Posts tagged 'China'

The Greater Chinese offshore habit

It’s not just princelings.

New Pride
Coral Spring
Best Future
Double Reach
Corporate Hero [hmm]
Prime Sunlight

Those are the six British Virgin Islands holding companies attached to the three nightclubs being listed in Hong Kong this week. Read more

On the overvaluation of the yuan

There aren’t many people out there who agree with us that China has a yuan overvaluation problem, and that floating the currency will result in the opposite of the expected effect. But there are some.

Diana Choyleva at Lombard Street research is one such economist.

In a note on Tuesday, she sums up the problem beautifully.

As she notes, the key issue is that China’s export-driven growth model, which depended on long-term currency devaluation, created excessive savings which encouraged unproductive investments at the expense of consumer spending. Accordingly, attempts to restructure the economy and make it more consumer-focused depended on an explicit currency appreciation path.

And yet, overturning a decade’s worth of competitive devaluation was never going to be easy. For one, it was bound to stifle China’s export advantage and simultaneously increase Chinese purchasing power abroad much more significantly than at home. Read more

Where the WMP things are

From where this blogger is sitting WMPs do a pretty good job of summing up the different ways of looking at what is going in China at the moment. On the one hand you have those who see WMPs more as “off-balance-sheet deposit rate liberalisation, with a twist of risk” which are a useful tool on the liberalisation path, and on the other hand you have the Weapons of Mass Ponzi-focused brigade. Read more

A dolorous 2014 for the dollarless in China

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China’s credit spiral

Just when you think there’s nothing left to say about China’s debt dilemma up pop some more pieces to greet the new year. Two of the most recent saw Soros on the self-contradiction in Chinese policy boat saying that “restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years” and Patrick Chovanec providing a touch more detail about what all that messy debt actually means:

To those who wrote off China’s first banking seizure in June as a fluke, this latest episode [interbank lending market spiked to near 10 percent again last week] appeared to come out of nowhere. They cast about for explanations: Perhaps some seasonal surge in cash withdrawals was to blame, or the U.S. Federal Reserve’s decision to taper its bond-buying policy. Optimists assumed the PBOC was tightening credit on purpose, as a warning to banks to rein in unsafe lending practices. With inflation at manageable levels, they reasoned, the People’s Bank of China had plenty of room to loosen monetary policy again and ease the cash crunch.

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Rawhide in China

China says rollover. From the FT’s Simon Rabinovitch:

Faced with a mountain of maturing loans this year, China has given local governments the go-ahead to issue bonds as a way of rolling over their debt to avoid defaults.

The announcement by the National Development and Reform Commission, a top central planning authority, is the most explicit official endorsement of a massive debt refinancing operation that has become unavoidable and is already under way, analysts said.

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China, where family planning can mean candles, 30 official stamps and 50 approval letters

From Credit Suisse, do breathe in the romance:

The impact of the easing of the one child policy on birth rates may be overstated based on the experience of easing restrictions on parents who are both single children in their families (as shown in Exhibit 3). Guangzhou, a southern China city, had more than 14,000 couples, who were both single children in their families, hence eligible to have the second child, but only 360 couples had the second child in 2009.

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The road to liberalisation is paved with certificates of deposit

Starting today we get what is basically the first formal step to a fully fledged market based deposit rate system from China (honourable mention of course to those more informal weapons of mass ponzi). It’s been coming and the move doesn’t effect corporates or individuals, but in the context of the Shibor spike, deposit pressure and the post-plenum reform blush it’s very worth noting.

From UBS’s Wang Tao:

[The PBOC] took the long-expected step toward liberalizing deposit rate on December 8, announcing that effective from December 9, depository financial institutions (banks) are allowed to issue large-denomination negotiable certificates of deposit, i.e., the so-called interbank CDs.

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The PBOC, Bitcoin, and Chinese aunties

Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…

Financial Times, November 22


The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more

Whither the BTC China premium?

A couple of things worth noting, for those interested in the virtual pump-and-dump campaign that is Bitcoin.

1) The Chinese Bitcoin premium has seemingly abated. Read more

Let a hundred moles be whacked

China, caught somewhere between futility and necessity, is attempting to once again regulate the whack-a-mole game that is its interbank market. From the FT on Tuesday:

The China Banking Regulatory Commission is looking to establish three new hard caps on the interbank market, according to the draft of what is known as “document no. 9”. First, lending to any single financial institution should not exceed 100 per cent of a bank’s net capital. Second, lending to non-bank financial institutions should not exceed 25 per cent of a bank’s net capital. Third, lending to all financial institutions should not exceed 50 per cent of a bank’s total deposits.

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The role of dark inventory in the commodities bull run of 2008

We’ve argued before that the 2005-2007 commodity bull-run could have been the product of an unwitting self-manufactured squeeze, as the industry rushed to monetise as much inventory as possible to benefit from higher than usual interest rates and as inventory levels dropped. (All pretty much unwittingly, of course.)

As prices increased, the economy choked. Read more

The lifecycle of your liberalised yuan

The assumption for a long time has been that when a free floating yuan is finally born step 1 on its journey would be a joyous rush of capital inflows sweeping it upwards as foreigner investors finally got to jump into China with both feet.

But, as we’ve been arguing for a while, that might not be true anymore. Diana Choyleva of Lombard Street seems to agree: Read more

The China liberalisation risk

Crises tend to be born out of the unexpected and the thing most people just don’t see coming. Nassim Taleb taught us that.

