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谢国忠

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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谢国忠:硬着陆vs刺激经济  

2009-01-19 17:26:14|  分类: 言论 |  标签: |举报 |字号 订阅

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硬着陆vs刺激经济

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Thefollowing article was written last Monday and is in the current issueof Caijing Magazine. The basic point is that (1) the bounce since Nov08 that was driven by technical factors and stimulus hope is over, (2)bad corporate and economic news, much worse than expected, would weighon markets, (3) markets could bounce again only after the 4Q08corporate and economic news are digested, and (4), while another bouncein 2Q-3Q0 is possible, it would still be a bear market rally. Theglobal economic contraction may stop in 2H09. But it wouldn't be thebeginning of another growth cycle. Indeed, with so much monetary andfiscal stimulus, we may get stuck with stagflation through 2010. Onlystructural reforms in the US and China could start another growth cycleand bull market. Happy CNY! Andy


Hard Landing vs. Stimulus



Bynow a barrage of economic and corporate data is showing unequivocallythat the global economy is in a hard landing. The US lost over half amillion jobs in both November and December 2008, and the unemploymentrate surged to 7.2%, the highest since 1993. For 2008 as a whole the USlost 2.6 million jobs, the highest since 1945. The chances are that theUS GDP contracted by 1.5-2% in the fourth quarter of 2008 alone.



China'seconomy has tumbled since October 2008. The leading signals weretumbling export orders from Europe and Japan in September 2008. Theindustrial consumption of electricity may have declined by around 10%in the fourth quarter of 2008 from one year ago, compared to mid-teengrowth rate before; auto sales probably declined by 10%; home appliancesales probably dropped more; property sales came to a standstill; andeven department store sales may have fallen. Supermarket and hyper martsales probably rose by low single digit. Millions of migrant workershave returned home from the coast due to factory closures. The chancesare that China economy went into a hard landing in the fourth quarterof last year too.



Only demand side data fromconsumption-driven economies like Australia and the UK add informationto what we know from China and the US. The situation in exporteconomies like Japan and Germany reflects entirely what's going onelsewhere. The rapid contraction of their manufacturing is quiteself-evident from the global situation. The demand side situation inthe UK is even worse than the US's. I have argued for years that theproperty bubbles in Australia and the UK were bigger than in the US,possibly twice as big. Australia could cushion the blow by devaluingits currency, as it is a small economy and has a large export sector.The UK doesn't have a large export sector anymore and mostly dependsmostly on capital inflow. Hence, devaluation wouldn't work for it. TheUK is facing a catastrophe like no other.



There arethree forces driving the global hard landing. First and foremost is thebursting of the global asset bubble. Roughly 100% of global GDP inpaper wealth has evaporated. The negative wealth effect on demand isroughly 5%. Minus 3.5% trend growth rate for the global economy, thewealth effect alone should cause the global economy to contract by 1.5%in 2009. As the wealth loss is mostly permanent, i.e., the high assetvalue before was a bubble and the current level is normal, the 1.5%contraction represents a permanent loss.



The secondforce is the slowdown or reduction in bank lending. Governments aroundthe world blame the recession on banks' unwillingness to lend. They maybe barking up the wrong tree. Lack of capital could be a major factorin their unwillingness to lend. But, with government capitalinjections, capital is not a major issue anymore, unlike six monthsago. The main impediment to lending expansion is the credit worthinessof the borrowers. They have less collateral due to asset devaluationand less revenue due to recession. Ceteris paribus, banks would be lesswilling to lend to them. The credit contraction is part of theadjustment after the bubble burst. Banks lent too much and bankrolledthe bubble. It is not surprising that they would contract afterwards.Governments should not hope to revive the economy by pressuring orincentivizing the banks to lend. As a corollary, interest rate cutswon't be so effective in stimulating demand.



