Manufacturing activity in China hit a three-year low in November, an industry survey showed Tuesday, supporting the case for more accommodative policies as authorities seek to prop up growth in the world's second largest economy.

China's National Bureau of Statistics' official Purchasing Managers' Index (PMI) hit 49.6 in November, its lowest reading since August 2012 and down from the previous month's reading of 49.8. This was below a Reuters poll forecast of 49.8 and marked the fourth straight month of contraction in the sector.

A reading below 50 points suggests a decline in activity on a monthly basis while a reading above signifies an expansion.

"With soft growth momentum and deflation pressures creeping up, we expect the authorities to further ease monetary policy and continue to implement an expansionary fiscal policy in order to prevent further slowdown of the economy in 2016," Li-Gang Liu and Louis Lam, ANZ economists said in a research note released after the data.

Separately, the Caixin/Market China Manufacturing PMI edged up to 48.6 in November, beating market expectations of 48.3, which would have been unchanged from the previous month. The index has shown contraction for nine straight months.

The private sector Caixin survey focuses more on small-to-medium-sized private firms, which are showing more stress from the prolonged economic slowdown and high financing costs, while the official versions look more at larger, state-owned firms.

The official PMI's sub-indexes showed widespread weakness in manufacturing with new orders - a proxy for domestic and foreign demand - down 0.5 points to 49.8 and exports contracting to 46.4 for the 14th straight month. Input prices declined 3.3 points to 41.1.

ANZ economists said this points to persistent deflation in upstream prices, which would add pressure to factory gate prices and industrial profits.

Service sector activity, which has helped offset the wider effects of weakness in manufacturing, improved with the official non-manufacturing PMI up half an index point to 53.6.

"The services sector appears strong and there are some hints that accelerating credit growth and fiscal spending may have continued to support investment growth last month, following a rebound in October," Julian Evans-Pritchard, an economist at Capital Economics, wrote in a research note.

Despite a long series of stimulus measures, including cutting interest rates six times since November last year, muted monthly data for October suggests China's economic momentum continues to slow.

Some analysts expect China's economy will bottom out in the fourth quarter as a burst of stimulus measures rolled out by Beijing gradually takes effect, but many remain wary about the outlook.

China's Premier Li Keqiang said last week that China was on track to reach its economic growth target of about 7 percent this year, and that the economy was going through adjustments to maintain reasonable medium- to long-term growth.

But that would still mark China's weakest economic expansion in a quarter of a century, and some analysts believe real growth levels are much weaker than official data suggest.

https://trove.com/a/China-factory-activity-hits-3-year-low-in-November---official-PMI.vI6Cc?utm_campaign=hosted&utm_medium=twitter&ts=1448950358&utm_source=sns&nocrawl=1

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As world leaders gather in Paris to debate how to combat the challenge of the climate change, China's capital city is shrouded in heavy smog. Many of Beijing’s landmarks such as the Forbidden City are not even visible from a short distance. One of the jokes going around Chinese social media is about the Beijing mayor’s promise last year to solve the smog problem, or he will serve his head on a platter. Now many people are asking for his head.

Combating an ever-worsening environmental problem has become one of the top priorities for Chinese policymakers. Even in an authoritarian state, the government cannot ignore citizens’ strong demands for better living conditions forever.

The chief economist of the Chinese central bank, Ma Jun, believes one of the root causes of the country’s worsening smog problem is the structure of the economy. China has a disproportionately large heavy industry sector compared to other major economies, and the heavy industry is nine times more polluting than the services sector.

The industrial sector accounts for 41 per cent of the country’s GDP. By comparison, Australia’s industrial sector comprises only 6.8 per cent of the economy. In China, coal is responsible for two thirds of total energy production, and is ten times more polluting than renewable energy.

Ma argues the key to addressing the structural problem of pollution is through financial innovation. The central bank economist says China needs to develop green finance to channel more money into more environmentally friendly sectors, according to an op-ed piece published on Caixin.

“There has been too much investment in polluting industries, energy and transport projects. There are not enough investments in low emission and renewable energy projects,” he says. Like elsewhere, many of these projects face problems of low returns. Many private sector investors are reluctant to enter the field.

China needs two to four trillion yuan in green investment every year for the foreseeable future. The Chinese government, due to its recent profligacy, can only cough up 300 billion yuan a year. Even adopting the most conservative estimates, the Chinese government can only contribute 15 per cent of the total financing needs of the country. It means the private sector has to contribute another 85 per cent.

How to incentivise private sector investors is one of the key challenges. In September this year, the Chinese government published a policy document on building a better ecological system. Article 45 of the document specifically deals with the issue of developing a green financing system.

For examples, it calls for interest rate subsidies and credit guarantees to encourage more lending for so-called green projects. Beijing also wants to develop a market for green bonds and a stockmarket index for sustainable companies. It also wants listed companies to disclose more environmental-related issues.

