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Tuesday, August 4, 2009

Are the Chinese the Next Financial Crisis?

CHINA musings
*China is expected to rally us from ourselves: Too Bad They Won't be Able to Do It
Last Monday China announced they would rein in bank lending. By Thursday their stock market had fallen 5%. On Friday morning they made the announcement that they would no longer stand in the banking sectors way. Result: Asian Markets went back up to new highs.
Why should China be any different than US greedy little bankers and representatives. And why shouldn't China pay the same price: let their citizens bail out their banking system. Anyone who says the financial crisis was all US fault just needs to take a look across the high seas. They were and still are, all in it up to their eyeballs. There is one LARGE difference though: The chinese citizenry does not take job loss or lower wages lying down like their american counterparts. Last weekend a steel company manager was beaten to death by employees who THOUGHT they might lose their job. You think those bonus recipents at GS or C might be feeling a little unlucky right now?

Beijing worries about another market crash
BEIJING - The middle-aged crowd in the packed Guosen Securities office jostle around buzzing printers that spit out receipts for their share buys, hoping to cash in on China's stimulus-fueled stock market boom.

"The central government has to fulfill their promise of 8 percent economic growth," said Wu Jun, 62, a retired civil servant who invested part of his life savings of 50,000 yuan ($7,300) and lives on a 2,000 yuan-a-month ($290 a month) pension. "They'll come up with measures to keep the market in good shape."

But while investors expect the market — up more than 80 percent this year — to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.

Beijing is trying to tighten credit controls without derailing the economic revival or causing a market crash — a risky path at a time when Chinese leaders say a recovery is not firmly established.

"It's a very serious threat. The Chinese government is walking a tightrope," said Mark Williams, Asia economist for Capital Economics in London. "There is the question of what happens if they rein in lending, because there is really no strong evidence that private sector demand is picking up."

Any hiccup in China's recovery could dent its rising demand for imported industrial raw materials and consumer goods, damaging hopes it might lead the global economy out of its worst downturn since the 1930s. Full article here...

And this article from a not so objective observer

former Morgan Stanley analyst Andy Xie
via TheBigPicture

China Has Become A Giant Ponzi Scheme
“Chinese stock and property markets have bubbled up again. It was fueled by bank lending and inflation fear. I think that Chinese stocks and properties are 50-100% overvalued. The odds are that both will adjust in the fourth quarter. However, both might flare up again sometime next year. Fluctuating within a long bubble could be the dominant trend for the foreseeable future. The bursting will happen when the US dollar becomes strong again. The catalyst could be serious inflation that forces the Fed to raise interest rate.

Chinese asset markets have become a giant Ponzi scheme. The prices are supported by appreciation expectation. As more people and liquidity are sucked in, the resulting surging prices validate the expectation, which prompts more people to join the party. This sort of bubble ends when there isn’t enough liquidity to feed the beast.”
Go here for full article

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