The Labour Force Participation Rate (LFPR) as Stock Indicator

14 August 2022

The labor force is important in any economy.  An increasing labor force indicates healthy economic growth.    The scale of labor supply in a country is often measured by the labor force participation rate (LFPR). Therefore,  the higher the LFPR,  the better and healthier will be the economy and vice versa.  Investors often use LFPR to judge an economy before laying out their investment plans.

Examples 

Germany

Germany has been regarded as one country that has a better and healthier economy not only in Euro Area but also in the World.  In the past 20 years,  Germany's participation rate has risen steadily from about 70% to the present 80%.  It has managed to maintain positive GDP growth every year except for 5 occasions marked as shown in the attached chart.

Other Countries

The following chart shows the labor force participation rate as listed in the World Bank's record.

G20 Countries

Asian Countries

Where to get the Data

The Best Places

1.   Trading Economics

2.   World Bank

3.   CEIC *

4.   Macrotrends *

* likely to be using models to project/estimate when National figures are not available

Why China is not included?

For some reason,  China stopped reporting its National LFPR in 2016 as shown in this World Bank Chart. 

DoubleClick picture to visit the webpage

One could only read from the model that predicts and projects the latest figure.  The last projected figure is 68%.

DoubleClick picture to visit the webpage

Why has China Stopped Reporting Since 2016?

China suffered the weakest annual growth in 26 years in 2016 when it reported a GDP growth rate of 6.7% , down from 6.9 % in 2015.  There was a job loss of about 1% in that year according to this chart from Moody's Analytics. Since then,  China had not been reporting good labor force statistics.  It is not known if this is the real reason.

DoubleClick picture to visit the webpage

The Younger Labor Force

The younger labor force participation is often regarded also as an important statistic to judge the health of an economy.   The following World Bank chart shows that China has stopped reporting such statistics since 2010.  Most economies have reported lower LFPR after the pandemic in 2020. 

DoubleClick picture to visit the webpage

The LFPR & Stock Market

The LFPR might not be the best indicator to track the movement of the stock market but it can be used to predict if there will be a large market movement as shown in this chart.  The better indicator to track the stock market is the payroll figure at the moment

As of 14 August 2022,  the chart is showing a very healthy LFPR for the US labor market.  If not because of the pending Fed's QT  in session,  the US stock market could have recovered and taken off to make new highs.

Real Time LFPR& Stock Chart

source: tradingeconomics.com

Conclusion

Labor force participation rate (LFPR) has always been used by analysts all over the World to judge the strength of an economy.  A rising economy would have a rising LFPR.  Of late,  many economies are suffering from declining LFPR particularly in the age between 15-24,  the younger labor force.   China has purposely chosen not to report the LFPR since 2016.  However,  many analysts still use models to estimate and project this LFPR from China.

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

How Bad is China's Debt Problem?

31 December  2021

Jump to 

1)   The World Bank Charts

2)   Non-Performance Bank Loans  

3)   70% Chinese Households are in Debt  

4)   31 May 2022: Video Testimonial About Debts  

5)   1 July 2022:  Debts Incurred Since Xi Took Office  

6)   5 July 2022:  Where will China be Heading 

7)   28 July 2022:  Latest Domestic Credit Debt 

8)   5 August 2022:  Money Printing 

9)   6 August 2022:  Rich Moving to Singapore 

10) 20 August 2022:  The Lost Decade

Other relevant articles:

What is the unemployment rate in China? 

31 December 2021

Reuter claimed that China's debt has risen dramatically largely due to the credits offered to the state-owned enterprises.  It claimed that this debt has threatened China's stability, slowing down the economy and the stock market growth.    However,  many are not convinced.  They argued that such fear is overdone.    Let's examine what the statistics and charts are telling us.

How much are the Debts?

Reuter in this article indicated China's Total Debt is about 250% of GDP.

   

Source:  Reuter

Reuter explained this debt level is not too high when compared to  Japan's 370%.  However,  the rate of rising has fastened;  otherwise,  China's debt appears to be normal & manageable.

But Reuter went on to say that was not the case for the Domestic or Corporate Debt.  The debts without counting the Government's debts have gone way above the rest of the countries.  This is particularly obvious as shown in this chart.

