Is China Pulling an Alan Greenspan?

Some very interesting data out of China of late in terms of loan growth - in fact staggering data. Aside from being a very important economy to follow, it is worthwhile to dispel much of the bunk and hype coming from the punditry with reality checks. [Feb 9: China and the Baltic Dry Index - What is Really Going On?] Remember, 40%+ of this economy is export driven, and all Chinese customers are simply falling off a cliff; the largest economies of the U.S., Europe, and Japan are simply free falling.

• Japan's economy slumped at a larger-than-expected 3.3% in the October-December period from the previous quarter as the impact of the global financial crisis hit its exports hard, according to data released Monday. The steep fall reportedly represents the biggest drop since 1974. On an annualized basis, the gross economic product slumped 12.7% during the quarter.

So just to stay at 0% growth, the "domestic" Chinese economy (sub 60%) would need to make up for massive shortfall in the export economy (40%+). And with imports to China also showing massive contraction (40%+! in January) - you simply cannot make any suitable business case. It is just lazy to say "Baltic dry index" this or "Chinese stimulus plan" that - but that's what the pundits do, and we can create a nonsense "thesis" to drive stocks up.

Again let me reiterate; I do think China has the best balance sheet and will be the nexus for the EVENTUAL global economy. But we're nowhere near that point. So let's be a bit more rigorous than the folks who show up on TV with their 10 second sound bites to explain things and see what is really going on.

First, a quick refresher of an Economics 101 lesson we laid out two months ago.

I'll spare you the economic formulas, but if you are interested, click here. Right now we have a problem of money flow - both the amount of "money" in the system, and the velocity of said money. In the simplest terms, just think of velocity as the amount of times money changes over. The higher the better. About 4-5 months ago, both these areas (amount and velocity) were lacking. Capital was being destroyed in an over levered system; much of it unregulated in a "shadow banking system". For every 1 "actual dollar" in the system, 10-20-30x was "lent". Much of it was based on the housing bubble. So as the 1 actual dollar is destroyed, the capacity to lend 10-20-30x of that dollar is also destroyed - and your velocity of money crumbles. As we've outlined the past few months, our money supply is now going off the charts - the Federal Reserve has made it clear they will create money at any cost. They are going to do everything and anything in their power to liquidate the system, assuming I suppose that a currency crisis is a better outcome (or predicting no currency crisis will happen) than a financial crisis. It is very sad how we lurch from emergency to emergency in this country - but it is what it is.

The Federal Reserve balance sheet which used to consist of staid Treasury Bills was at $800Billionish last year, it is now approaching $2.3 Trillion,and much of that is now the junk, I'm sorry - "the undervalued assets that once the market returns to normalcy will return to their rightful value- which will be much higher" - banks want to get rid of. It is now to the point the Federal Reserve will take the said "undervalued assets" off the books of hedge funds so our shadow banking system can re-emerge (the one that got us here in the first place). They are desperate and they will do anything.

So that's half the picture; the other is the even more tricky question of velocity. We are handing the banks (and other parts of the financial system) dollars by the wheelbarrow, but if they do not get circulated within the economy they are useless to everyone but banks. So we have one half the equation being force-fed by the Fed/Treasury - the money supply will be ballooning - no matter the potential cost to the currency, and the other half of the equation is based on the belief that at some point so much money will be provided to said financial institutions that even the most risk-averse will lend a portion. And we can begin anew. I won't even touch the long term questions this brings since we only deal with one crisis at a time.

Before I write the rest of this article, don't take it as bashing the Chinese. In fact they are learning from the masters of manipulation - the United States. They are following the Greenspan playbook - to forestall a normal economic cycle, flood the system with dollars which creates new bubbles. Keep kicking the can down the road, until one day it all implodes (which is what we are enjoying now after 20 years of kicking).

Did we learn from this? No... in fact the implicit policy of the Bernanke Fed is to do the same exact thing as I outlined above. The problem is that the mechanisms to create "velocity" of money have been in many cases nearly destroyed (securitization) or impaired (think our banks). So Bernanke is no different than Uncle Al G. He just is hampered by lack of conduits that saved Uncle G's grits. And this is why the gold bugs are awaiting the "Great Inflation." But first we have to work through the capital-destroying deflation we are enjoying before the master government plan happens (again).

