China the blowback.......

quote:

A Far-East Fiasco?
Vitaliy Katsenelson Dec 26, 2008 11:30 am


China must stimulate economy or risk political unrest.

I often start my morning readings by eating an egg, cheese and turkey sandwich at Panera Bread. This morning was no different. I was reading newspapers on my Kindle and sipping hazelnut coffee (I know, I just lost the respect of true coffee drinkers, but I like hazelnut). I began with yesterday’s Financial Times. There was an article on China. I believe watching what's going on in China is important, as China has a significant impact on the US, so I started reading:

“The benchmark one-year lending rate was cut by 27 basis points to 5.31 per cent, while the one-year deposit rate was lowered by the same amount to 2.25 per cent.”

That’s not surprising news, plus it shows some originality - China doesn’t want to end up like the US. So it cut interest rates in a multiple of 27 basis points, not in boring multiples of 25 basis points.

“The government estimates more than 10m migrant workers have lost their jobs so far, while 6.5m university students will enter the workforce next year.”

China is unlikely to escape the fate of developing countries, and facing higher unemployment, a question is raised: Will this lead to political unrest? High unemployment in China is very different than high unemployment in the US or Europe. Unlike in the developed world, there isn't much of a social net in China.

If you lose your job in Kansas, you may be forced to shop at Wal-Mart (WMT) instead of Target (TGT) and downgrade to basic cable (only 50 channels, sorry). Of course I'm oversimplifying, but the point is in the US we have unemployment benefits and many other government programs aimed at keeping us from starving. This isn't the case in China.

As China's social net is in its infancy, high unemployment in many cases may mean hunger and, ultimately, political unrest. The Chinese government knows this well. Unless it comes up with social net very quickly, it will need to stimulate the hell out of its economy - far beyond the stimulus announced to date. This means more government spending. But the next bit of news I read revealed that doing so would be difficult:

“China's foreign exchange reserves, the largest in the world, apparently fell in October for the first time in five years, according to an official from the State Administration of Foreign Exchange.”

Published economic numbers are likely not describing the true economic reality in China, as -- despite economic growth for the first time in a long time -- the country feels the need to dip into its piggy bank. But here’s the scary part: That piggy bank is filled with US dollars. Our government is printing a lot of money at the moment to deal with its own problems. It may or may not be inflationary in the short term (although definitely in the long term), as the velocity of money seems to be declining at a fast rate. Banks are barely lending and consumers are deleveraging and are reluctant to borrow.

But if the Chinese economy continues to deteriorate -- a likely scenario as the deterioration just started -- the Chinese government will need to start digging into its US reserves. And since there are no other natural buyers (in size) of the US debt, our interest rates may actually shoot up while the US dollar drops.

This creates a twofold problem for China: High interest rates mean even lower economic growth in the US, and even less consumption of Chinese-made goods. China can't afford a weak US dollar; that would mean its US dollar reserves will be worth even less while its products become move expensive for US consumers.

Here’s one last thought: All this is taking place while 30-year government bonds are at one of their lowest rates ever. US government bonds are likely the most overpriced asset in the world, period!

Sommige artikels zijn betere dan andere artikels.... deze geeft vrij goed aan in welke spagaat China (alsook de VS) zit.

Beetje side news.... maar toch de moeite waard.

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A curious call from Societe Generale
Thursday, January 15, 2009

It's one thing to call for a depression - you don't have to look very far in the "alternate news" section of the internet to find forecasts like this and they've been a constant for many, many years - but to hear an analyst at a major firm predict a depression, that's a little different.

When this same analyst also recommended buying stocks two months ago, then it become something of a curiosity. The details are in this report from Reuters.

Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.

In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout.
...
"While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere," Edwards wrote.

"It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the yuan. A subsequent trade war could see a re-run of the Great Depression."

Edwards has long been one of the most bearish analysts in London, first with Dresdner Kleinwort and then with SocGen.

But he called in October for clients to increase their exposure to equities, which he said were due a rebound.

A target of 500 for the S&P 500 was cited - this represents a decline of another 40 percent from current levels, down almost 70 percent from the 2007 highs.

quote:

Op vrijdag 16 januari 2009 09:30 schreef Basp1 het volgende:

[..]

Hoe wil men de yuan devalueren, denken die chinezen echt dat de rest van de wereld hieraan gaat meewerken. Het is voor veel landen al lang een doorn in het oog dat china die yuan te goedkoop aan de dollar gekoppeld heeft.

Een half jaar geleden voorspelde ik al handelsoorlogen. Dit artikel sluit er naadloos op aan.

