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TMFMmbop (34.10)

Lending Out of Control...AGAIN

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June 29, 2009 – Comments (3)

This time in China.

That article makes a couple of relevant bearish points:

1. Chinese stimulus lending has not gone to building the real economy, but has rather been invested in the stock market or in stockpiling commodities (which has spurred price increases that some have taken for a global economic recovery).

2. China can't seem to stop their banks from lending even though they've told them to stop. So either they actually haven't told them, or the banks have lost control.

3. China is more committed to putting up an impressive GDP growth rate than it is to helping the economy transition away from low-cost export manufacturing.

These are all real problems, but do note that the article is quoting the two China bears (Mr. Pettis and Mr. Xie) that have been quoted in all of these types of articles. But there is truth in what they're saying, though I do continue to believe China will be a long-term economic success story.

But...evidence that you should be discreet when picking Chinese stocks and not buying the index that has massive exposure to those Chinese banks that the article calls "an accident waiting to happen."

3 Comments – Post Your Own

#1) On June 29, 2009 at 11:22 AM, hhasia (66.46) wrote:

What the article fails to take into consideration is that China is a CLOSED market.  These people with the "lent" money have no where to put it outside of China. So the only vehicles are: Stocks, Property, and Savings/CD's. 

If China would open the retail market to overseas investing, it would swamp the USA overnight. It would blow all the institutions out and ruin their game in a heart beat. The Globalists should be afraid, with such deep savings, and light debt + all those people(Population) the wall street people would need to learn Mandarin quick.

Just today, Hong Kong is the test case for convertable RMB for trade, as the minister was here to launch the new policy.  I have no doubt, China will take very deliberate measures, to move into the open market and challenge market supremacy.

 

HH

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#2) On June 29, 2009 at 12:42 PM, XMFSinchiruna (27.47) wrote:

Thanks for presenting balanced viewpoints on a very complex set of issues!!

I track the commodities stockpiling angle pretty closely, and agree that many commdity investors have confused the stockpiling for demand resumption ... creating the likelihood of a temporary retracement both in some core commodity prices as well as related equities. Copper, in particular, seems to have rebounded to far, too quickly. 

After a near-term uptick in volatility, however, I do anticipate real demand resumption from Asia (of course growing from well below prior levels) with China as the unavoidable nexus. I think that the dramatic 2008 commodity correction will be seen as an anamolous event within a multi-year bull market for the core group of commodities (copper, steel, agriculture, coal, oil, etc.).

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#3) On June 29, 2009 at 1:09 PM, TMFMmbop (34.10) wrote:

Agree that the stockpiling is a blip compared to the real multiyear demand we should see out of Asia.

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