With all eyes on western central banks, QE, accusations of Western repression — and a repetitive dialogue that it’s QE that’s causing bubbles everywhere — we’d argue the markets may be missing a trick in neglecting the importance of China’s recent turn towards liberalisation.

But not necessarily for the reason most people think. Read more

China, Bitcoin and the EM transfer problem

A common criticism of the secular stagnation and post-scarcity theory is that it is contradicted by the fact that unacceptable levels of poverty exist in many places around the world, and in particular the developing world.

If there’s so much growth potential out there, how is it possible that the economy is in secular stagnation? Or so, at least, the argument goes.

But perhaps the question we should be asking is what continues to frighten investment capital away? Read more

Zhou seems a little flustered

We were going to be slightly snarky in the face of Zhou Xiaochuan, head of the People’s Bank of China, promising to “basically” end normal intervention in the currency markets and other such liberalising things — the lack of a timetable and the ambiguity of phrasing making this seem rather similar to what we’ve heard in the past — but then we saw this from Neil Mellor at BoNYM and felt bad:

However, although a timetable was absent from Mr Zhou’s brief – something we discuss below – the fact is that this announcement constituted the beginnings of a new era for financial markets and no superlative would overstate its significance.

Oops. Read more

Third Plenum cheat sheet

Just in case you haven’t been able to review the full 21,500 word “Decision” by the CPC’s Central Committee, covering 15 areas of reform and 60 concrete tasks, here’s a summary of the key measures, with commentary from Nomura’s Zhiwei Zhang:

1. State-ownership and monopolistic industries reform Read more

Some flesh on those China snaps.. (updated)

You may have seen these rather important tweets earlier.

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The morning after the plenum before…

Some reaction to the relatively small amount of information that can be gleaned from the summary document released by China’s powers that be post-plenum, with the obvious caveat that the final effects of the meeting will take rather more time to emerge. Read more

When life gives you plenums

(Title credit to Anne Stevenson-Yang of J-Capital, who kindly insisted we steal what we would have stolen anyway.)

Brushing aside the obvious points that Xi is ‘Deng II, the Reformer’ and that his third plenum will be a knockout success similar to the big man’s in 1978, let’s pretend there’s a chance it might go wrong. Read more

Back to the future with pari passu

Wait a minute, Doc. Ah… Are you telling me that you built a time machine… out of a sovereign bond contract?

Marty McFly (paraphrased)

Imagine the next place to come under the new era of enforcing sovereign debt isn’t Argentina, or in the Caribbean, or even a future eurozone crisis. Imagine something… older. Much older. Read more

Plenum prep: cadre building edition

Step one: realise there are no good answers. Step two: don’t give the worst answer. Step three: be wary of the Deng vs Mao mask choice session in the afternoon. It’s a trick.

From Bloomberg:

The mission for the near-dozen Communists sitting round a table at a Beijing ministry was explicit: criticize their boss, who was present. Party cadres carefully recorded their comments as they spoke, in an echo of sessions held decades ago under Chairman Mao Zedong’s direction.

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Prepping for the plenum

Ladies and gentleman, we have what looks like a reform framework proposal…

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Paddling in the shallows of Shibor creek

The muddy waters of this particular creek have been known to drive good men mad…

From the FT:

The seven-day bond repurchase rate, a key gauge of short-term liquidity in China, opened at 5 per cent, a four-month high and up 150 basis points from the end of last week.

But we also get this: Read more

The paradox of gold commentary

Compare and contrast the following from a note by GoldMoney’s head of research Alasdair Macleod that landed in the collective hands of FT Alphaville on Friday.

Here’s the original version: Read more

You’ve been Dagonged, debt-ceiling edition

Why might Dagong — the rising rating agency from a country holding a massive amount of Treasuries — be so annoyed with the United States?

It’s downgraded the US to A- from A — on a par with Dagong’s Brazil and Panama sovereign ratings. (And it appears to have caused a kneejerk reaction in gold and the dollar early on Thursday.) Read more

The curious case of rising Chinese reserves

Chinese inflows are back.

Wei Yao at SocGen notes on Tuesday that China’s FX reserves added $163bn in the third quarter, the biggest quarterly increase since the second quarter of 2011.

As she notes, however, the source of those inflows is not necessarily down to the usual suspects (our emphasis):

China’s FX reserves added USD 163bn in Q3, the biggest quarterly increase since Q2 2011. The FX positions of all financial institutions (including the central bank) increased by only CNY 2.8bn in the first two months of Q3. Hence, inflows probably accelerated significantly in September. We estimate that the impact of the euro appreciation on the valuation of the reserve stock should be no more than USD 40bn during the month. In addition, the trade surplus narrowed significantly to USD 15.2bn in September from USD 28.5bn in August. Even if we assume a 20% increase in FDI, that still leaves us with nearly USD 100bn of unspecified capital inflows.

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Inflation in China: veg now, pork later

On the danger or not of China’s inflation rate:

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Why China may not be over-investing

Here’s a refreshingly different view on China, courtesy of Karen Ward, senior global economist at HSBC.

Her key point: it’s not that China is necessarily over-investing (as is frequently argued) but that the rest of EM may be under investing. Read more

Because the results of China’s local government debt audit just can’t come fast enough

SIV/ LGFV/ LGIV/ *shrug*

Whatever you choose to call the vehicles China’s local governments used to fund infrastructure when Beijing restricted financing (we are going with LGFVs here) they are very near the centre of Chinese debt fears. Which means it’d be nice to know how big they really are.

From Stephen Green at Standard Chartered (our emphasis): Read more