China is ONLY growing by massive lending (90s USA style) and reserve stockpiling?

Discussion in 'Economics' started by crgarcia, Aug 10, 2009.

  1. China is lending like crazy:

    And stockpiling reserves:

    Their exports are plummeting, yet china is "growing".

    Watch out, this "growth" is not sustainable.
    When it collapses -and it will-, it will take the whole world economy down (even further) temporarily.
  2. Chinese Banks Are Lending Like Crazy

    Despite the collapse of foreign demand, China is still growing its economy -- then again, it'd be kind of hard not to be with the kind of lending going on with Chinese banks.

    New lending in June hit $224 billion (1.53 trillion Yuan) double from just May. No wonder car sales are up; banks there are forcing money down the throats of borrowers.

    We already wrote about this last month, and got this comment from user rawb, which, if genuine, is rather telling:

    I'm in Beijing currently and I was walking with a 24 year old grad student and she was telling me how last week she got a phone call (random) from a bank (more random) offering her 10,000 RMB personal loan at a fixed rate. She studies economics, and she didn't really understand it, but was curious.

    So she asked them what this loan was for and they tell her to buy stuff... personal consumption, whatever she wants. No limits really. Just go spend some money.

    She's not quite adept enough to recognize this is a bubble and a disaster in the long run, but she did recognize it as very odd. She told them she's going to NYC to study in August, and so she wouldn't be suitable for this loan, but they persisted and told her that, no, that's even better, as NYC has many nice things to buy!

    ... seriously. not a joke. I know it's anecdotal but whatever.

    Professor Michael Pettis adds some insight, which should terrify you:

    Today bank stocks were down, on rumors that the very high and clearly unsustainable loan growth rates would soon come to an end. If you need any evidence of how topsy-turvy things have become that fact should be enough.

    Under “normal” circumstances the possibility that banks would continue to force new loan growth at anywhere near the current rates should raise terrible concerns about an explosion in future loan losses and cause bank stocks to collapse. Instead, it is concern that this lending spree might come to an end that causes bank stocks to fall.

    Of course this might not be totally irrational. If you believe, as most of us do, that there is an implicit guarantee by the government on future loan losses, then this is clearly a heads-we-win, tails-the-government-loses proposition. Let them pile on the loans at the guaranteed spread between lending and deposit rates.

    Lovely. Massive lending, an implicit guarantee, a heads-we-win, tails-you-lose betting scenario... what could go wrong?
  3. China-driven commodities rally nearing end

    By D'Arcy Doran (AFP) – Jun 20, 2009

    SHANGHAI (AFP) — China has been driving up commodities prices by stockpiling to prepare for global recovery, but with inventories overflowing and no end to the crisis in sight, analysts say the rally may soon end.

    China has been buying up crude oil, copper, coal and a host of other key raw materials even while the financial slump has slashed demand for the exports responsible for the Asian giant's once ravenous appetite.

    Despite the sharp drop in shipments, Chinese raw materials buyers have tapped a surge in bank loans to capitalise on low commodity prices and low shipping fees, analysts said.

    But the buying is likely to slow, they warned.

    "China has been stockpiling commodities since the fourth quarter when prices became really cheap," said Yang Yijun, a commodities analyst at Wellxin Consulting based in the southwestern city of Chengdu.

    "But large scale buying is gradually coming to an end. China's reserves are almost at full capacity."

    Macquarie Bank warned in a research note last week that "the key concern centres around the scale of Chinese buying".

    Over the past three months, as the volume of China's purchases increased, the Standard & Poor's GSCI, an index of global commodity prices, shot up 26.5 percent.

    However, overall prices remain lower than before the financial crisis struck. Even with those gains, the overall index is down 58.5 percent from a year ago.

    Crude oil prices have risen 39.6 percent in the past three months while copper prices climbed 45 percent, according to the GSCI.

    China's State Reserve Bureau has been stockpiling, but so too have producers, distributors and other speculators hoping to profit from an expected rise in prices once the world economy starts to recover.

    The China Iron and Steel Association began investigating surging imports after the amount of iron ore coming into the country jumped 33 percent year on year in April, hitting a monthly record of 57 million tonnes, state media said.

    Spot prices for iron ore for delivery into China hit their highest level in nearly four months in mid-June, touching 76.50 a tonne, including cost, freight and insurance, according to Dow Jones Newswires.

    Beijing ordered banks to cut lending to steelmakers and iron ore importers, who it admonished for failing to "correctly control the volume and pace of iron ore imports in line with the actual demand of domestic steel production," state media reported.

    China, the world's biggest steel producer and consumer, imported 188.5 million tonnes of iron ore in the first four months of the year, up 22.9 percent year on year, according to customs data.

    "Because of the massive supply, some ships carrying iron ore are having to wait to offload at ports," said Xu Minle, an analyst with Bank of China.

    But iron ore was not the only hot commodity in April. Crude oil imports climbed nearly 14 percent, aluminium oxide imports were up 16 percent and copper was up 64.4 percent, according to JP Morgan.

    Coal imports soared 168 percent as Chinese utilities increased foreign coal buying during negotiations with domestic producers for better prices.

    However, Moody's has changed its outlook to negative for base metals, mining and steel industries in the Asia Pacific region over the next 12-18 months, saying buying has soared ahead of demand.

    "China's strategic stockpiling and replacement of lower-quality domestic production with higher-quality imports have supported the recent rally in prices for many base metals," said Terry Fanous, Moody's chief Asia metals and mining analyst.