At its basis, this plan relies on a financially illiterate populace (check!) - because the massive infusion of money pumps up the "price" of all assets, including stock returns (and houses). So if you devalue your currency by 30% (which is not as easily 'measured' by the financially illiterate), but pump up the value of homes and stock markets by 30% (which on the other hand IS very easily 'measured' by the financially illiterate), the powers-that-be can say "mission accomplished." Because the peon class is satisfied as the government has succeeded in pumping up asset values (easily measured) while destroying their purchasing power by an equal amount (hey, why does bread cost 30% more than a year ago?). So you can tell your neighbors and work mates this is what has been happening to them the past few decades, and this is what the government plan is now and in the future.

But now we see China is embarking on the same game plan, which in the long run will lead to bad outcomes, but in the short(er) run can goose values. (see United States of Leverage example above). Let's take a closer look at what is going on. (special thanks to reader Adam [Prudent Capitalism, Chinese style] for sending me an email to goose my brain into seeing the light)

AP: China's Bank Loans Double in January to $237 Billion

• Chinese banks extended a record 1.62 trillion yuan ($237 billion) in loans in January, more than double the year before, as lenders heeded government calls to loosen credit controls to help revive the economy. Facing an abrupt slowdown due to plunging demand for China's exports, regulators have sought to boost liquidity after years of trying to rein in lending. Banks made 771.8 billion yuan ($113 billion) in new loans in December, figures show, up nearly 15 fold over the same month a year before.
• Money supply, as measured by M2, climbed 18.8% at the end of January from a year earlier, accelerating from the 17.8% rise at the end of December, according to the PBOC.

Sounds great! Surely this is a good plan right?

• The government has ordered them to make credit available to help battle the downturn which hit last fall. But with many industries facing overcapacity and demand slowing for many products, analysts warn the state-owned banks risk letting policy, rather than profitability, guide their lending decisions.
• Analysts said the structure of lending in January, with short-term financing accounting for two-thirds of the total, does not bode well for a sustained expansion. The trend suggests that demand for "attractive project finance is still insufficient to absorb excess bank liquidity, leaving banks to still pursue low risk, low return businesses in large scale," Citigroup Global Markets economist Ken Pang said in a report issued Thursday.

Let's check in with Michael Pettis to get his views...

• Reuters has just announced that net new lending may have actually been and even more surprising RMB 1.6 trillion – twice the previous monthly record and an amazing one-third of credit growth in all of 2008. We will know by February 15 at the latest, when the PBoC publishes lending data, but if this is true (and the report was seen as highly credible by one of my friends at Reuters) it will probably goose the stock market up further while making people like me more worried then ever.
• Since for me much of the Chinese growth explosion of the past several years was caused by a badly allocated credit boom, the idea that the solution to a slowdown is to jack up the credit boom even further is very worrying. It is a little like the idea that the best way for the US to adjust to the decline in its debt-fueled household consumption binge is to replace it with a debt-fueled government consumption binge, although perhaps the US and China would choose very differently in the possible trade-off between long-term growth and short-term social stability. (Bingo)

The closest investment Americans have to the Shanghai A listed shares (which is a closed system to foreigners and does not allow shorting) is Morgan Stanley A Share Fund (CAF) which we noted was showing some serious giddy up. It has pulled back a bit but continues upward in nice fashion.


So let's tie this puppy together... as we said at the top of the piece - if you throw enough money into a system, the basic laws of supply and demand take over. There are limited amounts of stock certificates (supply) and a tsunami of new RMB (or US dollars when this happens in America) - so the basics of economics 101 take over. Fixed supply, huge demand = higher prices. And *magic* you have a rising stock market - which Cramer and associated pundits can scream about as "signs all is well". Boo Yah!