The thirdforce is the inventory cycle. When commodity prices were rising,wholesalers and manufacturers were hoarding inventories either as ahedge against rising prices or for speculative profit. At the peak ofcommodity speculation in 2007 the shipping cost for iron ore tripledfrom the level in 2006. A major reason was that the sellers in the spotmarket refused to unload the cargo in anticipation of priceappreciation for iron ore. The daily shipping rate was effectivelysupported by the expectation of iron ore price appreciation. I amgiving this example to illustrate how strong inventory demand was. Whenprices turned around in mid-2008, wholesalers and manufacturers triedto run down their inventories, which depressed final demand. Thedramatic collapses of steel price and shipping rate, for example, weredriven by this force.



All three forces are still atwork in the first quarter of 2009, i.e., the rapid pace of economiccontraction will continue. Financial markets have not fully priced inthe magnitude and length of the recession. This is why the barrage ofbad economic and corporate news is weighing down stock marketeverywhere. During the rapid globalization period the shares ofcorporate earnings and tax revenues in global GDP surged, led by thefinancial sector earnings and China's government revenue. Of course,the other side of the coin was declining share of labor income anddiminished consumption power of workers. Rising household borrowing,backed up by rising asset prices, sustained the growth trend for adecade. Naturally, as the bubble bursts, the ensuing economic downturnaffects corporate earnings and tax revenues first. As businesses try tocut costs to recover their profits, they lay off workers, and thelaid-off workers cut consumption, which causes the second round ofeconomic contraction. Obviously, this vicious cycle could go furtherthan necessary without government stimulus to cushion up demand.



Thisis where the announced stimuli by China and the US could play a majorrole in stopping economic contraction. Stock markets hit major bottomsin November 2008: S&P 500 hit 750, and Hang Seng 11,000. S&P500 bounced up by 22% and Hang Seng 42% afterwards to their recentrecent peaks. The slowdown in leverage reduction initially drove thebounce. The optimism over the impact of the stimuli announced by Chinaand the US drove markets further up in December 2008 and continued intothe first week of January 2009. Markets have been coming down inresponse to the bad economic and corporate news. The downward trend maylast for one or two months until the bad economic news are digested. In2009 markets will fluctuate on the hope for stimulus impact and thefear of worsening economic situation.



The firstpositive kick for the global economy will come from the inventorycycle. We don't know how much de-stocking is contributing to thecurrent contraction. There are good evidences that the currentinventory cycle is quite dramatic.



The Baltic DryIndex ('BDI') that measures the average shipping cost in global tradewas under 2000 for two decades before 2003, surged above 5,000 in 2004on strong Chinese demand for resources like iron ore, declined toaround 2,000 in mid-2005, skyrocketed again in 2007, peaked at 11,400on May 30th 2008, and has collapsed dramatically afterwards to the low800s or over 90% decline. In the long run, the Baltic Dry Index isdetermined by the ship building cost and fuel price. In the short term,the shipping capacity is fixed, and demand drives shipping cost. Whendemand is below shipping capacity, shipping cost drops to operatingcost-fuel plus labor costs, i.e., fixed cost cannot be recovered.



Thedramatic rise and fall of the BDI partly, if not mostly, reflects thespeculative demand, even though classified as inventory demand. Whenthe Fed cut interest rate in August 2008 in response to the Sub-primecrisis, it launched another wave of speculation in commodity market. Itspooked the users into hoarding inventories to hedge against pricerise. For example, many steel producers had legitimate fear of iron oreprice escalating and scrambled for more inventories. Of course, risingiron ore price drove up steel price, which caused steel users likeautomobile companies to store up more steel. When the recession broughtdown commodity prices, everyone had the incentive to sell or use theinventory. That force exacerbated the downturn. It was probably themost important force in bringing down the global economy in October2008.



