Posts tagged 'China'

About China’s confusing debt-for-equity swaps

Corporate debt in China is a well-known problem and part of the solution is, apparently, a new round of debt-for-equity swaps.

Of course, there will always be sceptics. Read more

Defensive credit creation and vicious circles in China

Today in Chinese circularity: “low profit leads to more credit required to fund investment, but given low investment efficiency the investment made may only generate sluggish profits in the future, which could then take us back to the difficult situation of more credit being needed to sustain investment.” Read more

China’s property bubble, land reform edition

One of these lines is not like the other…

Screen Shot 2016-10-14 at 14.59.55 Read more

The RMB and potential Brexit camouflage

Here’s A repeated theory: Brexit-shenanigans has caused GBP to go nuts. Crashes have flashed, journalists have frenzied, the FX and political worlds have been transfixed. And during this period, China has cynically decided to weaken its currency versus the US dollar while everyone was distracted.

As we said, it’s just A theory but here’s what an accompanying chart might look like, courtesy of CreditSights:

Screen Shot 2016-10-12 at 11.57.28 Read more

In search of China’s hidden credit

What is the true size of China’s debt load, and how fast is it growing? The answer has significant implications for the global economy. Global watchdogs including the International Monetary Fund and the Bank for International Settlements (not to mention this blog) have become increasingly shrill in their warnings that China’s rising debt load poses global risks.

Estimates of Chinese debt based on official figures are frightening enough — an FT analysis put the figure at 237 per cent of GDP at the end of March — but an increasing number of analysts now believe that the true figure may be higher. Read more

China’s property market keeps everyone guessing

The Chinese government knows it has to do something about the run-away house price inflation in its major (Tier 1 and 2) cities. And it is.

As SocGen’s Wei Yao says, since late September, “20-strong cities have either reintroduced or stepped up tightening on the housing sector.”

It’s far less than the peak of 46 Yao says we saw in the previous cycle but it’s not bad going and the cities involved cover “more than 20% of national sales and new starts volume, more than 40% of national sales value, and more than 30% of national property investment” according to RBS. Read more

Let he who is not caught up in a global liquidity bubble… China property edition

Today in bubble defence:

“China property’s bubble fear….aren’t we all living in an even bigger global liquidity bubble?” Read more

Synergy du jour

From the FT:

“The Shanghai Stock Exchange is in pole position to buy a stake in Pakistan’s bourse, in a move that would mark the Chinese exchange’s first overseas investment and bolster financial ties with one of China’s closest partners…

Yasin Lakhani, a former chairman of the Karachi bourse who now serves on its board, said the Shanghai Stock Exchange was among three shortlisted candidates for the investment. The Securities and Exchange Commission of Pakistan [SECP] has set a November deadline for the investment.”

They do have so much in common. Read more

Chinese property goes up, Chinese property goes down

Everyone understood their opportunity: real estate. In China, it is always real estate.

From Red Capitalism, pg38, before launching into a description of the Great Hainan Real Estate Bust of 1988 to 1993.

…the stormy situation in national large midsize cities’ housing prices has created a new real estate market craze

From a People’s Daily editorial on Tuesday.

It’s the “biggest bubble in history”

From China’s richest man Wang Jianlin, Sept 28th, on the current state of the real estate market and before… well that bit hasn’t happened yet so we are fine sticking with maybe nothing, but maybe something pretty bad at some point in future. Read more

SDRs and the renminbi

China will join the exclusive club of “hard currency” issuing countries when its currency, the renminbi, becomes a fully fledged member of the IMF’s special drawing right basket on October 1. Read more

One of these is not like the others, the BIS on China edition

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What’s a chengyu for ‘forever blowing bubbles’?

It has been called China’s Great Ball of Money, the vector through which bubbles come and pass.

Of course any particular bubble is not the beginning. There is no beginning in a China which is more and more interconnected, meaning its risks and excesses flow as easily as that giant ball of money.

But just as property turns to stocks turns to bonds turns to property once more… this bubble is a beginning*. From SocGen’s Wei Yao, with our emphasis:

… asset price appreciation seems to be worryingly unstoppable. Especially, housing market indicators continued to show a brisk momentum in sales and prices, but a muted construction recovery. Even the officials at the central bank admitted that there is a bubble.

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A strong contender for the weirdest deal of 2016

Leyou Technologies is probably one of the stranger cases of domestic Chinese companies buying up overseas assets.

For years, the Hong Kong-listed business has been knee deep in poultry, farming and culling chickens for sale inside China. More recently, it has made inroads into a more glamorous, modern and profitable market: the world of video games. Read more

Regulating those Chinese Weapons of Mass Ponzi

Remember WMPs? The touchstones of China’s shadow market? The shadow market that China might actually be cracking down on … like for real this time …

According to Credit Suisse, new regulatory guidelines or consultation papers about new regulations have been announced on almost a bi-weekly basis since May: Read more

Sorry, but Chinese supply-side reforms may not actually have any impact on output or prices

You may remember that China is now apparently focused on so-called ‘supply-side’ reforms, a hodgepodge of market-orientated reforms focused on over-capacity and now handily grouped under one term.

You may also remember as part of that China said in April that it “will reduce the number of statutory working days for its coal miners to 276 a year from 330 as it bids to tackle a chronic supply glut that has sapped prices.”

And this is just a very good two pars on that from Macquarie: Read more

A bonfire of the Swiss watches

Ever since the Chinese government cracked down on “gift giving” as part of its anti-corruption campaign, Swiss watch exports have taking a beating.