CBSMarkewatch: China's Banks Show How to Lend

• If you look at the numbers, the 1.62 trillion yuan ($237 billion) lent in January already amounts to 40% of the value of the stimulus plan promised last November. Still, the risk is that banks are churning out loans so fast proper controls will be forgotten, leading to surging bad debts down the road.
• There is already speculation this new lending is behind the recent up-tick in A share turnover. Last week daily turnover in Shanghai and Shenzhen exceeded 200 billion yuan, taking it back to levels last seen in 2007.
• Macquarie Research said in a new note that corporate earnings numbers -- not GDP growth -- matter for a stock market recovery. It said it needs evidence that China is not merely growing but successfully "re-flating" and thus avoiding a late-1990s style margin collapse.
• Exports appear to have fallen off a cliff after a 17.5% year-on-year decline in January, while imports have slumped a massive 43.1%. Even taking into account that Chinese New Year came in January, the results were well below market forecasts. The imports figures do not indicate much strength in China's domestic consumption. Nor does January's 23% jump in yuan deposits -- suggesting consumers are still saving, not spending.

AP: China's Shares Hit 5 1/2 Month High

• China's benchmark stock index rose Monday to a 5 1/2-month high on investor enthusiasm about added liquidity amid rising bank lending, shrugging off declines in other Asian markets on news of Japan's economic contraction. The rise was driven not by economic fundamentals but by a surge in bank lending, which has sent money flowing into the market, analysts said. The government says lending hit a new monthly high in January, driven by a massive stimulus plan.
• "The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long."
• The rise came despite a government announcement Monday that foreign investment in China fell 32.7 percent in January from a year earlier.
• Turnover in Shanghai A shares rose to a nine-month high of 177.5 billion yuan ($26.0 billion) -- near levels last seen in the stock market bubble of 2007 -- from Friday's 164.1 billion.
• There are many potential threats to stocks' bull run. Large amounts of shares will become tradable in coming weeks because of the expiry of lock-up periods for institutional investors, and this could add selling pressure to the market. Some analysts worry that the market's strength could prompt regulators to permit a resumption of large initial public offers of equity, which could add to supply pressure.

We talked about the following issue a lot in fall 2007 - some larger Chinese companies are traded in Hong Kong in an "open system" (i.e. foreign investors can partake); those shares are called H shares. In Shanghai (closed system) they are called A shares. We saw stratospheric divergences between the A and H shares during the Shanghai bubble that eventually burst in late 2007 - and now we appear headed right back down that path. The way to read this is, the H shares are a reflection of a typical stock market - whereas in the monopoly money land of Shanghai; the A shares reflect a parallel universe. Yet commentators and pundits point to the A shares as some guiding light signal.... anything to create a thesis.

• The average premium of A shares over Hong Kong-listed H shares in the same companies rose as high as 63 percent on Monday, its highest level since mid-November; such premiums may not be sustainable in the long run.
• But the market has so much momentum that its uptrend may continue for a while, analysts said. "The trend of money pouring into the market because the market offers profit opportunities is unchanged, which could easily boost the index further," said Zhang Qi, analyst at Haitong Securities.

So is it "wrong" to buy the Chinese A shares now? Not really... momentum has a way of continuing far longer than anyone thinks. But let's just be intellectually honest on what the highest probability factors are behind such a rise and dispense with the Kool Aid being lobbed by the punditry.

Comments

[User 220706:]

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Feb 16 09:16 PM

[thedozer:]

Who is the author of this article??

I thoroughly enjoyed it! Info, humor and sarcasm.
Excellent!

Feb 16 09:37 PM

[Mark Anthony:]

Trader Mark:

The whole article is simply wrong. It starts with a wrong number, 40%. Where do you get it that 40% of Chinese economy is based on export? I think the correct number is 40% of China's economic GROWTH is export driven. China's GDP is about 4 trillion US dollars, probably bigger if calculated based on real purchase power. China's trade surplus to the US is $266B in 2008, a mere 6.66% of its GDP.
The fact that China's banks can more than double the loan from teh record breaking level a year ago is very telling. Loan is a mutual thing. You need banks willing to make the loan as well as corporations willing to take the loan. The fact that Chinese corporations are taking up the loans means they are very confident in growing their businesses.
That's very bullish for the demand on global commodities and global shipping. Read the big picture analysis here:
stockology.blogspot.co...
I advise people to keep watching news from China:
www.chinaview.cn

Feb 16 09:40 PM

[HaavBline:]

Excellent article. Seeing the momentum of goverment support building, I bought CAF in early Jan for a trade and now is up ~20%. That the H shares already fell back is a caution sign, but as author pointed out, the relative under valuation of H shares could last a long time, especially now that supply of foreign money in Hong Kong has packed up and went home to Japan, US, and other places.

