Posts tagged 'China'

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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Shockingly, loose credit and moral hazard are to blame for something in China

Right, so we’re going to… grudgingly… allow this Game of Thrones reference from David Cui at BofAML.

We will not be this forgiving again.

In the Game of Thrones, before someone declares interest of entering the game, he or she needs to think carefully because the consequences of losing can be extreme. The same could be said about the latest “game” of trading commodity futures on China’s three commodity exchanges, in our view. We believe that loose monetary/credit policies and moral hazards are the main drivers behind the latest sharp rally, rather than improving fundamentals.

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SOE you think you can default?

Well, maybe some of you can. More than that and it could get tricky for China.

Here’s BofAML’s David Cui:

Since 2015, eight SOE bond issuers have run into repayment problems; four since February.

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The apparently unstoppable Chinese search for yield

This is what you get when you try to sidle up to some market pricing alongside a giant ball of money.

It’s to be read while keeping an eye on the property market — What’s that? Property prices for Tier 1 and 2 cities are still rocketing and mortgages are up 75 per cent year on year in q1, you say? — and the rise of defaults in the corporate bond market.

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China’s retro growth push

China is growing at 6.7 per cent and broadly stabilising, “down slightly from the end of last year but comfortably within the government’s targeted range, as housing and infrastructure cushioned a slowdown from financial services.”


Well (and this is taking the GDP figure at face value) not if it’s just being propped up by the same old tools which led everyone to worry about its growth model in the first place.

Which it looks like is what’s happening… Read more

On Exactitude In A-shares

In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it.


And from David Cui, China equity strategist at BofAML, on the creeping direct ownership of shares by government bodies in China:

Shanghai Securities News reported today that SAFE (under PBoC), through its three investment arms, became a top 10 shareholder in at least 10 A-share companies in 4Q15. On March 29, Securities Times reported that Huijin (a subsidiary of CIC, which is under the State Council and has a close tie to the MoF) was among the top 10 shareholders in five ETFs at the end of 2015. We also know that CSFC (under CSRC) bought heavily in the market last year… the three main government bodies that run the economy, the financial system or regulate the market all have a direct stake in the market, literally.

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Eurodollars, China, TIC data + mysteries

Bloomberg went to town this week on news that hedge funds may be piling into USTs to the total tune of $1.27tn in lieu of foreign central banks and finance ministries who for the first time since 2000 have — on an annual basis — been holding off from making further investments.

On March 15, US Treasury International Capital system data confirmed that foreigners sold $50.4bn in Treasuries on a net basis in January. But! foreign central bank holdings of US Treasuries actually grew to $6.183tn in January.

But there are discrepancies to consider. Read more

Dodgy Chinese cinema data, now with more Mike Tyson

Ip Man 3 looks pretty good, right?

Well, maybe not. Each to their own, after all.

A sentence which goes double for Chinese data. Read more

China and FX reserve adequacy, redux

In short, for a given amount of capital controls, China is doing just fine on the reserve front:

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China property, Tier-1 vs the rest

China has become, to a large extent, a tale of two property markets. There’s Tier-1 — which is nutty — and, as flagged in the headline above, the rest.

From Bank of America Merrill Lynch’s China team, with our emphasis:

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Powa Technologies and China UnionPay: when a deal isn’t what it seems

Little over a week before Christmas last year, a small UK technology company, now in administration, issued a blockbuster press release.

Powa Technologies, founded by serial entrepreneur Dan Wagner, had apparently “formed a 10-year strategic alliance with ‘limitless’ potential” to integrate its ecommerce app into China’s state-owned payments infrastructure, according to the December 17th release.

The media lapped it up. Read more