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Op vrijdag 16 januari 2009 10:14 schreef SeLang het volgende:
China zal (net als elk ander land) uiteindelijk altijd voor zichzelf kiezen, en als ze een devaluatie van de yuan nodig vinden dan zullen ze dat gewoon doen. Dat is overigens een voorzichtige afweging tussen de kosten van een handelsoorlog (in geld en politieke kosten) en de voordelen van een lage yuan. Een handelsoorlog verwacht ik zelf trouwens ook, vooral omdat Obama een voorstander is van protectionisme (wat dit betreft had je echt veel beter McCain kunnen hebben).

Wie je beter had kunnen hebben is een big what if.
Maar als er barricades worden opgetrokken van protectionisme dan is een handelsoorlog de volgende logische stap.
Vroeg of laat zal China de Amerikaanse dollars en schuldpapieren dumpen zodat deze niet als chantage middel kunnen worden gebruikt. Ik zou op vroeg gokken. China kiest natuurlijk eerst voor zichzelf. Ook al zijn de interne inkomens/welvaartverschillen behoorlijk groot. Als er interne opstanden komen... dan gaat het gelijk volluit (en dat gaat iets verder dan een studentenprotest). Het is in de geschiedenis vaker voorgekomen dat een keizer-achtig iets door de bevolking met flink bloedvergieten van de troon is gestoten.
No fucking way dat China lijdzaam zal toezien dat hun economische spiegel in stukjes ligt. Ze hebben nog wat reserves om als troefkaart uit te spelen. En die gaan ze spelen...
Het merkwaardige feit dat China toenadering zoekt met Japan is al een dikke knipoog dat alles wat westers is niet heilig is.

- Beter een goede buur dan een verre vriend. -

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Bloomberg

The Chinese economy will “likely get much worse before getting better,” said Wang Qing, Hong Kong-based chief China economist at Morgan Stanley.

Chinese manufacturers shed jobs last month at the fastest pace since the index began in 2004, the CLSA survey showed.

About 20 million migrant workers have lost their jobs because of the nation’s economic slowdown, Chen Xiwen, a senior rural planning official said at a briefing in Beijing today.

Daar gaat het harder tekeer dan in de VS.

En dan zou de economie groeien met 6 %.... ik geloof er geen bal van.

Lachen... DFT ziet het ook.

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Sterke stijging werkloosheid China

PEKING (AFN) - De werkloosheid in China is sterk toegenomen. Circa 20 miljoen migranten van het platteland die werk zochten in de steden, zijn inmiddels werkloos teruggekeerd naar huis. Dat maakten de autoriteiten maandag bekend. In januari meldden de autoriteiten een getal van zes miljoen werkloze plattelandsmigranten.

De cijfers zijn gebaseerd op statistisch onderzoek in 150 dorpen in vijftien verschillende provincies.

Daarnaast zijn er zes tot zeven miljoen nieuwkomers die voor het eerst proberen een baan buiten het dorp te vinden. Als gevolg van de sterk afzwakkende economie zou slechts een klein deel daarin kunnen slagen, aldus Chen Xwen, directeur van een nationale werkgroep voor het platteland.

De Chinese overheid houdt de groep werkloze plattelandsmigranten goed in de gaten, omdat de autoriteiten vrezen voor ongeregeldheden en protest als gevolg van het banenverlies. Afgelopen weekeinde prestenteerde de Chinese regering een beleidsstuk om de sociale en economische ontwikkeling op het platteland te stimuleren.

Shanghai Index May Drop 25% on Economy, Xie Says (Update1)

By Allen Wan and Erik Schatzker

Sept. 1 (Bloomberg) -- The Shanghai Composite Index, the world’s worst performer in August, may fall another 25 percent as China’s economic recovery isn’t “sustainable,” former Morgan Stanley Asian economist Andy Xie said.

The measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world’s third- largest economy. Xie said the index “should be 2000 or less.”

“The market is in deep bubble territory,” Xie, 49, who correctly predicted in April 2007 that China’s equities would tumble, said in an interview with Bloomberg Television.

China’s retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI’s emerging-market index lost 1.5 percent, the biggest drop in two weeks. The Bank of New York Mellon China ADR Index, tracking American depositary receipts of Chinese shares, lost 2.3 percent, led by commodity producers.

The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.

Strong Numbers

“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.

Still, Chinese stocks are trading at the steepest discount in the world compared with analysts’ price targets after the month-long slump. The gap of 13 percent below analysts’ combined price targets is the largest among the world’s 10 largest markets, data compiled by Bloomberg show.