 

         Source:  World Bank

The chart is showing that China Domestic credit is mimicking the path of Japan about 20 years ago, during which time,  Japan was embarking on its journey to the "lost decade".

As China's GDP in 2020 is about USD14.7 Trillion;  hence, for the 182% GDP debt, each Chinese of 1.3B people owed the Chinese banks about USD20,000

What about Hong Kong & Macao?

If the Domestic debts in Hong Kong and Macao are low,  it might help China to balance out the Corporate Debt;  but the debt situation in Hong Kong and Macao is even worst as shown in the following chart.

Source:  World Bank

The following is the bar chart showing China and its SAR regions' Domestic debts by Banks against other countries or areas.  China's Domestic debts by Banks are about 40% higher than the UK and 60% more than Japan.  The SAR's debts are much higher.

Source:  World Bank

What do the Stock Markets say?

Presently,  the 3 big stock exchanges are showing mixed results.  Shanghai Composite (SSEC) is trading around the upper trend line of a symmetrical triangle according to the weekly chart as shown below.   Hong Kong HSI has just broken down the lower trendline and Shenzhen is seen climbing up the lower trendline.

The Technical Analysts will usually say the trend of the market will be bullish if the index can break above the symmetrical triangle or vis-visa.  This is exactly what the monthly SSEC index is about to do and Shenzhen has done recently.   But there was no appreciable volume supporting the two break up movements;  meaning,  the stock rising of the index was weak and the index might reverse its course at some future time.   As for Hong Kong HSI index,  it has a false break up earlier.   It is now heading downwards after breaking the lower trendline.

Overall,  we are expecting SSEC and Shenzhen indexes to continue moving up to test the resistances,  failing which, we will expect these 2 indexes to move downwards.    As for HSI,  we are expecting it to make a move to retest the lower trendline that it has just broken.

Conclusion

China,  as a country,  might have manageable National Debt but one cannot say the same for the Domestic or Corporate Debts which is now the highest in the World.  It would be a concern to investors to watch out as some very big private property developers have defaulted their interest payments recently.  Any action by China's banks to limit their risk on the loans given to the private sectors would have serious repercussions for the stock markets, not only in China but also all over the World.

Disclaimer:  This article is for information and educational purposes.   Readers are advised to conduct their own research and study to make their own investment decisions.

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Update:  Realtime World Bank Charts

Domestic credit to the private sector by banks (% of GDP) - China, United States, Japan, Euro area

Domestic credit to the private sector by banks (% of GDP) - China, United States, Japan, Hong Kong SAR, China, Macao SAR, China

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Update:  Non-Performing Loan (NPL)

The NPL of the banks will affect the country's economy.   When a country ignores its NPL problem,  its economic performance will suffer.

The banks' NPL is an indicator of a debtor’s inability (or unwillingness) to pay the bank.  A high NPL will become a burden for both the banks and the borrowers.  It traps valuable collaterals.  Any unresolved debts will make it more difficult for debtors to obtain new funding for their investments.   The banks on the other hand will have to bear the cost of NPL   Its balance sheets and profitability will be greatly affected.  Allow NPL to be unchecked,   it will affect the country's economy. 

Italy faced economic problems when its NPL ratio reached 17% in 2018. Greece almost went bankrupt when its NPL ratio hit 46% in 2017.     Across the European Union, NPL ratios have doubled between 2009 and the end of 2014. 

China's present NPL ratio is around 2%. This is a very healthy figure.  But,  many property developers are presently heavily in debt.  Today,  they manage to stay above water;  tomorrow,  some are expected to go bankrupt.   

Presently, real estate development in China contributes about  14-15 per cent of China's GDP.  If construction and other related industries are included and accounted for,  the contribution could exceed 25 per cent of GDP. 

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Update:  1 May 2022 : 70% of Households are in Debt

In China, about 70% of households are taking up bank loans to buy housing and apartments.   Of late,  housing prices in China have dropped drastically,  Newly built houses today cost only about 1/3 of the price about a year ago.  Going forward, it is likely to see the Chinese Government trying to save the housing market & the banks that loan the money.   One would expect the Chinese stock markets to fall again soon.

