2012年6月15日星期五

Is the time to panic: China today looks strikingly similar to the 2006 U.S.

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The latest development is a classic good news / bad news case. Tuesday the central bank, the People's Bank of China unexpectedly announced to cut interest rates, this is the first time since 2008. The good news is that the People's Bank of China is a strong response to the economic slowdown. The bad news is that the economic slowdown has forced the central bank had to take a strong response.

In fact, this means that things may be far more than that, also, or simply do nothing. China is too opaque, that is almost impossible to assess. You may wonder a claim that the 2012 first quarter GDP growth of 8.1% of the country how will be in so much trouble. The answer is: These numbers are multi-year, not to boast the quarter. In other words, even if we believe ---- This also went to France convinced that - high-growth data does not mean China is in a high growth.

Some strange things

The time of the 2008 financial crisis, China's massive stimulus plan to deal with. However, this is not what we usually think the "stimulus", the Chinese government does not tax cuts or increase spending, on the contrary, the Chinese government told the state-owned banks to increase lending, and is a huge amount of increase. The chart below than the growth rate to one hundred shows since 2005, China's strong M1 (red) and generalized (blue) M2 money supply. Note that the surge in the post - Lehman period in 2009.



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This borrowing flourished stimulate investment is getting used to compensate for export losses. But also caused the housing bubble. Chinese officials no doubt noticed. In the past few years, they have taken a variety of methods to control the rising prices. Please note that you might expect, the 2012 looks a bit like 2006.

Some strange things happen. Seem excessively loose credit with excessive tightening occurred simultaneously. Credit on state-owned enterprises may be too loose and too tight, but small and medium enterprises, we can roughly be seen from the chart above. Bank funds (red) is hardly growth in broad money (blue) are accelerated. Chinese state-owned banks said they missed the 2012 lending target, broad money growth seems to be driven by China's shadow banking --- a variety of names exist unregulated lenders. Shadow banks like to lend money to the state-owned enterprises, especially government support, but less willing to lend to SMEs.

What is a "Ponzi scheme"?

Large enterprises are using the shadow banking the money to do what?

When prices are falling, developers do not want development, the steel company did not want to sell steel. They would rather wait until the economy rise again, and their scarce resources - the land with the metal --- will they make more money. The same time, they are more willing to play the role of hedge funds, rather than borrow money to invest in their business, many of them are to borrow money in speculation.

We have a word to describe this situation. "P" at the beginning of the end of to "onzi". (Ponzi scheme)

Iron and Steel Company has been particularly bad (so the Chinese banking regulators recently issued a warning). They use the same collateral for loans multiple models, and borrowed money into the land with the stock. The same is true even when falling house prices.

Zoomlion, a construction machinery company, happened to have just become the most short-selling company. Zoomlion to increase sales, to borrow money to buy their products to customers, leading to such a result.

Smaller companies sorry to miss the feast of the credit. When they leave to pray whether banks can be divided into a dime. However, perhaps no longer the case. Now they are turning to another in 2006 a replica of the United States: collateralized debt obligations. In English, a small group of poor credit rating companies get together to issue bonds, their bond is then packaged into securities. Which the idea is to merge so as to reduce the risk to investors' risk --- and allow banks to remove the risk from the balance sheet. This is workable. But you need to pay attention to such facts, and need to worry about: the local government for these debt guarantees.
See some things
Maybe things are not that bad. People tend to fall into the availability deviation traps. When you have just the housing bubble fans a slap in the face, then all the bad signs look like the housing bubble. Nevertheless, the undeniable credit with prices from 2009 have significantly increased - while the latter is declining. Admittedly, the shadow banking behavior is reminiscent of our (U.S.) in 2006 the situation. In addition, absolutely undeniable, if the first time in four years to cut interest rates, it means that the Government's growth concerns.
Perhaps the Chinese government to construct a so-called "soft landing", there is room to cut interest rates with lower deposit reserve. Or government investment in infrastructure. In the case of Europe faltering, the U.S. slowdown, the world economy do not want to see the thing is its biggest engine broken, hope this is just a short flame.

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