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Calling Out Bubbles

 Investment Bubble:

Steel prices in China, the world’s biggest producer of the metal, dropped the most in four months last week as inventories piled up and concerns grew that the government may curb lending.

Inventories of steel products, including holdings by traders, producers and end users, are estimated to exceed 50 million metric tons, setting a record, said Ma Haitian, an analyst with Beijing Antaike Information Development Co. That’s compared with an estimated 18 million tons a year ago, he said.

And the Real Estate Bubble:

China’s property-market data may be masking the degree that speculation is driving prices in some of the larger cities, Ardo Hansson, the World Bank’s chief economist for China, said today in an interview. Government data this month showed Chinese real- estate prices climbed the most in 18 months in December, highlighting a struggle to rein in speculation while sustaining an economic rebound.

Meanwhile, the Bank of China is planning a capital raise after extending massive amounts of loans in the past year.

Chinese banks are under pressure to raise money after a record 9.59 trillion yuan of new loans last year weakened their capital and the industry regulator imposed tougher guidelines for financial buffers. Bank of China, the nation’s third-largest lender by market value, needs to sell almost $12 billion of new equity to keep its so-called core capital adequacy ratio at 9 percent, according to Nomura.

…Bank of China’s capital adequacy ratio fell to 11.63 percent as of Sept. 30 after advancing 1.4 trillion yuan in new loans in the first nine months, the most among China’s lenders. Its core capital adequacy ratio was 9.4 percent as of Sept. 30.

The lender aims to maintain a capital ratio of 11.5 percent during 2010 and 2012, and increase its loans by about 16 percent this year, Guotai Junan Securities Co. wrote in a note today, citing the conference call.

The Bank of China can easily raise capital now, but what happens if the bubbles start bursting? Investors wont buy into Chinese banks when NPLs start building up…

China Bubble Watch for more analysis of the bubbles in China.