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Update:  31 May 2022 : Videos Testimonial about Debts

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Update:  1 July 2022 : Debts incurred since

Xi took office

China's domestic debts were 134% of GDP (9.57 Trillion USD)  when Xi took office in 2013 as Chairman of CCP.  The debts ballooned to 185% of GDP (14.72 Trillion USD) after 7 years in 2020.   So the increase in domestic debts in China was around 14.43 Trillion USD (14.72*185% - 9.57*134%) since Xi took office in 2013.   This roughly works out to a debt increase of around 2.0 Trillion USD per year or 166 Billion USD per month.

The following will show one of place where the debt money could be coming from.

 

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Update:  5 July 2022: Where will China be Heading?

Debt is just like the opium;   once addicted,  the habit is very difficult and painful to kick.

The Japanese domestic debts reached the same level of 185% of GDP (4.5 Trillion USD) in 1999 & the domestic debt was about 8 Trillion USD  The Japanese must have felt the pain of these domestic debts.  To resolve this,   they slashed the interest rate to negative in order for its people to refinance their debts at much-reduced interests. They managed to reduce the domestic debts to less than 100% of GDP in less than 3 years.  But, they lost nearly 20 years of growth thereafter as shown in this attached chart.  Historians often term this Japanese loss in economic growth as Japan's "Lost Decade"

Will China suffer the same fate as Japan? 

Going ahead,  China will need to be very careful in managing its domestic debt. There is a tendency for the debts to explode as evidenced by the bond defaults by big property developers like Evergrande and Shimao.   The banks too are not in good shape.   The smaller local banks are presently restricting depositors from withdrawing their savings to save bank runs;  the larger one like Nanjing Bank has rumours that their off-balance sheet items are not that healthy. 

Many must have borrowed from the banks to finance their housing.   These people can be very unhappy and reckless if they have no money to pay the bank interests & they are jobless with the banks or developers chasing after them.  

It would be harder to expect China can manage its exploding domestic debts better than Japan because:

a) Japan has a longer growth history than China before they faced the "lost decade";  also, 

b) The Japanese did not have a long economic enemy list;  lastly,  

c) The Chinese domestic debt is nearly 3  times larger in value (China domestic debt: 26.79 Trillion USD in 2020;  Japan domestic debt: 8 Trillion USD in 1999).

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Update:  28  July 2022: Latest figure on Chinese Domestic Credit Debt

Ceicdata.com has the latest data on Chinese Domestic Credit Debt as shown attached.

The data shows that the Chinese domestic credit debt has risen to USD 42.7 Trillion in June 2022.  It has been rising at a rate of about 10% per year.  Based on a population of 1.4 billion people,  this debt is about USD 30,000 per person.  Interest based on 5% will be roughly USD 2.1 Trillion or about 20% of 800 million people's salary @ around USD1,100 per month.  

This debt of USD 42 Trillion is about 250% of China's GDP @ USD 17.6 Trillion;  in other words,  China's domestic credit debts have increased 68% of GDP in a short span of 2 years from 182% in 2020 to the present 250% in 2022.

Because people have been borrowing money heavily,  the Chinese banks' bad loans have increased by almost 107 billion yuan (USD 15 billion) in the first half of 2022 to 2.95 trillion yuan (USD 430 billion), according to the CBIRC. 

As the economic recovery was slow in 2022,  it is expected the Chinese banks' non-performing assets could increase by 25% to 7.5 percent of total lending by the end of this year,  The actual non-performing assets of 6 percent last year.

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Update:  5 August 2022: Money Printing

Every country will need to print money to cater to the expansion of its economy.

The faster they expand their economy,  the more money they will need to print.   If a country prints more than to cater to the economy;  for example,  to handle the debts or to loan out money to the rest of the World,  it will show up in this chart maintained by the World Bank. 

The chart measures the "broad money" circulating in the economy.  If a country prints money more than last year,  the chart will show an increase as % of the GDP.

The chart shows that Japan is the country that has printed the most money to handle its rising debts;  it has printed about 2.8 times the size of its economy.  It is closely followed by China,  which started printing in the '60s.  The printing exceeded the US in 1990 and has never looked back since.   

What about Hong Kong and Macau?

