Wednesday, July 01, 2009

China’s Loan Growth Isn’t Boosting My Confidence In China’s “Green Shoots” Michael Pettis

I wrote in February ( see Number Of The Day "Credit Explosion In China" ) "This almost surreal number is signalling a real panic among the leaders..." & "I wonder what percentage of the loans will default".... There is nothing to add ( except the percentage will be sky high UPDATE: See link about the Beijing housing frenzy)........ ........ The level of panic might explain why protectionism is on the rise.....Good luck to all the investors/experts ( probably 90 percent.... ) that still think China will lead the rest of the world out of the dark....The first link from Michael Pettis is a must read! He provides the best insight on China......

Ich schrieb im Februar ( siehe Number Of The Day "Credit Explosion In China" ) "Diese unheimliche Zahl signalisiert ne echte Panik der chinesischen Führung...." & "Möchte nicht wissen welcher Prozentsatz dieser Ausleihungen in 24 Monaten als notleidend deklariert werden muß......" Nach aktueller Datenlage ist dem wenig hinzuzufügen.... Höchstens die Gewissheit das die Panik noch zugenommen hat und das eine gigantische Zahl dieser Kredite implodieren wird ( Update : Bitte den Link zum Immomarkt in Bepinkg lesen )...Wie groß die Panik zu sein scheint kann man auch am zunehmenden Protektionismus erkennen......Wer noch immer auf China als große Hoffnung der Weltkonjunktur setzen möchte dem wünsche ich viel Glück......Sieht fast so aus als wenn China demnächst einen nicht geringen Teil der $ Reserven für das eigene Bankensystem & die Provinzen benötigt...... Empfehle einmal mehr den Link von Michael Pettis. Habe bisher keinen gefunden der einen besseren Einblick in das chinesische "Innenleben" offenbart. Und das i.d.R Monate bevor andere darüber berichten......

China’s loan growth isn’t boosting my confidence in China’s “green shoots” Michael Pettis!

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China Bank Lending Funneled Into Stocks, News Says Bloomberg
Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.

That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said.

Shanghai composite

> By the way the index has now bubbled higher to 3.050....... Update:Bawang International IPO, a Chinese herbal shampoo maker, was 446 times subscribed & Coal trader China Qinfa Group IPO 96 Times Oversubscribed

> Der Index steht aktuell bei 3.050....... Update :Bawang International IPO, a Chinese herbal shampoo maker, was 446 times subscribed & Kohlehändler China Qinfa Group IPO 98-fach überzeichnet

Chinese Banks: "An Accident Waiting to Happen"
Naked Capitalism
Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al).
This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".
Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate...
Roll-over risk is rocketing.
China's monetary stimulus since November is arguably more extreme than the post-Lehman printing of the US Federal Reserve, though less obvious to the untrained eye....

Beijing housing bubble growing, says state media Marketwatch

Beijing's property prices are climbing at an unsustainable rate, with residential property in the city center leaping 6.5% in the past week alone, according to a report Friday in the state-run China Daily newspaper.
The report, which cited data from property broker Homelink, said some neighborhoods have seen demand for apartments at four times the number of units available.

"We used to talk about monthly price growth, but recently, it's more about daily change," the report quoted a Homelink broker as saying.
"The bidders have gone irrational. A bubble in Beijing's property market is definitely there," the report quoted Soho founder and Chief Executive Pan Shiyi as saying.

The report said other large cities across China were seeing a similar phenomenon, with industry leaders now worried that the market is priming for a big drop at some point in the future.
> I´ve written earlier about the CRE in Beijing ( see Beijing's Olympic Building Boom Becomes A Bust )....

> Hier ein paar Fakten zum Zustand des gewerblichen Immobiliensektors in Peking ( siehe Beijing's Olympic Building Boom Becomes A Bust )

By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government.

He says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.

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Blogger jmf said...

China Allows Yuan Trade Settlement, Offers Tax Breaks

July 2 (Bloomberg) -- China’s central bank allowed companies to undertake settlement of cross-border trade in the yuan and promised tax breaks, seeking to reduce the reliance of importers and exporters on the U.S. dollar.

Tax authorities are working on the proposed rebates for exports settled in yuan, the central bank said. Bank of China Ltd. will be the clearing bank in Hong Kong and Macau.

5:04 AM  
Blogger Yogi said...

Good find, J-M!

The Michael Pettis article confirms what I have suspected about China for some time.

This will probably sound crazy, but am looking at the 500 level as possible target on the Shanghai composite index, if it starts to break down from here.

8:48 AM  
Blogger jmf said...

Thanks Yogi,

the "events" in China are really alarming...

I was never so pessimistic on the overall marktes, economies, societies etc.....

It´s amazing how bad the "reaction" worldwide to the crises has been.... Still no change.... More of the same.... No regulations....Bailouts left & right....Throwing money at every problem.....etc.

The outlook is somewhat "depressing".....

9:26 AM  
Blogger jmf said...


Business is back on Wall Street. If the good times continue to roll, lofty pay packages may be set for a comeback as well.

Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal.

"We've only accrued one quarter for compensation and benefits" for 2009, a Goldman spokesman said, noting that the 18% increase from a year earlier was "primarily due to higher revenues." He added that "compensation practices at Goldman Sachs remain fundamentally tied to the firm's performance."

