- Caixin and George Chen of the South Morning Post are both reporting that the China Security Finance Corporation is borrowing another 1.4 trillion RMB to prop up the stock market. Now considering they already had access to 3 trillion RMB, it would only make sense that they are requesting additional borrowing because they need more money. If you are keeping score at home sports fans, that would bring us up to 4.4 trillion RMB in support.
- I have a piece coming out on FT Alphaville about output in the Chinese economy today which will basically detail why it is probably Chinese growth is near zero. The one thing that I will jump the gun on here is the divergence between official retail sales data and output in consumer products from clothes to electronics. Garment, footwear, leather, textile, passenger traffic, and consumer electronics output in China are all flat to falling significantly. Especially in a deflationary price environment, as we are for these categories, how is retail sales growing 10%+ annually? What are retailers selling if consumer product output is down? This to me seems a glaring inconsistency because it certainly isn’t coming from a flood of imports.
- As I have said repeatedly, watch liquidity. The PBOC is shoveling liquidity into the market as fast as possible indicating bank liquidity is in extremely short supply. I haven’t even kept up with the near daily injections 100b RMB. Watch this, major issue.
- I have increasingly become convinced that there is a policy divide in Beijing. The PBOC appears resistant to propping up the stock market but is willing to accept injecting liquidity and defending the RMB. It is interesting to note that most capital to prop up the stock market coming from commercial banks. This is exposing the banks to enormous risk as this is essentially a type of margin loan but probably without the asset security. Beijing appears very divided over how much to defend the stock market and even how much to defend the RMB. Though not large, the RMB fix has been weaker everyday this week.
- Pay close attention to the 500+ stocks in China that are still frozen. Earlier it was reported virtually all these firms borrowed money with pledged stock near the peak of the market in May and June. If these reports are true, it is likely that given the length of time these stocks have remained frozen, that these firms would be in technical bankruptcy. That would be a major blow and cause all kinds of panic so clearly something will be worked out to soften the blow here. These 500 firms might be the epicenter.
- Catch me on the BBC World Business Report today at 12:30 Hong Kong time talking about the
recent market turmoil in China.
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I watched the BBC interview. I wonder if that’s really the best forum for you. What you do (and do so well, of course) is to develop fully-blown arguments. Such arguments/conclusions necessarily take time to explain and don’t lend themselves to “soundbites”. The show seemed all rushed to me; You might have had two minutes on air before the program went on to the next thing. You weren’t even given time to say: “You’re welcome. Thanks for having me” before they cut the sound off.
Thanks for that. I do definitely prefer a little bit longer form where people can clearly see why I am drawing a conclusion and not just speak in sound bites. Speaking for TV is most definitely a different medium and difficult to convey complex ideas in a short time. Thanks for your kind words.
Hi,
I read the McKinsey report regarding China’s debt. They said couple of months ago that mid 2014 this debt stood at $28 trillion. Would you say this debt has obviously grown since then by at least 10 - 15%? This means it’s over $30 trillion. I also doubt the accuracy of the figures (can’t trust Chinese gov) . Is it possible this debt is much higher ( perhaps $40-$50 trillion)?
I just can’t understand how they’re fighting an active volcano with a small hose.
I recently discovered your blog. Good information about Chinese economy.
1. The IMF (who is typically very friendly to China) estimates their total government deficit at around 10%. Private firms have continued to gorge on debt. I think it is very safe to assume debt is at least 10-15% higher.
2. I think it distinctly possible debt is much higher. Assigning a specific number to that is very difficult, but given what I know about how the hide debt and how they manipulate other figures, yes it is very safe to assume it is much higher.
3. Active volcano with a garden hose. Just amazing really.
I think point 1 needs some more investigation. Today we are hearing that they are stopping these support buying, yet they taking more funding? Is it just to cover the losses?
Great post btw, and great blog. Having recently become aware of your writing and blog, I have added you to a very small group of commentators on China that I respect enough to read!
I honestly can’t specifically tell you only because news reports and volumes change so much at least once a day, that to give you good information is hard. As soon as I finish writing this it could have changed. They have changed their mind so many times, it is like trying to follow a drunk hummingbird. I think the best estimates find they are about 15-18% underwater on their purchases. Probably a very safe estimate.
Thanks for your kind words.
Thanks for the reply Professor!
Another question I have is on the liquidity situation. The Shibor / Money Market rates do not seem to be indicating a big shortage or any cash crunch, is this because of the PBOC injections?
I believe pretty strongly yes. They have been injecting large amounts of money every couple of days. There are lots of indications that cash is much tighter in the absence of the large regular liquidity injections.
Thanks! Looking forward to your next post!
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