Feb 16 09:42 PM

[Mark Anthony:]

Also it is dangerous to take numbers out of context. I spend 45% less money on gasolines in January than last May. Does that mean a demand collapse of gasoline on my part? Absolutely NOT. I used the same amount of gasoline, the price is just cheaper.

Likewise, don't take China's 40% fall on imports out of context. The context is China mostly import raw materials and crude oils, whose prices have fallen dramatically. So even the amount measured in currency have fallen, the actual physical quantity of China's import may not have fallen much at all. Same principle can be applied to Japan's import and export, that's especially true as the same quantity in US dollars is now a much smaller number in Japanese yens.

Feb 16 09:47 PM

[CeeB:]

Excellent writeup - you're hitting on a key point. China is one of many nations to pursue a central bank-led reflation strategy that will goose inflation but fail to reflate a damaged economy in real terms. They're just ahead of the curve because the central government can strongarm the banks to do whatever they want and get money out there faster. Maybe a good reason to nationalize our banks here....

It has been interesting to watch the bubble heads come out waving their BUY CHINA signs. No doubt the momentum will build. Recall that the Chinese market peaked back in October 2007, well before the S&P 500. So some traders see China's market resurgence as a leading indicator once again. But as you've rightly pointed out, it's a flash in the pan. I believe Pettis goes further in his analysis and produces evidence that a lot of the Chinese bank lending is double and triple-counted. Still, can't blame them for trying.

If you're looking to track the A-share premium relative to H-shares, this HK-based broker has a convenient website:

baby.boom.com.hk/portf...

Feb 16 10:02 PM

[Moon Kil Woong:]

I agree with Mark Anthony except in one respect. The fact businesses take out loans in China may be more because they are cash strapped with global demand falling than they see a bright future. Especially since the banks in China act on behalf of government mandates (the US is becoming this way as the government stocks it's intrusive hand into bank equity).

It is similar to Fannie Mae and Freddie Mac increasing lending to the poor. It was not because the poor were better off and could buy houses. It was because Fannie and Freddie and all the banks were trying to meet the community Reinvestment Act quotas.

With China is the government says lend to State run businesses you do. If they say lend to others you do until you go bankrupt. Then you expect the government to tell another bank to support or buy you out. That's a state run economy.

Also it is a bit wrong to slam China for running a expansionist policy of money supply. Every country on the planet is doing this. That's the beauty of fiat money lol.

Feb 16 11:17 PM

[Alex Filonov:]

This looks like what Japan did in 1989-1994.

Feb 16 11:49 PM

[Mark Anthony:]

constructe:

No dispute of your first paragraph. But in any case, liquidity injection will always result in business activities kick up to a higher gear.

Something big is going on overnight in the FOREX market. Precious metals rally big time.Have people been fully invested in precious metal players? You can not afford to not have some precious metals in your portfolio. Read here:
seekingalpha.com/artic...

Feb 17 12:04 AM

[chopshop:]

Good article. Greenspan's policies worked very well for nearly 20 years. I do not think anyone would mind if China achieved similar results emulating Greenspan. Maybe they will not have the same problems leading to the same end.

Feb 17 01:11 AM

[Simon Smelt:]

To get some figures straight: China's exports account for some 36-40% of GDP but about half the value of the exports lies in the imports - such as metals - they incorporate. Net of these, exports account for some 18% of China's GDP.
The size of the stimulus package in China probably arises from (i) need for a dramatic stimulus in a dramatically fast moving economy; (ii) a wish to reduce overseas investment by the government (as the trade surplus remains, this means that overseas investments will be funded more by the private sector); (iii) a wish to be beyond criticism internationally - "we're doing our bit".

