Haitong Securities: The Fed takes one month to complete the 4-year course after the 2008 financial crisis
[Epoch Times June 27, 2021](Reported by Hong Kong Epoch Times reporter Jiang Xien) The economic situation of China is in sharp contrast with that of the United States. Beijing authorities have always claimed that the epidemic has been effectively controlled and the economy has grown rapidly, but many financial institutions have pointed out that China‘s consumer side has not recovered. At the same time, Chinese residents’ debt has soared.
At the Fed’s meeting on the interest of the Federal Reserve from June 15 to 16, the Fed raised its forecast for US economic growth. Haitong Securities pointed out that despite the impact of the epidemic, the US economy is showing unprecedented signs of recovery. This is closely related to the rapid growth of US residents’ wealth and spending power under the “government money” model.
The strong consumption power under the “government money” model drives the unprecedented economic recovery in the United States
From June 15 to 16, 2021, the Federal Reserve held a two-day interest rate meeting and released its forecast on major economic data at 2 pm on June 16th local time: The Federal Reserve will increase GDP growth in the United States in 2021. The level forecast was raised from 6.5% in March to 7.0%, the PCE inflation forecast was raised from 2.4% in March to 3.4%, and the unemployment rate forecast was lowered from 3.9% in March to 3.8% in June.
Haitong Securities wrote in its 2021 Haitong Macro Mid-term View Research Report released on June 19, 2021: “The United States will recover faster than other advanced economies.” “In the final analysis, it is because the United States has the strongest and fastest stimulus this round: the Fed took one month to complete the four-year journey after the 2008 financial crisis.”
According to the Wall Street Journal, Allen Sinai, chief global economist and strategist at Decision Economics, Inc., said, “We have never experienced a situation like this before. A resurgence comparable to prosperity; this is absolutely unprecedented.”
The impact of the epidemic has increased the unemployment rate in the United States, but the difference between this and previous financial crises is reflected in the different changes in residents’ income. In the past American economic crises, the increase in unemployment was often accompanied by the decline in residents’ income. According to CEIC data, after the outbreak of the financial crisis in 2008, the per capita annual income of American households declined, from US$25,425 in 2008 to US$25,143 in 2009, and then to US$24,992 in 2010. However, Haitong Securities pointed out that under the impact of the epidemic, the income of American residents rose instead of falling. The income growth rate increased from 3.7% in 2019 without the epidemic to 7.0% in 2020.
Haitong Securities analyzed that the increase in residents’ income was largely due to high government subsidies. In the third round of subsidy programs, each taxpayer can receive a one-time subsidy of 1,400 US dollars, and the unemployed can receive an unemployment subsidy of 300 US dollars a week. If you add other forms of unemployment assistance, the unemployed in the United States can get unemployment benefits ranging from $600 to $700 a week.
Increasing income has also supported the recovery of consumption power. Haitong Securities pointed out that in March 2021, the consumption of durable goods in the United States increased by 26% year-on-year, and several books have set the highest record in the past 60 years. The growth rate of non-durable goods reached 10.8%, the highest in the past 22 years.
China’s consumer end has not recovered, residents’ income growth slows down, debt surges
Hong Hao, head of the Research Department of Bank of Communications International, stated in the release of the market investment outlook for the second half of 2021 on June 22 that the current market demand in mainland China is insufficient and the consumer side has not recovered. Hong Hao pointed out that China‘s economic data growth rate is not ideal. China‘s consumer confidence index is at a very high level. When China‘s consumer confidence index cannot continue to rise, it begins to turn down, which reflects that the recovery of terminal consumption is not as strong as expected.
Haitong Securities also believes that China‘s consumption is weak. After excluding the base effect, the growth rate of total social retail consumption in Mainland China in March 2021 was 4.6%, which was basically at the same level as in December 2021, but reached 1.1% in April, which is the same as before the epidemic. There is still a big gap in growth near 8%.
After the outbreak, the Beijing authorities did not vigorously “distribute money” to the people like the US government. Haitong Securities said that the income of mainland residents has not recovered to before the epidemic. In the first quarter of 2021, after excluding the base, the growth rate of the disposable income of mainland Chinese residents was only 5.2%, which is far from the growth rate around 9% before the epidemic.
While income growth has slowed down, the debt of Chinese residents has increased rapidly.
At a press conference on financial statistics in the first quarter of 2021, Ruan Jianhong, Director of the People’s Bank of China‘s Department of Regulation and Management, said, “In 2020, China’s macro leverage ratio is 279.4%, an increase of 23.5 percentage points from 2019. In terms of sectors, The leverage ratios of the three sectors of residents, government, and enterprises were 72.5%, 45.7%, and 161.2%, respectively. The leverage ratios of these three sectors increased by 7.4, 7.1, and 9.1 percentage points from 2019.” “We estimate the household sector at the end of last year. The balance of debt was 73.6 trillion yuan, a year-on-year increase of 14.6%. Among them, the balance of personal loans was 63.2 trillion yuan, a year-on-year increase of 14.2%.”
