait 'til you have a crack at that walking on water thing yourself. Man, you suddenly acquire the attraction of the ladies like mozzies swarming around a spring evening BBQ. I've been so busy, I've had to postpone date requests from Jenny H, and Miranda K, and have told 'The Body' that she is no longer my type!

Exactly...but stuffed if I can get all them fish to come out of that small bucket....what goes there?

Colin, one of the things I like about Tony, is that he is not a politician. People who search for the meaning of life, always end up at "the beginning" and those are the people who understand that everything is fundamental energy. Patrick White talked about Gods omnipresence (in the book Tree of Man). Isaac Newton was searching for God and found the laws of motion, calculus,economics and modern banking.

Particle physicists look for the "God particle", the harmonic duality that turns energy into mass.

So, what do you want from life, is it, a numbers game?. Modern language is only a way of expressing what we see, some have good language skills others are authorities in quantifying subjective reasoning.

Moire patterns are an analogy of how the brain responds to visual input. Economist call them graphs, physicists call them wave lengths, but the bottom line is: that is what your brain does - create wavelenghts of energy.

My point is, for some strange reason, humans evolved and developed the ability to create structure, so perhaps we are the "God particle" :)

Ken,.......the search for Meaning, is truly a noble quest.
And realising the pervading nature of frequencies, wavelengths, vibrations, harmonics, flutter, spin and attractions, as all being fundamental characteristics of energy, and its movement.
But,.........What if the answer to Life, the Universe, and Everything, is Not ,.....42.
What if it's,..........Beige?

42 is the third primary pseudoperfect number...very similar to beige....especially when you close your eyes.
Colin you are obviously a very deep thinker...you and Ken.

All I can get out of this article could be condensed into five words: "markets go up and down". When we have manipulation on the current scale can anyone know what will happen and when. This dark comedy could go on for years and years, who knows. So it brings to mind the well-known quotes of J M Keynes who you will recall said something like "the market can stay irrational longer than you can stay solvent" and "in the long run we are all dead". Maybe it's time to just go fishing, or whatever else takes your fancy in the here and now.

Exactly Eddy. People WAY overthink on here most of the time.

T.D. that's why we have the Sports party in the senate. "Everyones a winner baby, that's the truth" (Isaac Hayes).

Yeah, and the elected member is pro everyone should be able to own and carry one firearm on their person for self defence purposes. I was pragmatic about this party until I heard this line. Viva-la-USA !!

I don't seriously think that this one seat is a threat to the overall Senate philosophy on any given issue, particularly as regards gun ownership, but it may make watching politics at play more amusing in the next 3 years.

Inspirator, you know why the residents of the south western states love their guns? Because Mexico wants their land back (re-Alimo).

Inspirator, I read the site that you posted for me yesterday, re-energy/currency, it was very good reading. Perhaps everyone on this sight should read it.

He took the words right out of my mouth, it just makes so much sense when we imagine that all electricity efficiency, will increase the wealth of everyone.

Hey, hey, that would inspire the government to pump money into (energy) research.

Please post that site again, so everyone who wants to understand why money works, can access it :)

Good post by Keyser at 10.28am. Who really knows where China is heading though. From what I can gather the consensus remains that there isn’t much risk of a financial catastrophe in China.

Just thought I’d throw in a few bits which of course don’t prove things one way or another.

Gross fixed capital formation as a proportion of GDP in China was 46% in 2012. Final consumption expenditure was 49% of GDP. The GFCF percentage has been around 40% or more since 2003 and around mid 40s since 2009. In comparison, Australia is high 20s. China’s GDP is around $US8 trillion. Australia’s is $US1.5 trillion.

It’s true that China doesn’t seem to be transitioning from an investment led to a consumption led economy, despite the promises (wishes?) of the government, although both components do seem to be rocketing along (but the quality of investment can be questionable). It has, however, transitioned to a services economy. Its services industries contributed 45% of GDP in 2012. This proportion has steadily risen over the last few decades (1978 was 24%). The percentage for agriculture has fallen from 28% to 10% over this period. Industry hasn’t changed as much. It fell from high 40s in late 1970s to low 40s in early 1990s recession, but quickly grew to mid to high 40s and is still there (2012 was 45%).

Chinese government debt as a proportion of GDP is quite low at 23% in 2012, down from 26% in 2011 and 33% in 2010, so there appears to be no problem here. Local government debt is about 35-40% of GDP. Private debt is around 180% of GDP. So if we can believe all these figures (can be tricky in China), debt as a percentage of GDP is about 240%. That’s lower than the 10 largest mature economies (of which Australia is second lowest). US, Germany, Australia and Canada are all around 270-300%. Spain, France, Italy and South Korea are 300-400%. Japan and UK are around 500%.

The credit rating agencies have China around AA- or at the lower end of high grade.

The only question is will we lose out more with the Chinese FTA than we did with the USA.

As long as we understand we take the scraps given to us then the realistic expectations might be met.

When experts, economists, politicians, scientists and other parties (that have vast interest to keep the ball rolling, to kick the can down the road) are consistently trying to convince the masses (aka the public), that we (the little people) should trust them and believe them whatever they say than, “we” have a big problem. Are people so ignorant, dumb or just plain stupid? (my guess is all of the above).

"You need to remember these:

There is what people want to hear,
There is what people believe,
There is everything else,
THAN, there is the truth."

‘Truth means responsibility. That is why everyone dreads it”

True enough Peter.

Keyser's return has turned the Commenters to philosophy.

Think that's a good thing.

How do we turn the Spectator ?

Steve 51....I think the Business Spectator ....should fly us "all"...and yes...that includes you Colin... to ( insert somewhere really nice...and not Port Adelaide)...and think tank that question of yours. They definitely need a make over....( some one said yesterday.....markets go up...markets go down.....what's the point of making that into a story?"....and I think that person is spot on....BS needs to evolve ...

Good morning S.K. and B55. Have you gentlemen read Keysers site regarding currency backed by energy?

Great to read and makes a lot of sense, you might be surprised that energy backed currency, is rated higher than gold backed currency. The reason for that is that energy (because of technology) is being produced more cheaply, there lesser money (printing) is required, to retain currency value (and that means your currency appreciates in value, allowing for controlled de-flation.

Whereas, gold being of limited supply, holds increasing (mining) costs that effectively taxes your currency, causing mild inflation.

It was Edison and Ford that were proponants of an energy backed currency, I'm glad I found that out because I thought that it was my idea, no matter.

Colin mentioned the number 42 as the meaning of life. Actually Colin it's 46 or 48. Thats the number sub atomic particles (3 generations of electrons, plus their quarks).

So if you treat the 3 electron as electrons, then the number is 46, however if you distinguish the spin rate, by name, neutrono, muon and tau particles, then the number becoms 48.

That is the meaning of life, there is nothing in the universe, that does not rely on those harmonics/mass. Thats why I believe that money has to be made "real", by backing it with energy (KWH).

Stephen N. there is too much arsenic already.