Hong Kong and Macau have printed very much more than Japan.  Today, Hong Kong's broad money is 4 times more than the size of its economy.  Hong Kong is followed closely by Macao which has increased money printing by 1.8 times in 2020.   Both Hong Kong and Macao increased their money printing since China took over the counties in 1997.

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Update:  6 August 2022: Outflow of the Rich

Straits Time reported last Tuesday saying the rich Chinese are eyeing to move to Singapore.  Henley & Partners,  a  global investment firm in residence and citizenship, predicted the number of China’s high-net-worth (HNW) individuals leaving the country could become more pronounced this year.   

Fortune.com put the figure of around 10,000 HNW,   taking with them USD $60 billion in wealth when they leave.

(Doubleclick picture to read the Straits Time news)

The World Bank data as shown in the attached chart clearly indicates that China's GDP growth rates have slowed down recently to 0.4%.  The Chinese economy has been slowing down very fast in the last 20 years at a rate of about 10-12% a year.  

The Chinese GDP is likely to become stagnant or go even below water in the years ahead.  This is because China has a domestic credit debt of about 250% of GDP at the moment.  It might mimic the "lost decade" of Japan.  Japan started its economic recession in 1999 with a staggering domestic credit debt of about 185% of GDP.  It has since lost about 20 years of economic growth.

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Update:  20 August 2022: The Lost Decade

Japan lost not one decade but two decades of growth after its Domestic Credit Debt hit about 187% of GDP in 1999.    Before then,  the housing price already started falling as shown in this chart.   This is also felt present in the  Chinese economy.   The Chinese Housing prices started to fall in Q3 of 2021. 

How Badly Will the World's Energy Supplies Be Affected by the Ukraine War?

It has been told many times by some that the World will be in trouble if they continued to oppose Russia in trying to take over Ukraine.   The Russian leaders have been quoted to say that Russia was only trying to solve a "domestic problem" in Ukraine.  Putin even called this  Ukraine military action a "special military exercise."  

Voices are heard everywhere, threatening those "unfriendly nations" who recently sanctioned Russia that they will get the worse when Putin asked them to pay their natural gas bill in "Roubles" instead of the Euros or US dollars.  

It is not the intention of this article to find out if such voices are correct or the unfriendly nations will get into real trouble.  It intends to present a correct picture to the reader for them to judge for themselves if such threats are real.

The Supplies from Russia

Russia is a country blessed with a lot of minerals and supplies that the World needs.   Natural Gas is one of them. Countries near Russia,  such as Poland,  Germany,  China are not only getting natural gas in LNG tanks but also piped gas through long pipelines all the way from remote Russian areas such as Sibireas.  Over 70% of the country's reserves are currently held by Gazprom, a Russian state-owned company.

How much Natural Gas is from Russia?

One can find this information from a lot of sources.  The ones shown here are from Worldometer.  The following picture shows the yearly natural gas production (in MMCF) of the 10 largest gas producers of the World.

a)  In numbers

<Doubleclick picture to go to the original webpage>

b)  in Pie Chart 

How the Russian Gas would affect the World Supply?

As can be seen from the above chart and table, Russia supplied about 14% of the World's natural gas.  The US and the rest of the World supply the remaining 86%.  With this kind of supply distribution,  it is hardly a conclusion that one can make to say the World's natural gas supply would be in trouble if Russia were to take drastic actions about supplying its natural gas.

Moreover,  the recent natural gas price hikes have already broken down the cost barrier and quenched the fear for many countries to consider bringing in LNG supplies from other countries instead of getting supply through the usual gas pipelines.

However, in whatever form the gas sanction or supply restrictions can be, they will not only bring temporary suffering & hardship to those countries who get direct supplies from Russia,  it will also hurt Russia's economy badly as well. Therefore,  it is never a wise decision to be made.

Update:  28 March 2022

China's Sinopec Bows Out Of Russian Petchem, Gas Projects

China has been taking natural gas supply from Russia, which is China's third-largest supplier of natural gas, after Australia and Turkmenistan, delivering 16.6 billion cubic meters (bcm) (pipeline plus liquefied natural gas [LNG]).  It accounts for 10 % of China's total imports. 

In Feb 2022, Russia, China agree 30-year gas deal via a new pipeline, to settle in euros.  Russia and China have been talking about this contract for the last 8 years,  Understand China signed the Contracts to reduce the dependency of supply from the "Quad".