Before the middle of 2009, de-stocking would befinished and re-stocking may kick in. That extra source of demand maygive the global economy a significant kick. I wouldn't be surprisedthat the BDI double or even triple from the current level by then. EastAsian economies experienced a similar force in the fourth quarter of2008. De-stocking was actually the most important source of contractionin early 1998. Like now, the reversal of price expectation and therising capital cost incentivized manufacturers and distributors to rundown their inventories as low as possible.



Adding tothe upward force of re-stocking, the impact of stimulus will probablybe felt in the second half. Obama's stimulus plan is likely to be $750billion over eighteen months. The quickest part of the plan is $350 bnor 2.5% of GDP tax cut. Even though the Obama stimulus plan initiallyfocused on investment, it is now mostly about tax cut to supportconsumption, because it is the only way to boost demand quickly. The USgovernment doesn't have the machinery to boost investment quickly.Targeting investing areas, identifying projects, and establishingimplementation organizations will take a long time. Even thoughexcessive consumption has got the US economy into trouble, it has toboost consumption again to stabilize the economy.



Chinadoesn't have the US's problem. It has a vast machine comprised ofgovernment agencies, state owned enterprises, and private contractorsto implement investment projects quickly. Hence, the easy short-termfix is to issue fiscal bonds and pump the money into the investmentmachine. Many railroad and highway projects were started in early 2008.By the middle of 2009 some stimulus impact should be felt by theeconomy. Even though China's economic imbalance is excessive investmentand insufficient consumption, the economic stimulus is still to boostinvestment, because China has the machinery to do it and doesn't havethe personal income tax base to do what the US is doing.



WhatI am portraying is that there will be an economic rebound in the secondhalf of 2009, but it is not sustainable. Inventory re-stocking isobviously a temporary force. The stimulus that China and the US areimplementing will not address the structural imbalance within orbetween them. Indeed, the stimulus prolongs the unbalanced growth modelthat got us into trouble in the first place.



Some mayask why not. There is a popular theory that China and the US haveeffectively become one economy, and the imbalance between the two isnot a problem. As long as China is willing to buy the US treasuries,that 'China produces and the US consumes' could be a lastingequilibrium. But, even if China's willingness to buy treasuries remainsintact, the US and China block is not self contained. In particular, ifthe 'China produces and the US consumes' block tries to grow fast, oilprice will surge, which will suck money out of the axis and bring itdown. The property-cum-credit bubble in the China-US axis burst becausehigh oil price sucked too much money out of it. Like an old motorcycle,it can't go fast anymore.



This is why I believe thatthe bounce in the second half of 2009 would be unsustainable. Stockmarkets are being weighed down by bad economic and corporate news now.In two to three months, they may smell economies improving in thesecond half and start to rally again. However, the rally may fizzle outin the third quarter, as the economic pickup was merely a bounce andnot sustainable. In 1999 East Asia recovered first on inventoryre-stocking and then was on export surge, as Europe and the US'seconomies were strong. Now the whole world is weak and can't export outof its problems.



It takes time for the global economyto find a new and sustainable growth path. The necessary changes arethat the US expands production and China expands consumption. Neitheris easy. And it takes time to implement changes to achieve the desiredobjectives. Institutional inertia is hard to overcome. The US isstimulating consumption again to boost its economy because it has thesystem to do it. And China is stimulating investment again because ithas the system to do so. It requires in-depth changes to theirpolitical economies for them to move in different directions. Thetime-consuming nature of structural reforms is why the sustainableeconomic recovery will take time.



The combination ofinventory cycle and stimulus may give us a 'playable' bounce betweenthe second and third quarter of 2009. 'Playable' is a market jargonthat refers to a bear market rally that lasts for several months. Thebounces that we have seen are all very short lived and not consideredplayable. There may be a 'playable' bounce in 2009. But, markets willfall again on bearish economic expectation about 2010. Indeed, the bearmarket is likely to last through 2009 and most of 2010. Bull marketwill come back only when China and the US have done sufficientstructural reforms to create a sustainable growth cycle.

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