Recycling of stimulus money into shares is not necessarily a bad thing from the government's view as it contributes to the feel good factor. As I've argued on MarketWatch.com, one effect of the stimulus is hopefully that China's banks are now moving from simple rationing and delivery agents to a genuine banking role. Of course, they'll make mistakes.

Feb 17 01:18 AM

[investor88:]

Agree the foundation is not there for China to blow up a bubble. The risk is quite high playing with the China market.

Feb 17 07:57 AM

[CeeB:]

Mark Anthony -

Sorry to say this, but you are the one who is wrong. Ever been to China? I lived in Beijing for 3 years and studied the banking system while I was there. The major banks are basically channels for government economic policy. The govt says "jump" and they say "how high?". The fact that banks are lending tells you nothing about their willingness to lend - it just says that govt wants loans to be made to goose the economy. Likewise businesses. You may recall that in 2006 and 2007, there were news articles about major Chinese companies that had taken loans from the banks not to "grow their business" but to speculate in the A-share market. I bet this is happening again. Even if some of the loan money is being spent to build capacity, hire workers, etc, this will only compound China's problem in the short-run: demand for their manufactured exports is plunging. You can quibble all you want over the 40% number, but I think Trader Mark is right -- the reflation trade may be on in China, but that is just the state pulling a lever of money injection. It may stimulate nominal growth, but it will be short-lived. It DOES NOT mean a real recovery in commodity demand, global shipping, etc.

On Feb 16 09:40 PM Mark Anthony wrote:

> Trader Mark:
>
> The whole article is simply wrong. It starts with a wrong number,
> 40%. Where do you get it that 40% of Chinese economy is based on
> export? I think the correct number is 40% of China's economic GROWTH
> is export driven. China's GDP is about 4 trillion US dollars, probably
> bigger if calculated based on real purchase power. China's trade
> surplus to the US is $266B in 2008, a mere 6.66% of its GDP.
> The fact that China's banks can more than double the loan from teh
> record breaking level a year ago is very telling. Loan is a mutual
> thing. You need banks willing to make the loan as well as corporations
> willing to take the loan. The fact that Chinese corporations are
> taking up the loans means they are very confident in growing their
> businesses.
> That's very bullish for the demand on global commodities and global
> shipping. Read the big picture analysis here:
> stockology.blogspot.co...

>
> I advise people to keep watching news from China:
> www.chinaview.cn

Feb 17 10:00 AM

[Apple:]

where does the 40% figure come from? how did you calculate that? the number i see quote in fin reports is 12%-15% and see below


China's GDP depends only for 10 percent on export - Arthur Kroeber

Arthur Kroeber
by Fons1 via FlickrUnlike popular believe China's GDP depends only for ten percent on export, not 40 percent, says Arthur Kroeber, manager director of Beijing-based research firm Dragonomics, according to Sify. The limits the country's exposure against failling export considerably.


China's dependence on exports is not as heavy as may seem at first glance. Officially, exports account for 37 per cent of its revenues and seem to be the driver of the Chinese economy.
But independent surveys by Dragonomics, an advisory firm specializing in China, put its "true" export share at just under 10 per cent of its GDP.
It is internal investments, which account for 40 per cent of its GDP, that are the driving force of China's economy. Although part of them is channeled into export-oriented projects, the global financial crunch will not slow China considerably.
Economics focus

An old Chinese myth
Jan 3rd 2008
From The Economist print edition

Contrary to popular wisdom, China's rapid growth is not hugely dependent on exports


MOST people suppose that China's economic success depends on exporting cheap goods to the rich world. If so, its growth would be seriously dented by a stuttering American economy. Headline figures show that China's exports surged from 20% of GDP in 2001 to almost 40% in 2007, which seems to suggest not only that exports are the main driver of growth, but also that China's economy would be hit much harder by an American downturn than it was during the previous recession in 2001. If exports are measured correctly, however, they account for a surprisingly modest share of China's economic growth.