All of these measures are designed to incentivise private sector investors to move away from polluting industries and invest in more sustainable sectors.

Ma uses Hebei as an example to talk about the need to develop a green economy. The province is the largest producer of steel, cement and pleat glass in China. All these industries are heavily polluting and contribute to the smog problem in northern China. The province needs to cut 15 million tonnes of steel production, 15 million tonnes of iron production as well as 39 million tonnes of cement. These cuts equate to millions of job losses.

The central bank chief argues that if the government relies on draconian administrative measures to shut up factories and steel mills, it will result in massive unemployment, which will create social problems as well put more pressure on the slowing economy. He says a better way to deal with the issue is through encouraging more private sector investors to put money into more sustainable sectors.

He makes the following suggestions.

He says Beijing needs to support more lending to renewable sectors through interest rate subsidies -- he thinks it should be around about 3 per cent.  For every dollar the government spends, it is likely to bring in another 33 dollars from the private sector.

The government should also establish funds that invest directly in green projects. International experience suggests private sector investors are more willing to get involved if the government kicks in money too. In addition, a green bond market could be used to finance long-term projects such as subways and waste water treatment.  

http://www.businessspectator.com.au/article/2015/12/1/china/financial-solution-chinas-smog-problem?utm_content=SocialFlow&utm_campaign=EditorialSF&utm_source=BusinessSpectator&utm_medium=Twitter

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A power company in China failed to make an interest payment on a bond on Tuesday marking the first time a state-owned firm has been allowed to default and adding to evidence that Beijing is slowly withdrawing its sovereign guarantee of low-quality bonds.

Baoding Tianwei Group said in a statement that it was unable to make the payment on time.

The default "might destroy the ironclad guarantee reputation of central government-owned issuers", wrote analysts at China Chengxin International Credit Rating Co in a research note before the default.

But they added that the low grade of Tianwei and the other defaulters limits the market impact of any defaults.

The news comes shortly after a full default on both principal and interest by Cloud Live Technologies earlier this month, and a more recent offshore default by Kaisa Group , the first Chinese developer to default on dollar bonds. Investors are now eyeing developer Glorious Property Holdings, whose bond payment comes due on Saturday.

But defaults on bonds sold to foreigners offshore have failed in the past; what the Chinese political system has struggled with is allowing domestic defaults. The first default in 2014 by a small private solar power company ultimately ended in a bailout several months later.

Baoding Tianwei Group is entirely owned by the Beijing-based China South Industries Group Corporation, which advertises itself as a part owner of Changan Automobile Group on its corporate website as well as a major defense equipment maker. It is directly owned by the central government.

Calls to the company were not answered, but investors appeared to have taken the lack of a rescue in stride, with bond markets shrugging off the news.

On April 16, the company had warned investors that it might miss an 85.5 million yuan ($13.8 million) interest payment.

The 5-year, 1.5 billion yuan bond maturing in 2016 has a coupon of 5.7 percent. It was originally rated AA+, but was later downgraded to BB.

Despite its links to the government, there were few signs China South Industries would rush to Baoding Tianwei's rescue.

"This affair has no connection with us," said an employee of China South Industries when contacted, although the employee confirmed that Baoding Tianwei is a subsidiary. He suggested contacting its underwriter, China Construction Bank.

Read more at Reutershttp://www.reuters.com/article/2015/11/30/china-debt-bonds-idUSL4N0XI3BA20151130#le42z6IvKfX3ErAp.99

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Exactly a year ago, Riyadh decided to embark on an epic quest to send crude prices plunging on the way to, i) bankrupting the US shale complex and ii) achieving “ancillary diplomatic benefits,” like tightening the screws on Moscow’s energy-dependent economy in hopes of forcing Putin to give up Assad.

Long story short, the kingdom’s plan didn’t work.

Thanks to ZIRP, legions of yield-starved investors in the US ensured that capital markets remained open to otherwise insolvent drillers, allowing US producers to stay in business longer than the Saudis anticipated. Meanwhile, not only did Putin not give up Assad, he actually sent the Russian air force to Latakia and to add insult to injury, Moscow’s warplanes are now bombing Saudi-financed Sunni militias in Syria.

Meanwhile, slumping crude prices wreaked havoc on the kingdom’s finances.As we’ve documented extensively, the Saudis are now staring down a deficit on both the fiscal and current accounts with the former amounting to some 20% of GDP and the latter representing the first negative balance in at least 15 years.

