China

In early November, we said that far from the traditional risk factors affecting China's economy, including the slowing economy, the stock market (and now housing 2.0) bubble, the soaring NPLs, and record debt, the most under-reported risk facing China is the "breakdown in recent "agreeable" labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence."

Some recent articles probing the severity of China's collapsing labor market were the following:

The "hostel takeover" saga for Starwood Hotels took another unexpected turn this morning, when the company's stock price soared following news that the hotel chain had received an unsolicited $76/share non-binding proposal (8% premium to the Friday close) from an investor group led by China’s Anbang Insurance Group, in a deal that seeks to scuttle its planned combination with Marriott International.  The proposed deal values Starwood, one of the world's largest hotel companies which includes such brands as Westin, Sheraton, The Luxury Collection, W Hotels, St.

The biggest macro development over the weekend was China's latest "gloomy" economic update, in which industrial production, retail sales and lending figures all missed estimates, however now that we are back to central bank bailout mode, bad news is once again good news, and the Shanghai Comp soared +1.7% among the best performers in Asia on calls for further central bank stimulus while the new CSRC chief also vowed to intervene in stock markets if necessary. In other words, the worse the data in China, the better.

It would funny to watch as Chinese policymakers attempt to pull off the impossible if it weren’t so downright frightening.

Beijing, long the global engine for growth and trade, finds itself at a rather vexing crossroads. NBS protestations to the contrary, the Chinese economy is decelerating rapidly in the face of a massive rebalancing towards consumption and services-led growth. The country’s move away from a smokestack economy has for all intents and purposes reset assumptions regarding how we think about global trade.

After an unprecedented surge in Chinese attempts to stimulate the economy in late 2015, mostly on the fiscal side, coupled with recent monetary easing by the PBOC which cut the banks' reserve ratio recently and unleashed a tsunami of new loan creation in January, many expected that this unprecedented credit impulse would translate into at least a modest rebound for the economy, prompting a stable pick up in spending for the economy which many are touting is now consumer-spending driven as opposed to export and production.