The headline ratio of exports to GDP is very misleading. It compares apples and oranges: exports are measured as gross revenue while GDP is measured in value-added terms. Jonathan Anderson, an economist at UBS, a bank, has tried to estimate exports in value-added terms by stripping out imported components, and then converting the remaining domestic content into value-added terms by subtracting inputs purchased from other domestic sectors. At first glance, that second step seems odd: surely the materials which exporters buy from the rest of the economy should be included in any assessment of the importance of exports? But if purchases of domestic inputs were left in for exporters, the same thing would need to be done for all other sectors. That would make the denominator for the export ratio much bigger than GDP.

Once these adjustments are made, Mr Anderson reckons that the "true" export share is just under 10% of GDP. That makes China slightly more exposed to exports than Japan, but nowhere near as export-led as Taiwan or Singapore (which on January 2nd reported an unexpected contraction in GDP in the fourth quarter of 2007, thanks in part to weakness in export markets). Indeed, China's economic performance during the global IT slump in 2001 showed that a collapse in exports is not the end of the world. The annual rate of growth in its exports fell by a massive 35 percentage points from peak to trough during 2000-01, yet China's overall GDP growth slowed by less than one percentage point. Employment figures also confirm that exports' share of the economy is relatively small. Surveys suggest that one-third of manufacturing workers are in export-oriented sectors, which is equivalent to only 6% of the total workforce.

Even if the true export share of GDP is smaller than generally believed, surely the dramatic increase in China's exports implies that they are contributing a rising share of GDP growth? Mr Anderson's work again counsels caution. Although the headline exports-to-GDP ratio has almost doubled since 2000, the value-added share of exports in GDP has been surprisingly stable over the same period (see left-hand chart). This is explained by China's shift from exports with a high domestic content, such as toys, to new export sectors that use more imported components. Electronic products accounted for 42% of total manufactured exports in 2006, for example, up from 18% in 1995. But the domestic content of electronics is only a third to a half that of traditional light-manufacturing sectors. So in value-added terms exports have risen by far less than gross export revenues have.


Many of China's foreign critics remain sceptical. They argue that China's massive current-account surplus (estimated at 11% of GDP in 2007) proves that it produces far more than it consumes and relies on foreign demand to buy the excess. In the six years to 2004, net exports (ie, exports minus imports) accounted for only 5% of China's GDP growth; 95% came from domestic demand. But since 2005, net exports have contributed more than 20% of growth (see right-hand chart).

This is due not to faster export growth, however, but to a sharp slowdown in imports. And even if the contribution from net exports fell to zero, China's GDP growth would still be close to 9% thanks to strong domestic demand. The boost from net exports is in any case unlikely to vanish, even if America does sink into recession, because exports to other emerging economies, where demand is more robust, are bigger than those to America. According to Standard Chartered Bank, Asia and the Middle East accounted for more than 40% of China's export growth in the first ten months of 2007, North America for less than 10%.

Multiplier effects
China's economy is driven not by exports but by investment, which accounts for over 40% of GDP. This raises an additional concern: that weaker exports could lead to a sharp drop in investment because exporters would need to add less capacity. But Arthur Kroeber at Dragonomics, a Beijing-based research firm, argues that investment is not as closely tied to exports as is often assumed: over half of all investment is in infrastructure and property. Mr Kroeber estimates that only 7% of total investment is directly linked to export production. Adding in the capital spending of local firms that produce inputs sold to exporters, he reckons that a still-modest 14% of investment is dependent on exports. Total investment is unlikely to collapse while investment in infrastructure and residential construction remains firm.

An American downturn will cause China's economy to slow. But the likely impact is hugely exaggerated by the headline figures of exports as a share of GDP. Dragonomics forecasts that in 2008 the contribution of net exports to China's growth will shrink by half. If the impact on investment is also included, GDP growth will slow to about 10% from 11.5% in 2007. This is hardly catastrophic. Indeed, given Beijing's worries about the economy overheating, it would be welcome.

The American government frequently accuses China of relying excessively on exports. But David Carbon, an economist at DBS, a Singaporean bank, suggests that America is starting to look like the pot that called the kettle black. In the year to September, net exports accounted for more than 30% of America's total GDP growth in 2007. Another popular belief looks ripe for reappraisal: it seems that domestic demand is a bigger driver of China's growth than it is of America's.