So what's a despotic, puritanical Islamic monarchy to do? Well, you can tap the debt markets to offset the FX reserve burn and indeed Riyadh has already gone that route, but as we noted earlier this month, it's not clear how far they'll ultimately want to push that given that projections already have the country's debt-to-GDP ratio climbing from basically zero to more than 33% by 2020

Income from oil and related products contributes more than 80 percent of Saudi government revenue, and crude’s 37 percent plunge over the past year is poised to result in a 10-fold increase in the country’s budget deficit. That’s squeezing liquidity in the banking system, with demand deposits dropping 4.7 percent in October, as those of businesses, individuals and government entities slumped.

"The drop in deposits in October, in absolute amount, is probably the biggest since the 1990s," Murad Ansari, a bank analyst at EFG-Hermes Holding SAE, said by phone from Riyadh on Monday. "There are payment delays from the government to contractors, which is one of the reasons for the decline in private sector deposits, and public sector deposits are shrinking as the government is running a deficit."

Well don't look now, but money markets are tightening dramatically in the kingdom as deposits dry up. The 3-month Saudi Interbank Offered Rate has jumped 13 bps in November to its highest level since early 2009.

In short, the Saudi economy is gradually grinding to a halt, which is what happens when you deliberately tank the commodity that accounts for more than three quarters of government revenue and when government spending is the linchpin for economic growth. While it's not clear how much of this is "priced in" so to speak, you'll note that there's not a lot of breathing for the Saudis in terms of avoiding a recession in the not-so-distant future.

http://www.zerohedge.com/news/2015-11-30/saudi-interbank-rates-soar-deposits-flee-cash-crunch-intensifies

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When a world-renowned banker and a congressman were busted last week as part of the biggest corruption scandal in Brazil’s history, the international spotlight naturally fell on the young tycoon, Andre Esteves.

Yet to long-time Brazil watchers, it was the detention of the legislator -- a ruling party dealmaker named Delcidio Amaral -- that marked a far more worrisome development for a country desperately seeking to contain a deepening financial and political crisis. His arrest not only delayed government efforts to resolve this year’s budget dispute, but it also dispels a long-held belief that sitting lawmakers are all but untouchable because of a quirk in Brazilian law that affords politicians special treatment in criminal investigations.

While that can be seen as a true silver lining in the scandal -- a sign that a legislative branch rife with alleged corruption will no longer be tolerated -- it also injects a wild card into the crisis: Who will fall next and where will it all end? With the heads of both houses being investigated, it raises the possibility that Brazil’s political apparatus could unravel before ever passing the spending cuts and tax increases needed to restore investor confidence and ward off a new round of credit-rating downgrades.

"The idea that the political leaders have a plan to pull the country out of this crisis died because their very own future is at stake," Gabriel Petrus, a political analyst at business consulting firm Barral M Jorge, said from Brasilia. "Never before in history have we had so little certainty about tomorrow."

http://www.bloomberg.com/news/articles/2015-11-30/forget-esteves-it-s-the-other-brazil-bust-that-worries-insiders

Commodities have been getting creamed in 2015.

And according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices, it isn't going to get any better any time soon.

"Unfortunately for commodities, there’s no waking up from this nightmare."

So far, 2015 has not yet been the worst year for any single commodity, Gunzberg noted in a November 30 report, but there are a number of commodities that are on pace for one of their worst years on record.

"Aluminum is having its second worst year in history and gold is having its sixth worst year in history," Gunzberg writes.

The S&P tracked each commodity's performance back to 1970 for its research. No fewer than 17 are having one of the their five worst years out of 45.

Natural gas is down more than 40% this year, according to S&P, and energy is down more than 30% — making 2015 the fifth-worst year for each.

Already, Wall Street is bracing for big fallout. Wall Street banks areexpecting more defaults in the energy sector as they see more loans underperforming.

This is S&P's chart tracking the carnage.



S&P Dow Jones IndicesS&P tracks commodities' plunge in 2015.

http://uk.businessinsider.com/commodity-performance-in-2015-2015-11?r=US&IR=T

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Linde, the world's biggest industrial gases company by sales, cut its 2017 profit target, citing slower industrial production growth weighing on its industrial gases unit.

Linde now expects adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) to come in between 4.2 billion euros ($4.4 billion) and 4.5 billion in 2017, down from an initial target of 4.5 to 4.7 billion, it said on Monday.

It would also not achieve its 2017 target for return on capital employed (ROCE) of between 11 and 12 percent and now expects 9 to 10 percent.

Linde also said its engineering division would continue to suffer from a weak order book due to the low oil price.

It said last month that only strong growth at its U.S. healthcare gases business helped it eke out a gain in third-quarter adjusted EBITDA.

At the engineering division, which designs and erects large plants for the oil and petrochemical industry, clients have kept holding off on large investments, with crude oil prices down about 40 percent from a year ago.


Read more at Reutershttp://www.reuters.com/article/2015/11/30/linde-outlook-idUSL8N13P57B20151130#YQjAuMGboLbFGiZl.99

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