Chinese Banks Are on the Edge

My daughter and son are from China, so I am not one to throw dirt there readily. I am not going to hold off if I see problems but I am not a China basher.

Let me begin by noting a bit from the two weeks I spent in China last month. I last visited a few major cities, including Beijing, in 2005. We at the time considered the national bird to be the construction crane. Our first trip, in 2003, had cranes in Beijing and other cities in every direction and active. Beijing especially was very active. This past time I saw some cranes but none in motion, none actually building anything.

As an aside I have to note the the safety netting and scaffolding on most skyscrapers in China seems to be primarily built with bamboo. Yes, 50-60 story buildings were being built with bamboo scaffolding outside. Amazing! But now let us return to matters financial.

China Banks are in - perhaps - a smidge of trouble. Just a bit.

It seems the government in China has been leaning on banks there to do some improvident lending that could compare to U.S. stimulus spending. That is not the most disturbing part of this link. The most disturbing part is that it shows China to be on the edge and if China falls the world could be in for a major tumble. China has a host of issues to deal with, but as this article notes, its economy is not on the rebound it appears to be showing. And if you are into commodities, I recommend you read this carefully. The commodities rebound may be on its last leg if this is correct.

Madoff did not Make Off

Well it appears Madoff has not "made off" with the money. He just got 150 years in prison. Unless there are some significant advances in stem cell research or some other cutting-edge medical area, I am pretty sure that is a death sentence. Hey, he kept his Ponzi scheme going for a very long time. The question that courts will be working out for a while is the extent to which his wife and sons lose their fortunes as ill-gotten gains.

Enough Bad News

But enough of the bad news. Stocks are up left and right. Asian stocks are in record territory.

And everything is coming up roses. Yep, there we go. But wait a second, Japan's jobless rate just rose to a five year high. Now it is only 5.2%, which is a bit over half the rate here, but it is still high for Japan. This seems inconsistent with consumer spending being up, but when you stop and realize it is all government stimulus, you know why the numbers seem inconsistent. They are not. It is just a case of where the dollars come from. Stimulus dollars in Japan, like here, support economic stats, but to me it is a false support. We are spending future tax dollars, incurring debt, to make a debt driven recession end. NOT!! All we can or will build is a new bubble.

Nonetheless, Japan industrial production is up big time, I must admit. Production climbed a whopping 5.9% from the month before. Try to ignore the YOY numbers - not so impressive. By the way, the chart in the linked article tells it all.

Hey, Don't Worry, Car Sales Should be Up!

Well at least up from record lows. Still off 25% from a year ago (a bad year in itself) but it seems to be improving a smidge. I guess it is time for me to go buy a car before all the deals disappear.

Disclosures: None

Comments

[jayminho:]

so you are insinuating the china economy is a ponzi scheme ?

Jun 30 09:15 AM

[fleeing omega:]

i was just in beijing too. still lots of construction cranes in the greater vicinty of the financial district (east beijing) together with a LOT of new apartment buildings and a new power plant. yet from what i hear, housing prices are being propped up and much of this capacity is basically adding to a severe preexisting housing bubble. sure, the buildings are there, but are there buyers?

interestingly, flying in over the port of tianjin, i saw an armada of freighters, all of them obviously at anchor in a grid pattern, consistent with stories of commodities coming in and stockpiled at sea. there were only 2 container ships on the move, and they were inbound. the harbor itself looked more active than the port of los angeles, but that isn't really saying much. i wouldnt call it business as usual.

in beijing, we were among the only customers in a major electronics store and were outnumbered by staff approx 5:1.

plenty of evidence for stimulus, but not exactly a rosey picture for an export economy.

yet people were relatively upbeat compared to japan, where things appear fine on the surface, but optimism is hard to come by.

Jun 30 03:48 PM

[Craig Brown:]

We visited the new financial district in Beijing too and I was stunned at the amount of new construction and even more at how nearly all of it seemed virtually vacant. I counted at least a dozen condo buildings that looked empty. The office buildings did not seem to be faring much better. Impressive area in terms of the buildings and architecture but it seems to be built on the "build it and they will come" philosophy.

And I would not read too much into the real estate prices. The land is owned by the government and it does not seem willing to discount. You are paying for the building on it and then it is just - I believe - for a 99 year lease of the land it is built on. I cannot imagine values going up when you do not own the land and the leasehold is gradually disappearing, though over an extended period of time. In short, China is not a place for real estate investments.


On Jun 30 03:48 PM fleeing omega wrote:

>
> i was just in beijing too. still lots of construction cranes in the
> greater vicinty of the financial district (east beijing) together
> with a LOT of new apartment buildings and a new power plant. yet
> from what i hear, housing prices are being propped up and much of
> this capacity is basically adding to a severe preexisting housing
> bubble. sure, the buildings are there, but are there buyers?
>
> interestingly, flying in over the port of tianjin, i saw an armada
> of freighters, all of them obviously at anchor in a grid pattern,
> consistent with stories of commodities coming in and stockpiled at
> sea. there were only 2 container ships on the move, and they were
> inbound. the harbor itself looked more active than the port of los
> angeles, but that isn't really saying much. i wouldnt call it business
> as usual.
>
> in beijing, we were among the only customers in a major electronics
> store and were outnumbered by staff approx 5:1.
>
> plenty of evidence for stimulus, but not exactly a rosey picture
> for an export economy.
>
> yet people were relatively upbeat compared to japan, where things
> appear fine on the surface, but optimism is hard to come by.

Jun 30 09:07 PM