<img src="media.economist.com/im...">

Feb 17 10:32 AM

[Ilya Bodner:]

China has a long way to go before they hit rock bottom. There is no small business owners over there, and most of us in the US don't realize of the problems that this causes.



Sincerely,


Ilya Bodner
Small Business Owner
Initial Underwriting Group

Feb 17 12:33 PM

[Mad Hedge F...:]

One of the few mustard seeds out there continues to be the Shanghai stock market, up 32% YTD, and the best performing stock market in the world. Pundits with short memories are rehabilitating the “decoupling” theory again, which so far has only “decoupled” investors from their money. While the Middle Kingdom’s growth rate has backed off from a torrid 13% to probably 5%, it is the only major economy that is actually growing. The bet is that their stimulus package, which has a much higher component of infrastructure as opposed to social spending and tax cuts, will work better than ours. Betting against China has been a loser for 30 years now.

Feb 17 01:51 PM

[seneca:]

Really it's simply not worth the time to respond to an article that, frankly, would not pass as a paper in freshman economics at a serious university --the outlandish statement about 40% of the Chinese economy being export-dependent. Quite funny, worthy of a Saturday Night Live spoof.

So, Mark Anthony, Apple and Simon...you are casting pearls before the swine like CeeB who are clueless about facts versus hypothesis. If you can't establish what the empirical data are, then you are unlikely (except via sheer luck) to reach appropriate conclusions. You certainly don't establish any kind of credibility about yourself as an analyst. Please, give is up. Maybe as a basketball coach there is a future ;-)

Feb 17 02:11 PM

[TraderMark:]

www.bloomberg.com/apps...

Chinese companies may be using record bank lending to invest in stocks, fueling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.

As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures.

Feb 17 06:01 PM

[TPA:]

Agreed... Growing at 5-6% is a hell of a lot better than what's going on in the West right now. I think it a moot point to argue whether the Chinese government knows what it's doing. They've succeeded over the past 2 decades by NOT listening to the West.


On Feb 17 01:51 PM The Mad Hedge Fund Trader wrote:

> One of the few mustard seeds out there continues to be the Shanghai
> stock market, up 32% YTD, and the best performing stock market in
> the world. Pundits with short memories are rehabilitating the “decoupling”
> theory again, which so far has only “decoupled” investors from their
> money. While the Middle Kingdom’s growth rate has backed off from
> a torrid 13% to probably 5%, it is the only major economy that is
> actually growing. The bet is that their stimulus package, which has
> a much higher component of infrastructure as opposed to social spending
> and tax cuts, will work better than ours. Betting against China has
> been a loser for 30 years now.

Feb 17 11:10 PM

[Mark Anthony:]

On Feb 17 10:00 AM CeeB wrote:

> Mark Anthony -
>
> Sorry to say this, but you are the one who is wrong. Ever been to
> China? I lived in Beijing for 3 years and studied the banking system
> while I was there. The major banks are basically channels for government
> economic policy. The govt says "jump" and they say "how high?". The
> fact that banks are lending tells you nothing about their willingness
> to lend - it just says that govt wants loans to be made to goose
> the economy. Likewise businesses. You may recall that in 2006 and
> 2007, there were news articles about major Chinese companies that
> had taken loans from the banks not to "grow their business" but to
> speculate in the A-share market. I bet this is happening again.

I said already that there are two sides of a loan: A bank's willingness to lend, and the corporation's willingness to BORROW. The central bank do can order banks to loan. But they can NOT order a corporation to take up a loan. The fact that Chinese businesses are taking the loans is a very tellingsign.

Your speculation that some company might be using the loan money to speculate on stock market is nothing more than an unfounded speculation. There is no evidence to it. There is evidence to the contrary. Judging by the loan amount, even if a very small fractiion is indeed used to speculate on the stock market, the index should have rallied waymuch more than it actually did.

The Chinese government is serious about injecting money boosting domestic spending and boosting corporate activities. The things they are doing are very effective so far. No one can deny that. I guess that's an advantage of a centralized government.
seekingalpha.com/autho...

Feb 18 12:26 AM