CeeB

Is China Pulling an Alan Greenspan?

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

Is China Pulling an Alan Greenspan?

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...

Learning Patience from New Zealand

Hi Roger,

Nice article, but I don't know why you'd consider Kiwi bonds instead of stocks. Right now, the NZX10 Index made up of the ten largest companies listed in New Zealand is yielding an incredible 7.9%. Even if the growth upside is limited in the near-term, I'd still rather have the equity kicker if I were investing in a foreign currency. Some of the companies in the NZX10 earn profits overseas, so conceivably even if the Kiwi weakens, the index should do ok.

I'd recommend checking out the SmarTenz ETF which is listed in NZ, ticker symbol TNZ.

-Thistle