Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Saturday, 29 March 2014

China

China growth slowdown?

With Australia's domestic economy showing signs of picking up, much of the focus in the year ahead will be on what's happening elsewhere, particularly  in China.

It's certainly one of the most interesting and yet mysterious economic stories of the modern era, the great demographic shift from a nation of farmers to the world's second biggest economy.

Much will be debated in the year ahead as to whether China's economy will slow down to well below its 7.5% growth target.

Forecasts suggest some downside.


Source: Bloomberg

One point which rarely gets much airtime, of course, is that when an economy expands very rapidly in size, one must expect that it will eventually grow more slowly in percentage terms.

In China's case, the rampant double-digit growth it was experiencing before the financial crisis took hold means that the economy is now approximately double the size that it was in 2007.

Simplified

If you play around with a few numbers therefore, you will find that with an economy of around double the size today, just 7% growth in 2014 is approximately the same as 13% growth in 2007.

OK, so that's a dumb oversimplification, but not entirely incorrect in principle:

100 * 1.13 = 113

200 * 1.07 = 214

A similar result in terms of growth then, and continued growth at that rate would see China overtake the US as the world's largest economy by the end of this decade.

If stimulus is what is required to hit the growth target, then a kleptocracy such as China can surely deliver it.

Of course, China has its challenges. What if the reported numbers aren't real, for example? 

Sceptics would instead look at electricity consumption as a proxy for GDP, and suggest that growth may be some way weaker than reported.


Source: Bloomberg

There are also fears of a property bubble in China coming back to bite (ongoing housing price inflation may be underestimated according to various sources), and the perennial challenge remains the transformation of the economy towards one of domestic consumption rather than one of investment driven by rapid urbanisation and dwelling construction.

Flighty capital

Over the long term this will be one of the biggest global stories of the decade.

Over the shorter term, much of the Australian reporting will be focused on the impact of capital flight.

That's because there are now more than 1,100,000 Chinese millionaires - a number expected to hit around 1.5 million by the end of the decade - and a huge number of whom are looking for places to shift their funds. 

Canada has cancelled its Significant Investor Visa leaving 46,000 Chinese millionaire applicants high and dry, while CNN reports that the US visa system has been overwhelmed following a panic-stricken run of applications.


Source: Credit Suisse via The Age

"Chinese nationals account for more than 80% of visas issued, compared to just 13% a decade ago, according to government data.
That translates to nearly 6,900 visas for Chinese nationals last year, a massive bump up from 2004, when only 16 visas were granted to Chinese.
"The program has literally taken off to the point that in China, the minute anybody hears I'm an immigration lawyer, the first thing they say is, 'Can we get an EB-5 visa?' " said immigration lawyer Bernard Wolfsdorf.
"There is a panic being created in China about the demand getting so big that there is going to be a visa waiting line," he said."
The number of applicants in the US is capped. Australia's turn next?