Wednesday, July 29, 2009

China Stocks Plunge Most In Eight Months On Tightening Concern

Stocks closed down 5 percent at 3.266 and were down almost 7 percent intraday....Probably no coincidence that just today the Chinese leadership has finally put a lid on some lending targets..... Will be interesting to see how the market can "bubble" along ( see Chart Chinese SSE Index ) without the main driver ( Loans worth about an estimated 1.16 trillion yuan were invested in the stock market in the first five months of this year via Bloomberg)..... Here ( see China’s Loan Growth Isn’t Boosting My Confidence In China’s “Green Shoots” Michael Pettis ) is an earlier post on this topic .......

Der Markt in Shanghai ist binnen einer Handelsstunde mal eben um knapp 7% eingebrochen und hat sich auf einen Tagesverlust von 5% auf 3.266 retten können. Nach dem fantastischen Lauf von knapp 80% ( siehe Chart Chinese SSE Index ) sicher nicht weiter interessant. Wäre da nicht zeitgleich die Meldung über die Ticker gelaufen das die chinesische Führung den wichtigsten Banken verordnet hat Ihre explosionsartige Kreditvergabe drastisch einzuschränken. Bin mal gespannt wie sich der Markt ohne seinen wichtigsten Treibstoff schlagen kann ( Loans worth about an estimated 1.16 trillion yuan were invested in the stock market in the first five months of this year via Bloomberg ). Meine Meinung zum Thema dürfte bekannt sein ( siehe China’s Loan Growth Isn’t Boosting My Confidence In China’s “Green Shoots” Michael Pettis ) ........


BEIJING, July 29 (Thomson Reuters)

China's two biggest state-owned commercial banks have put a lid on their 2009 lending targets, according to domestic media reports, in a move that will significantly slow overall Chinese credit growth in the second half

Industrial and Commercial Bank of China (ICBC) is aiming to issue full-year new oans of 1 trillion yuan ($146.4 billion), while China Construction Bank (CCB) has set a goal of 900 billion yuan, Caijing magazine reported.

The two banks, China's largest by market value, granted new loans of 825.5 billion yuan and 709 billion yuan, respectively, in the first half.

If they stick to their reported targets, this would imply that ICBC would have already issued 83 percent of its full-year lending total, while CCB would have already issued 79 percent.

Overall, Chinese banks issued a record 7.37 trillion yuan in new loans in the first six months, easily topping the full-year figure of 4.91 trillion yuan in 2008 and igniting concern that excess liquidity was leading to stock and property bubbles.

Chinese regulators have left banks largely unhindered in their rampant lending in the belief that the economy needs ample money to recover, but in recent weeks they have warned of mounting credit risks to the banks themselves and demanded that loans be put to use for productive purposes.

> Here one interesting anecdotal evidence from a fund manager via M.Pettis

> Hier eine recht interessante Einschätzung eines Fondsmanagers via M.Pettis

Notes on a real estate trip in China

I don’t know how much you travel around China. T and I do a fair bit, and most recently we were in Guiyang. I thought I’d seen insane excess in the past – 200 thousand square meter malls completely empty next to apartment complexes with 40 thousand units and 30% occupancy rates, etc. etc.

But what we saw over there is rather hard to fathom. It seems the Guiyang city mayor had the same idea as the Shenzhen mayor – to move the old downtown to a piece of undeveloped land.

Of course Guiyang has a quarter the population and probably a quarter the per capita income of Shenzhen. They built sprawling new government buildings about a 20-minute drive north of town. And then the residential high rise projects started going up. From driving around the area, we figured well over 100 20+ storey buildings.

What was most distressing was that the development has been totally uncoordinated – a project with 15 buildings here, in another field two miles away a project with one building, another mile in another direction three buildings, sprawled over what was easily over 30 square kms. of farmland well north of town. Every building we got close enough to see was either incomplete/under construction, or empty. Our tone gradually went from “Haha, another one!” to “Oh my God, another one.” We conservatively guesstimated that we saw US$10bn of NPLs in one afternoon.

The only buildings that were occupied were six-storey towers built to accommodate the peasants who had been displaced by the construction.

Back in the city proper, every neighborhood we saw was a convulsing mess of buildings being torn down, new ones being built, and unfinished high rises starting to crumble

> Another comment from a friend of M.Pettis

> Hier eine weiterere "amüsante" Beobachtung....

"By the way almost no one I know trusts the official vacancy rates.

A friend of mine who works in the financial service industry in Shanghai took advantage of the recent total solar eclipse to do his own vacancy rate analysis.

His message to me: “Today’s eclipse provided a perfect opportunity for keen-eyed observers on the ground to see how many floors of the nternational Financial Center (aka The Bottle Opener) are actually lit and ready for use: 25% at most.

Hope that’s of use the next time you comment on speculative office building.”

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3 Comments:

Blogger Yogi said...

Thanks for the update J-M!

I think this could turn out to be one of the most important news stories of the year.

9:52 AM  
Blogger jmf said...

Moin Yogi,

i agree. So far the coverage has been very muted.....

I think all the guys betting on China for a recovery will be in for a rude awakening......

10:06 AM  
Blogger jmf said...

The Simple Math of “Staggering” Chinese Growth By Vitaliy Katsenelson

Chinese non-export economy grew 23% in June! Before you start googling for that number, let me warn you. You won’t find it. I’ve computed it using fifth grade math.

Here is what we know: exports constitute about 35% of the Chinese economy and they dropped over 20% in June, while the Chinese economy (GDP) grew 8%. So the “X” is the growth rate of 65% of Chinese non-export economy.

0.35 x (-20%) + 0.65 x (X%) = 8%. If you were to solve for X you get 23%.

Enough with math, let me put this number in perspective. Chinese non-export economy grew at 3 times the rate of their GDP. I only have two, very contradictory, explanations for this:

1) The Chinese government is lying through its teeth about its economic miracle growth. It has the incentives to interrogate economic data until it confesses to the party line numbers. This is very plausible, as for months, the Chinese government was showing positive GDP growth while its consumption of electricity was declining

) The numbers are real, the monetary base was up 28.5% in June (again if you can trust that number) and thus the quality of growth is horrible. I’ve discussed this scenario in great detail.

8:42 AM  

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