9:54 AM  
Blogger Yogi said...

I guess that is what is making this into a depression, rather than an ordinary recession.

Those Wall Street scam artists will run out of luck eventually, I’m just not sure when it will happen.

I am also not sure if the $SSEC will get down to 500 this year. I should have just predicted $SSEC 1000 (near the 2005 low) to sound slightly less crazy.

10:36 AM  
Blogger jmf said...

Moin Yogi,

"Green Shoots" & S&P 500 1100 Calls are sounding more crazy than the SSEC at 1000.... :-)

Abby Joseph Cohen 2009 vs Abby Joseph Cohen 2001.....Which Call Is Worse?

I think you are right... The chances even of a deep recession are waning.....

Lots of countries are already in a depression ( Iceland, Latvia etc )

10:50 AM  
Blogger jmf said...


-- Coal trader China Qinfa Group (0866.HK) said the retail offering portion of its initial public offering was 96 times over-subscribed and the shares were priced at HK$2.52, the top of its suggested range. The shares will start trading on Friday.

Hedge fund Alantis Investment Management has invested HK$460 million in three recent equity deals in Hong Kong in subscribing to shares in coal trader China Qinfa Group (0866.HK), Zhong An Real Estate (0672.HK) and Xinyu Hengdeli (3389.HK), sources said.

12:28 AM  
Anonymous Chris said...

I hope that things in China are changing. Thank you for this informative post!

6:25 AM  
Blogger jmf said...

Moin Chris,

it wouldn´t surprise me if we will wake up one morning and will see the Shanghai index open "limit down" very soon....

10:06 PM  
Blogger jmf said...

China Blames Uighur Separatists for Xinjiang Riot

July 6 (Bloomberg) -- Riots in Urumqi, the capital of northwest China’s far western Xinjiang province yesterday left 140 people dead and 816 injured, the official Xinhua news agency reported, citing the regional public security bureau.

The regional government blamed ethnic separatists for the violence, which began yesterday evening, and police have arrested several hundred participants and are searching for 90 other people, state-run Xinhua said.

12:49 AM  
Blogger jmf said...

Emerging Markets Take Record Share of World Equity

China’s market capitalization has jumped more than fivefold from about $500 billion at the end of 2003, according to Bloomberg data that includes common and preferred stock. The Chinese economy more than doubled in that time to $3.8 trillion, according to the World Bank.

The world’s third-largest economy after the U.S. and Japan has been boosted by a 4 trillion-yuan ($585 billion) stimulus package and five reductions to the key one-year lending rate in the last four months of 2008. The Shanghai Stock Exchange Composite Index rose 70 percent this year.

1:08 AM  
Blogger jmf said...

Creative Accounitng to mask the real slump.... Desperation....

On fixing China’s fixed asset investment data
FT Alphaville

Including an interesting graph......

4:05 AM  
Blogger jmf said...

Unrest in Western China Video via The Mess That Greenspan Made

Riots in Western China have, so far, resulted in more than a hundred deaths. A dispute at a toy factory thousands of miles away in Guangdong province caused tensions to boil over.

9:20 PM  
Blogger jmf said...

Xingjian Riots: The Energy Connection
P. Kedrosky

There is an important energy (read: oil & gas) connection to the current riots in China’s Xinjiang province. While the region had been independence-minded, that is no longer conceivable to the Chinese leadership, with sad and unsurprising current results:

“The Chinese didn’t want to let Xinjiang be independent before, but after they built all the oilfields, it became absolutely impossible,” said one Muslim resident in Korla, who asked not to be named for fear of retribution by government security agents.

3:20 AM  
Blogger jmf said...

Things are heating up quite a bit......

The realpolitik of mining
FT Alphaville

Rio’s iron ore sales team was arrested by the Public Security Bureau in Shanghai, including the Australian passport holder, Stern Hu, and three Chinese passport holders. No explanation was given.

Of course, we hardly need to point out that this incident’ comes just a month after Rio abandoned its $19.5bn tie-up with China’s Chinalco and while Rio continues to negotiate with Chinese steelmakers over iron ore prices.

Back to the SMH.

It is understood Rio’s iron ore team has been meeting in Hong Kong and Singapore for more than a month out of fears that their phones and emails were being bugged and that key negotiating information was finding its way back to the China Iron & Steel Association.

8:56 AM  
Blogger jmf said...

Quantitative tightening FT Alphaville

From Reuters:

Chinese shorter-term bond and bill yields soared on Thursday after the central bank resumed one-year bill sales, that had been suspended for seven months, confirming to traders that monetary policy was being tightened. The central bank auctioned 50 billion yuan ($7.3 billion) of one-year bills in its regular open market operations at a yield of 1.5022 percent, above forecasts of around 1.40 percent and ranged between 1.30 and 1.50 percent.


So why would China be looking to drain liquidity from the system?

Well, the announcement on one-year bills sales was actually made on Wednesday but came shortly after this news hit the tape:

Chinese banks made new loans totalling 1.53 trillion yuan in June, higher than the estimate of 1.2 trillion yuan given by state media and dwarfed May’s total of 664.5 billion yuan.

For the first half of the year, banks extended 7.37 trillion yuan in new loans, well above the minimum target of 5 trillion yuan set by the government for the year.

6:30 AM  
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3:24 AM  

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