As the Chinese government made moves to suppress escalating lending growth driven by excess liquidity, it's worth comparing the similarities with the Japanese experience during it's boom years.
1) At its 2007 peak, the Shanghai A shares traded at more than 7 times book value. Japan's Nikkei index in 1989 peaked at 5 times. Chinese stocks has since halved in value
2) Price to earnings ratio of Chinese stocks using past 10 year average earnings (Graham and Dodds PE ratio) is 50X compared to about 15x in US
3) Residential real estate of Chinese cities is at a multiple of 15-20 times household income versus 12-15 times during Japan's real estate boom
4) Fixed asset investment as a proportion of GDP in China is currently 50% and Japan had similar growth rates then with 30-35% GDP
Finally a thought to hold:
A decrease to 10 year ago investment-to-GDP rates for China would have a disasterous effect on all emerging economies and countries exporting to China.
Eric Tan,
London
Showing posts with label China. Show all posts
Showing posts with label China. Show all posts
Sunday, 17 January 2010
Wednesday, 10 June 2009
Impact of China's rise on the world economy.
Impact of China's rise on world economy
1) huge increase in global current account imbalances
2) global decline in nominal and real yields on all forms of debt
3) increase in equity risk premium (gap between earning yield on equities over bonds)
4) increase in global returns on physical capital
1 and 2 can be explained by the global saving glut, loose monetary policies, but a massive increase in global labour supply and extreme risk aversion of creditors from emerging economies explains 3 and 4.
We have seen that the accumulation of net overseas assets are entirely accounted for by public sector acquisitions and channeled principally into reserves.
The global balance of trade and economic power has been tilted by the resurgence of the Chinese economy, and this will have a large impact on global trade and growth in the future. China has already started acquiring raw materials directly by buying into companies with large reserves and will continue to do so in a larger way to secure its vast needs for growth.
We will continue to see the expansion of their growth and there will be opportunities for investors who manage to identify targets that are aligned with the Chinese interests for raw marerials.
Eric Tan,
London
1) huge increase in global current account imbalances
2) global decline in nominal and real yields on all forms of debt
3) increase in equity risk premium (gap between earning yield on equities over bonds)
4) increase in global returns on physical capital
1 and 2 can be explained by the global saving glut, loose monetary policies, but a massive increase in global labour supply and extreme risk aversion of creditors from emerging economies explains 3 and 4.
We have seen that the accumulation of net overseas assets are entirely accounted for by public sector acquisitions and channeled principally into reserves.
The global balance of trade and economic power has been tilted by the resurgence of the Chinese economy, and this will have a large impact on global trade and growth in the future. China has already started acquiring raw materials directly by buying into companies with large reserves and will continue to do so in a larger way to secure its vast needs for growth.
We will continue to see the expansion of their growth and there will be opportunities for investors who manage to identify targets that are aligned with the Chinese interests for raw marerials.
Eric Tan,
London
Monday, 11 May 2009
Shift in Chinese Economics
With a sharp slowdown in global growth projected by the International Monetary Fund (IMF) for 2009 and 2010, the chinese economy is undergoing a fundamental shift in design. No longer is it expecting the export driven growth to support its economy, but evidence is showing that China is now looking inwards to drive the country's huge capacity that was once known as "the world's factory floor".
The world's most populous country is leveraging its internal demand to propel it's economy. Indicators showing year on year increases in domestically bound cargo is driving corporates to make a rush to capture the spending power of inland consumers in sectors. Retail sales number have held up and property transactions are surging across the country. China's plan to implement a healthcare reform of $125bn will raise disposable income and reduce need for high saving levels.
If China suceeds in unlocking their domestic demand and coupled with a Rmb4tn fiscal stimulus, it is increasing positive that they have seen the worst of the financial crisis.
Eric Tan, London
The world's most populous country is leveraging its internal demand to propel it's economy. Indicators showing year on year increases in domestically bound cargo is driving corporates to make a rush to capture the spending power of inland consumers in sectors. Retail sales number have held up and property transactions are surging across the country. China's plan to implement a healthcare reform of $125bn will raise disposable income and reduce need for high saving levels.
If China suceeds in unlocking their domestic demand and coupled with a Rmb4tn fiscal stimulus, it is increasing positive that they have seen the worst of the financial crisis.
Eric Tan, London
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