It is worth noting that among the 63.19 trillion yuan of personal loans, the personal housing loan balance is as high as 34.44 trillion yuan, accounting for 54.5% of personal loans. In other words, more than half of the personal loans are mortgages.
According to information from Haitong Securities, from 2015 to 2017, “the residential sector increased leverage and residents borrowed to buy houses, which caused real estate sales to blow out. House prices rose unexpectedly. The price was that the residential sector’s borrowing capacity was close to the upper limit and consumption declined.”
In addition to mortgages, Chinese bank card liabilities have also risen sharply, surpassing that of the United States. According to data from the People’s Bank of China (Central Bank), as of the end of last year, the credit balance of Chinese bank cards was 7.91 trillion yuan, which is nearly 1.5 times the balance of credit card loans in the United States as calculated by the Federal Reserve Bank of New York.
The Bank of China Institute of International Finance pointed out in 2018 that due to the rapid growth of housing mortgage loans and the booming development of emerging consumer finance, the leverage ratio of the Chinese residential sector has risen rapidly. “Once the problem of residents’ debts arises, it will be difficult to solve, and the negative impact will be even greater. It will not only reduce residents’ savings and restrain residents’ consumption, but also make residents’ savings decline, inhibit sustainable economic growth, and threaten financial stability.”
Jiang Tianming, a financial analyst based in Hong Kong, believes that the outbreak of the epidemic can be said to be a big examination for governments of various countries. More than a year has passed since the content of the examination is how to deal with the epidemic. At this time, the economic performance of various countries can be said to be the preliminary results of the examination.
Jiang Tianming said that the United States “has riches in the people.” The US government’s direct money-issuing model has greatly boosted residents’ income, which has supported domestic consumption in the United States. However, China’s economy, driven by a large amount of infrastructure investment and real estate, has accumulated high debts and financial risks, while the people’s spending power has been severely suppressed. The recent popular “laying flat” is a reality of the people’s weak spending power. Portrayal.
The impact of a strong U.S. dollar on China’s economy
At the Fed’s meeting on interest rates, Fed officials are also expected to raise interest rates ahead of schedule. Seven members predicted that the Fed would raise interest rates by at least 25 basis points as early as 2022. According to a Reuters report, St. Louis Federal Reserve Bank President Brad believes that the Fed’s turn to be hawkish suggests that it will tighten monetary policy more quickly. This is the “natural” response of the United States to economic growth, especially inflation, which is rising faster than expected.
The strong recovery of the US economy is accompanied by a strong dollar. Since the Fed’s meeting on interest rates on June 16, the US dollar index has risen all the way to 92.26 on June 20. Haitong Securities pointed out that the US dollar is in a dominant position in the global international monetary system, and changes in its interest rates and exchange rates will have an impact on global asset prices. The real interest rate of U.S. bonds will also affect the price trend of global core assets.
The self-media Masked Finance stated that if the Federal Reserve implements monetary tightening while other countries’ markets are still experiencing easing, resulting in policy mismatches, it will have a major impact. Looking back at the period from 2014 to 2015, the US dollar index rose rapidly from 79.78 on June 1, 2014 to 98.36 on March 1, 2015, but it was accompanied by a sharp drop in commodities and a decline in other emerging markets. At that time, China‘s cyclical industries were also facing full losses, and the renminbi also fell from 2015 to 2016.
The Fed’s turn to the eagle made the Beijing authorities wary of the risk of RMB depreciation. A few days ago, the “Financial Times” headed by the Central Bank of the Communist Party of China published an article stating that analysts generally believe that the RMB exchange rate has approached an inflection point for depreciation, and that devaluation pressure is likely to appear in the second half of this year. The article pointed out that there are many factors that affect the RMB exchange rate, and the risk of USD appreciation is one of the most direct.
Haitong Securities pointed out that the high point of China‘s economy has passed last year. The leading indicator-the high point of the year-on-year growth rate of social financing appeared in October last year, and the quarterly GDP high point appeared in the fourth quarter of last year. In the first quarter of 2021, GDP grew by 0.6% from the previous month, which shows that the economy is still weaker than the growth momentum. A major driving force for GDP growth-the high point of investment also appeared in the fourth quarter of last year, and another major economic growth momentum-the high point of exports appeared in the second quarter of last year.
At the end of October, the stock of social financing was 281.28 trillion yuan, a year-on-year increase of 13.7%. After that, the growth rate declined on a monthly basis. In May 2021, the increase in social financing was 1.92 trillion yuan, which was 1.27 trillion yuan less than the same period last year. Yuan, continuing the downward trend in the growth rate of social financing in April.
The scale of social financing refers to the total amount of funds obtained by the real economy from the financial system, including financial institutions such as banks, securities, and insurance, as well as bond markets, stock markets, insurance markets, and intermediate business markets. The scale of social financing refers to the financing needs of the actual economy from the financing side of enterprises, residents, and governments.
Jiang Tianming pointed out that the decline in the scale of social financing represents a decline in aggregate demand and heralds economic weakness. At this time, the strength of the U.S. dollar and the risk of devaluation of the renminbi and the risk of capital outflow will undoubtedly make China‘s economy with weak consumption and high debt worse.
Editor in charge: Lian Shuhua