Equities in China remain “a bright spot” among global stocks because of the nation’s strong growth potential, Goldman Sachs Group Inc. said yesterday.

‘Exit Strategy’

“We think the market concerns about a near-term ‘exit strategy’ appear premature as the government remains pro- growth,” Thomas Deng and Kinger Lau, analysts at Goldman Sachs, wrote in a research note.

Goldman Sachs has boosted its growth forecasts for China’s economy to 9.4 percent this year from an earlier estimate of 8.3 percent, it said in the note. Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent, it added.

The People’s Bank of China will also have “very limited room” to raise interest rates by the end of this year, Deng and Lau wrote.

“The A share market is undergoing a correction rather than a bursting of the bubble,” said Richard Gao, who helps manage $2.8 billion at Matthews International Capital Management LCC in San Francisco. “Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential.”

The government will maintain its fiscal and monetary policies because the economy faces many “uncertainties,” Premier Wen Jiabao said this month. Economic growth will slow in the fourth quarter as exports remain mired in a slump, Xie said.

“The recovery is not sustainable,” Xie, who resigned as Morgan Stanley’s chief economist in Asia in 2006 and now works as an independent economist, said in the interview yesterday from Shanghai.

Expectations

“This is a short-term negative,” said E. William Stone, who oversees $101 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Expectations have been too high that China would be a driver of everything. Much has to come out of the expectations balloon.”

At least 150 stocks on the 898-member Shanghai index dropped by the daily 10 percent limit. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation’s biggest steelmaker, and China Southern Airlines Co. down at least 7 percent.

The Shanghai index trades at 29.39 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 18.9 times profit.

New Loans Drop

China may have 200 billion yuan of new loans in August, the Beijing-based Caijing reported today on its Web site. That compares with 7.4 trillion yuan for the first half of 2009 and 355.9 billion yuan in July alone. The government plans to tighten capital requirements for financial institutions, three people familiar with the matter said this month.

An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council.

“The government is now pulling the plug on liquidity,” said Xie, who is a guest columnist for Caijing. “Hopefully, it’s not too late.”
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Daar is het dus ff ook niet rozengeur en maneschijn.

Markets hit by China commodity default

Monday, August 31 12:48:54

A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

While the details of the report could not be confirmed, it was Monday's hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

The warning from SASAC follows a series of measures from Beijing this year to crack down on the sale of derivative products by foreign banks to Chinese enterprises, principally big consumers, who bought protection against higher prices last year only to watch the market collapse -- leaving them with losses.

While many companies including top airlines have come clean on the losses, some analysts fear another wave may follow.

"I wouldn't be surprised if more state firms emerge with big derivatives trading losses, otherwise SASAC wouldn't come out with such a radical move," said a Hong Kong-based derivatives analyst, who like most other industry officials and bankers declined to be named due to the high sensitivity of the issue.

A SASAC media official said on Monday that he was waiting for the "relevant department's" official comment before he can clarify to media. A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.

Spokespersons at Goldman Sachs and UBS declined comment, and media officials at Morgan Stanley and JPMorgan were not immediately available for comment. All are major global providers of commodity risk management.

No bank were named in the Caijing report. The SASAC media officer also declined to identify any specific banks.

"It's a handful of companies who are being encouraged by regulators to re-negotiate," said a second banking source. "It's outrageous, but it's China, so everyone is treading very carefully."

For banks that are hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.

The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports about their investments, including details of holdings and performance.

But the reported letter opened several important questions that could not immediately be answered. "If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate's? And under what was the reason for defaulting?" said a Singapore-based marketing executive with a foreign bank.

The source, whose bank did not receive a letter, said that Air China, China Eastern and shipping giant COSCO - among the Chinese companies that have reported huge derivatives losses since last year - had issued almost identical notices to banks.

"If it's in the name of the government, the impact will be very negative," said the source, who declined to be named.

Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder has no business relationship with international banks.

"It's like the father suddenly told the creditors of his debt-ridden son that his son won't pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association. (C ) Reuters
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Rules there are no rules in China.

Dat de verliesgevende side bets niet uitbetaald worden door Chinese staatsbedrijven. Ook al participeren ze mee in deze hedge market.
Zoiets maakt de derivaten handel in China behoorlijk stuk. En dan moet je weer terug bij wie die papieren en garanties hebben uitgeven.
De vraag is nu eigenlijk, welke buitenlandse investeerder durft er nu nog in te stappen als hij zijn inzet niet kan hedgen (denk niet veel).