Thursday, August 3, 2017

Smuggling Into Spain, and Getting the Cash Out

Reuters has a feature story from Spain about money laundering suspects arrested in 2012. The striking thing about the story is the scale of the smuggling of ordinary manufactured goods from China into Spain. The smuggling was large enough that a money laundering ring could dictate which national retailers could get certain categories of goods and which could not. There was — and presumably still is — enough smuggling to keep banks busy in four countries. If similar tax evasion schemes are operating in other countries, then they are large enough that they would have to be an integral part of economic planning for exports from manufacturing countries.

Monday, July 31, 2017

The Long Christmas Season

How big a factor is Christmas when you are looking at manufacturing? It has been variously estimated that between 10 and 20 percent of U.S. discretionary consumer spending goes to Christmas purchases. Retailers have already placed orders for most of their Christmas-season merchandise with the holiday 147 days away. Manufacturing is approaching the halfway point, and shipments from Asia to ports in North America get going in earnest in August. When you take a detailed look at the logistics involved, the season could not be done much more quickly.

To look at the reach of Christmas another way, today in Pennsylvania I saw a pre-Christmas sale. The sale focuses on decorations left unsold last November rather than newly manufactured items, but it still serves to show how long the reach of Christmas is. If U.S. consumer culture changed so that consumers observed Christmas in a manner proportional to other holidays, it would require a massive adjustment in both U.S. retail and global manufacturing. It is hard to predict when such a shift might occur, but it is easy to see the early signs of it, with toy stores closing and other Christmas-leaning merchandise categories declining.

Wednesday, July 5, 2017

Investigators Look at Bus-Project Crowdfunding Platform

The bizarre-looking elevated bus project is dead. it was canceled weeks ago and city workers in Qunhuandao have removed most of the test tracks that the bus tried to run on. In canceling the project regulators said the bus never really worked, despite some almost-convincing video, and the idle prototype was causing traffic jams as drivers were forced to go around it. Now regulators are saying that the entire project and the crowdfunding platform that funded much of it might have been a scam. Huaying Kailai, a peer-to-peer lending company, was run by the same executive who was running the bus company. The lending company now appears to be out of business. The executive has been questioned by investigators, and law enforcement officials are asking investors to come forward with documents. (Story at CNNtech: http://cnnmon.ie/2sIDzSp)

Sunday, June 25, 2017

Drawing a Line Between Shadow Banking and Real Banks

Regulations meant to limit the reach of the shadow banking sector are having their biggest impact on the banks in China. I think no one quite understood the extent to which banks were making off-balance sheet loans through shell companies and mysterious investment funds to avoid scrutiny of those loans. A series of new rules make shadow loans much more difficult for banks to do. Some of the shadow loans have moved onto the balance sheets now, painting a less rosy picture of banks’ financial results. Some have moved out of the banking sector entirely.

The shadow banking sector is more than just banks getting around the rules, though. Real estate developers also seem to be steering clear of shadow-bank financing for now, worried about what might happen if authorities catch up with them. In other areas such as investing and trade, though, there are few signs that the stricter rules are reining in shadow-bank loans as intended.

Monday, June 19, 2017

Peak Pork

Peak pork? I guess we can call it that. Reuters reports that consumer demand for pork in China is down for the third year in a row, despite falling prices. [ http://www.reuters.com/article/us-china-meat-demand-insight-idUSKBN19A31C ] China consumes so much more meat than any other country that if pork is passé there, it must be declining globally. It is not that pork dumplings are disappearing, but manufacturers are mixing in more vegetables to appeal to increasingly health-conscious consumers. For the first time in China, large numbers of people are trying to eat less in general in order to be more healthy.

Pork producers in China could take losses on recent investments in plants and equipment, but it is foreign suppliers that hoped to sell into the Chinese pork market that will have to make the biggest adjustment. The decline in pork runs counter to official forecasts, much like the soft demand for dairy products in Europe and North America. It seems to have caught everyone by surprise, but it is just the latest example of a decline in quantity for manufactured products.

Tuesday, May 30, 2017

Credit Downgrade

A country can’t continue to spend its reserves indefinitely without facing the financial consequences, and China last week got a credit downgrade that by most accounts was long overdue. This raises the cost of borrowing overseas — hardly an issue for the Chinese government itself, but it may prompt banks and shadow banks to do more of their borrowing within China. That is a good thing in some ways, but it makes the Chinese financial system more top-heavy than it was already, increasing the risk of a rapid collapse after any of various kinds of failures that might occur in the future.

Friday, May 12, 2017

Polypropylene Prices

The bulk prices of polypropylene and polyethylene provide one way to measure the demand for manufactured goods. Polymer prices are also affected by oil prices and by improvements in product designs that require less plastic in a finished product or improve manufacturing yields so that fewer materials are thrown away. Nevertheless, the long-term decline in prices, with bulk polypropylene hovering around $1 per kilogram, shows a persistent softness in demand for manufactured goods.