Here’s the trend, courtesy of a UBS European luxury note out Wednesday:

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Of Chinese bank bailouts, SOE pay scales and credit cycles

First, have a look at these from UBS’s Asia team earlier in the month:

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Pax Global and the occasional woes of a negative sell-side analyst…

Pax, Origin Latin, literally ‘peace’.

Er, yeah.

From Macquarie’s Timothy Lam:

PAX Global held an analyst briefing on Aug 10. Before the meeting started, we were asked by the company’s CFO to leave the meeting room. We believe all analysts should be able to attend analyst briefing, regardless of their view on the company.

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Some pre-IPO questions for Postal Savings Bank of China

This state-owned thing is massive. China massive.

Fifth largest bank in China by assets and largest by number of branches massive — 40,000 branches nationwide and “about 500 million clients or nearly half of China’s population” massive at that.

Its plan is to IPO in September in Hong Kong… Read more

Guest post: Further questions about Chinese GDP data

According to official Chinese data, output in the second quarter in the industrial sector grew 6 per cent in real terms and 2.9 per cent in nominal terms. Given the officially reported 2.6 per cent producer price deflation that appears to basically reconcile. However, if we do dig beneath the surface Christopher Balding, professor at Peking University, HSBC Business School, argues large discrepancies appear. Read more

China, money supply and John Maynard Keynes

By Jennifer Hughes in Hong Kong

Last time China’s companies held this much money to hand, it presaged an investment boom and better growth. But no-one is predicting that this time round.

China’s M1, or its narrow money supply, jumped 24.6 per cent in June while M2, the broader measure, rose 11.8 per cent. The gap between the two is now at its highest since January 2010 – and it is rising sharply. Read more

Brexit upsides, RMB devaluation edition

Upsides for whom, you ask?

For Chinese policymakers, we respond.

As do Deutsche Bank:

More subtly, Brexit indirectly helped reduce concerns of a ‘risk off’ shock from China thanks to the stealthy RMB devaluation around the UK vote. This has confirmed a new-found market tolerance of China currency slippage, at least when it looks controlled by policymakers.

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Chin up, China. Just consider Pakistan

Here’s a chart explaining why MSCI just, once again, said no to China entering its emerging market indices club:

In short, you’ll need to be a little freer letting capital out as well as in. Also, some other stuff since this is a rules based system, which we’ll let Citi tell you more about: Read more

China’s big ball of money is rolling over the little guys

Let’s all pause for a moment and remember the Great Fall of China’s stock market, one year ago this month, and remember that this evening is when MSCI tells China’s A-shares if they are to be allowed into its club after all.


Right, let’s all pause for a longer moment and consider the plight of the small Chinese investor who doesn’t quite have the same government support as some of the larger forces around him. Read more

Document 82 and slapping down China’s shadow loan market

The whack-a-mole game that is China’s shadow loans market has just gotten some new rules. Or, as UBS put it, regulators are closing the shadow loan loophole.

A whole new Document is out that could see China’s banks having to raise over Rmb1tn in new capital. Read more

Goldman on RMB and capital flight: Nice currency basket and all but it’s still the dollar that matters

It’s a problem that has been talked about before — inside China it’s what the yuan does against the dollar that seems to matter. Which is awkward because China is quite keen on people concentrating on what it does versus a basket of currencies.

The potential consequence of that USD fixation is that if the $/CNY rate goes higher then there is a risk that capital flight picks back up again in tandem with expectations of further depreciation, no matter what the RMB is doing against that currency basket.

In the words of Goldman’s Robin Brooks and team:

China is pursuing a shift in its currency management, towards a trade-weighted exchange rate and away from the bilateral exchange rate versus the Dollar. That shift makes sense conceptually, given that monetary policy normalization in the US is likely to push the Dollar up, so that some weakening of the RMB versus the greenback can certainly be justified given China’s cyclical position. But the shift to a trade-weighted exchange rate has a weak link, which is that the main signal for households and businesses within China remains the bilateral exchange rate versus the Dollar.

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Authoritative person authoritatively admits China can’t keep going this way

From Nomura, with our emphasis:

According to today’s official People’s Daily [link here and Bloomberg writeup here], an “authoritative” person who was not identified indicated that China should not support growth by adding leverage. “High leverage will lead to high risk; if not well controlled, it will lead to systemic financial crisis and negative growth”. Considering China’s severe structural problems, this “authoritative” person believes that “China’s economic growth trend in future should be ‘L-shaped’, rather than ‘U-shaped’, not to mention ‘V-shaped’”, which suggests that growth will trend lower. This individual believes China should avoid using strong stimulus to raise investment growth in the short term, as it would create larger problems later. For now, the most important thing, in this person’s view, is to push forward supply-side reforms (i.e., cutting over-capacity, reducing property inventory etc.) and actively but steadily reduce leverage.

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The biggest problem with China’s latest credit boom, charted

By Deutsche’s Zhiwei Zhang — you can link these charts to asset bubbles and booming egg futures pretty easily btw:

As he says:

Bank credit growth and M2 growth used to track each other quite well in China. It is intuitive. In a simple world where banks’ main business is to channel deposits into loans, the two should correlate well. But this is no longer the case.

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China’s A-Shares, MSCI, understatement and egg futures

If you look closely at this chart you may be able to spot the moment that MSCI realised how lucky they were that they hadn’t yet included China’s A-shares in their EM pot…

Obviously it’s now time to try adding them again.  Read more

“What if China lands hard?” they asked in 2013

What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing?

The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come.

You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example:

The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP.

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