Recent Russia's actions in Ukraine must have changed China's perspective.  China's Sinopec has just signed a 20-year contract to get about 4 mt of natural gas per year from a US company in November 2021.

<Doubleclick picture to go to the original webpage>

Sinopec was reported to have bowed out of $500 million Russian Petchem Gas projects just because one of the partners,  Gennady Timchenko,  has been sanctioned by the EU and Britain.  

<Doubleclick picture to go to the original webpage>

Update:  28 March 2022

Oil Production in Barrels per years by various countries

Similarly,   for oil production,  Russia supplied only about 11% of the oil requirement with the rest of 89% from other parts of the World as shown in this Pie Chart

a)  In numbers

<Doubleclick picture to go to the original webpage>

b)  In Pie Chart

What could have caused UK to Remove Face mask rules and other Covid Control Measures?

20 January 2022

The UK's Prime Minister, Mr Borris Johnson, said that face-covering in public places and Covid passports will not be mandatory in England from next Thursday or from 27 January 2022.

The UK's Prime Minister also said the government would immediately drop its advice for people to work from home.

He said the scientists believed the Covid wave had peaked in England.  They said they have done an infection survey recently.

What's the Situation in the UK Today?

The UK has a population of about 67 million.   The COVID-19 pandemic had a major impact on the UK in 2020 and 2021. 

Here are  some statistics about Covid-19 in the UK

1)  Confirmed cases

There were 108,069 new cases on 19 January 2022, and 652,469 people in the last 7 days. This shows a decrease of 386,031 compared to the previous 7 days.

2)  Death

There were 359 new deaths within 28 days of a positive test for coronavirus reported on 19 January 2022, and 1,865 people in the last 7 days. This shows an increase of 141 compared to the previous 7 days.

3)  Admission to Hospital

There were 1,752 new hospital admission on 15 January 2022, and 14,927 people in the last 7 days. This shows a decrease of 770 compared to the previous 7 days.

How do these compare?

The UK's infection rate has begun to reduce about 2 weeks ago.  But this rate is not that low when compared to other selected countries which were attacked by Covid in 2020 as shown in the following chart. The chart shows that UK's 7-day rolling average rate is now about 1,500 infections per million people lately.  This is about 50% down from the peak of about 1,600 infections per million on 5 January.   

As for the death rate,  UK's death rate has increased 4 times.   It is not low either when compared to other countries.   The death rate was 1.08 per million people on December 29.   It was about 4.0  on 18 January 2022 as shown in the following chart.

Now,  what made the UK Government thinks that the Covid situation will not be serious and why did they suddenly relax its Covid control measures?

Why?   

The one reason that we can justify the UK's view is that Covid is no longer considered to be a serious and life-threatening disease as compared to other diseases in the country.  

If we study the following chart carefully,  we will find that the UK has the lowest "Excess Mortality rate" among the selected countries.  This rate is about 100% lesser than what they have gone through in early 2020 when the rate was about 107% as shown in the following chart.  

Then, the UK could have experienced the worse,  and the present excess mortality rate of 5% is nothing compared to those dreadful days.   This is like one has seen the big devil before,  one is no longer afraid of the smaller devil which is "100%" smaller.

According to the definition in epidemiology,   "Excess Mortality"  is the number of deaths from all causes during a crisis above and beyond what we would have expected to see under ‘normal’ conditions.   In other words,   the UK Government is NOT considering Covid as dangerous as the other diseases now prevailing in the country. 

What about the Covid Case Fatality Rates (CFR)?

The UK presently also has the lowest case fatality rates (CFR) compared to other countries.  The case fatality rate measures the number of deaths against the Covid Infection cases.   If CFR is low and the infection is still high,  people would be lesser worried about the spread of the disease.

Conclusion

The UK will be taking a very bold step forward.  They assumed that Covid is no longer as dangerous as it used to be;  also,  it is not more serious than other diseases now prevailing in the country.  

Quite sure many countries will be watching closely what will happen in the UK in the future;  they might want to follow suit if the UK's did not experience any conditions worse than before.

Update:  21 January 2022

Estimating the % of  Immunity