China tightening and/or China slowdown thread

M

m22au

Following Darkhorse's recent articles that talked about China, I thought it might be useful to have a thread about the possiblity of one or both of the following occuring:

(1) China raising interest rates
(2) Economic slowdown and/or economic contraction in China

****

Link to recent Mercenary Trader article:
http://mercenarytrader.com/2010/11/...ont-fight-the-fed-becomes-dont-fight-beijing/

Zero Hedge article:
http://www.zerohedge.com/article/ch...nent-rate-hike-following-china-state-council-

Bloomberg chart of 3 month SHIBOR fixing:
http://www.bloomberg.com/apps/quote?ticker=SHIF3M:IND

Bloomberg chart of 6 month SHIBOR fixing:
http://www.bloomberg.com/apps/quote?ticker=SHIF6M:IND

I also note that Australia is basically part of the Chinese empire. If China slows down significantly, and/or has a hard landing, then this will hurt the Australian economy, and possibly result in

(1) a big decline in Aussie Housing prices.
(2) a big decline in AUD/USD (assuming that the US does not engage in super ridiculous monetary/fiscal policy, such as giving a check for $100,000 to each citizen).

Thread on Australian Housing bubble:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=199582
 
Quote from m22au:

http://www.zerohedge.com/article/wh...warning-light-albert-edwards-tripple-dip-head

Snippet:

"Once again, investors see China plays as the only investment game in town. Dylan and I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s."
More...

Yes, thank you for making us aware of the fact that we will be unawared when the bubble bursts...
 
China will likely raise rates very soon. Official inflation is at 4.4% and food inflation in particular is really high which is a political headache.

China could also let RMB appreciate at a faster rate than currently. I would guess a lot of the mis-investment in empty houses is in many cases a punt on RMB appreciation. If the currency gets more in line with fundamentals there will be less speculation.

It seems a classic bubble to me, but bubbles can go on for a long long time of course. And historically the US and many fast growing economies experienced bubbles as pullbacks in a much longer term growth story. That's probably the big difference as far I see it to Japan. If the bubble bursts in China then after a few years of 're-balancing' the economy will begin expanding again.

There are some economists who talk about the bubble and how that might actually cause RMB to weaken in the long term, but I don't buy into that. Japan's bubble burst in 1989 and that didn't stop JPY from strengthening the past twenty years. You can get a bubble bursting AND a stronger currency.

It will be interesting to see how China manages its $2.5 Trillion cash pile of reserves...
 
http://www.zerohedge.com/article/art-cashin-corrientes-enormous-china-bubble

"Art Cashin On Corriente's "Enormous China Bubble"

snippet:

The anomalies he sees in China are somewhat familiar: Excess floor space exceeds 3.3 billion square meters and there are still 200m being built this year; The price to rent ratio is 39.4 times versus 22.8 times in America before the housing crises; Banks are hiding their exposure in Local Investment Vehicles; On a Sovereign level, China’s debt to GDP comes out at 107%, five times published numbers; China has consumed just 65% of the cement it has produced in the last six years; There are 200m tons of excess steel capacity, more than the EU and Japan’s total production this year.
 
China's in a bind. I believe they are truly worried about inflation and a capex bubble, but the more they raise rates, the more hot money flows into the country, the more yuan they must print to sop it up. I don't have the link offhand, but October's inflows were eye-popping. They are searching for other ways to slow things down. Price controls don't work.
 
Quote from Kassz007:

The question is - how to play it if it happens?
More...

some possible ideas:

* short $SSEC (SSE Composite Index)

* short AUD against another currency

* buy Australian bonds
 
"Royal Bank of Scotland Says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China"

http://globaleconomicanalysis.blogspot.com/2010/12/royal-bank-of-scotland-says-chinas.html

"China's credit bubble on borrowed time as inflation bites"

http://www.telegraph.co.uk/finance/...bble-on-borrowed-time-as-inflation-bites.html


"Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy"

http://globaleconomicanalysis.blogspot.com/2010/12/multiple-simultaneous-games-of-chicken.html
 
You must log in or register to reply here.
Back
Top