    "But we will not see a sustainable turnaround in demand until the major economies of the US, Europe, and Japan recover," Fanous wrote in a note.

    Copper, essential for home appliances and other staples in China's economic boom, was seen as being on the most solid footing, hitting an eight-month high of over 2.45 dollars a pound on the New York Mercantile Exchange on June 11.

    But prices fell in the past week as traders feared China's stockpiling was tailing off.

    "As China has been the main driver of the copper price recovery so far this year, a period of reduced buying activity may see prices take a bit of a pause," Standard Bank analyst Leon Westgate wrote in a note.

    Stockpiling is fraught with risk, especially when borrowed money is used to buy goods when there is no demand, independent Shanghai-based economist Andy Xie said.

    "Last year people who stockpiled went out of business," Xie said. "I know one distributor who stockpiled six million tonnes of steel and went bust when it dropped by more than half."

    Copyright © 2009 AFP. All rights reserved.
  4. China Stockpiling Commodities Over Potential US Dollar Collapse

    Owing hundreds of billions of dollars of U.S. debt has China rightly concerned, as the long-term performance of the greenback could cost them billions of dollars in losses, as the U.S. dollar loses its value.

    In response, China has started buying a large amount of raw materials at a fast pace in order to hedge against that real possibility.

    Some of the recent commodity buys include 400,000 tons of copper acquired in April, a record level for China. Also in April iron ore imports rose by 57 metric tons. Over a 6-year period China has also increased its gold reserves to 1,054 tons, up from the 600 tons of gold they held in 2003.

    This is why a large number of leading commodities investors like Jim Rogers warn people to get out of dollar-denominated investments and move to safer and more lucrative possibilities. That's exactly what the Chinese are doing here.

    This is a challenge for China, as they're somewhat stuck at this time, because they were largely financing the U.S. consumer binge that generated a lot of wealth for years, by buying U.S. debt. That also provided the circumstances where Chinese manufacturers churned out inexpensive products to sell to American consumers.

    So while they hold the U.S. debt, exports have shrivelled up because American consumers have obviously cut back on their spending, making their risk very high at these debt levels, with far less being received back in return.

    For that reason they have also started to focus on infrastructure projects of their own to stimulate the domestic economy, while they're in this precarious situation.

    Some of the reasons for this are obvious, as I mentioned above, but another reason I think China is doing this at this time, is commodity prices are going to soar in the years ahead, and they are buying at bargain prices at this time in preparation for that.

    This is another reason to see why we all need to put at least a small percentage of our investments into commodities.
  5. JB3


    If it worked for the US, it's gonna work for China. They are not dumb. On the contrary, they are smart to copy our expansion roadmap of easy credit. We'll start to poop our pants when they stop buying our debt.
  6. You are dumb if you believe that the Chinese economy is anything less than a massive ponzi scheme fueled by rampant lending. The 8%-blah a year GDP growth figure, assuming they are not made out of someone's ass, is mostly due to skyrocketing real estate prices which are going out of control. And the funny thing is the real estate "boom" has nothing to do with the underlying economy. Let me tell you how this works:

    A developer builds a residential complex entirely on a loan from the bank, let's say for $1m per unit. Then right after it's done (mostly shoddy work that will last no longer than a dozen years), they make a bunch of fake identities and sell the units to them for $1.5m, funded entirely by loans applied under their name. Then the developer uses the proceed to pay down its loan and pocket the $0.5m difference. They bribed up all the necessary bank officials and share with them a portion of the proceeds as well.

    Then after that those units are sold to home "investors" who also bought them for $1.5m entirely through no-down-payment loans that usually have only a one-or-two-year term. After that, if there's a real person dumb enough to buy them at a higher price, they happily sell the unit to him, otherwise they will apply for another one-year loan for $3m, also using a fake identity, paying down the original loan and pocketing the $1.5m in proceeds. This is then repeated over and over, making real estate prices skyrocket and transferring ALL risks to the bank, whose officials were all bribed and paid for. The process is done on so large a scale that at least half of the real estate transaction are fake, designed to get loans, which provide the real source of income for developers and "investors".

    That's right, they don't build homes or buy low and sell high, they are all loan frauds. This is why the home prices in Shanghai doubled in 6 months!

    This goes on for other industries as well, and there you have it, an entire country whose growth built on fake lending. Go around the country and ask regular citizens when their last pay raise was, and chances are unless they are a government official, they'd say "never". Those poor people deposited their lifetime income into the bank and they will be wiped out for good when judgement day arrives.

    The government knows this all along. They just don't want to address this. Why should you when you have your GDP "growing" 10% a year and new buildings everywhere? But a ponzi scheme is a ponzi scheme. It will grow bigger and bigger but finally it will collapse. When it does, there will be revolution all over again and the government will fall. there will be bank runs and the Yuan will become worthless. Smart Chinese people are already transferring their wealth overseas.

    That's why every time I see the news on western media that China is gonna pull us out of the recession, I ROFLMAO. I guess that's why they are journalists, not traders.
  7. S2007S


    Another joke....

    Does anyone actually believe these forecasts gs is throwing out there???

    BEIJING, Aug 10 (Reuters) - Goldman Sachs (GS.N) on Monday raised its forecast for Asian economic growth this year and next based on a stronger outlook for the United States and China.

    The bank revised its projections for gross domestic product growth in Asia ex-Japan, which were already above consensus, to 5.6 percent from 4.9 percent this year and to 8.6 percent from 7.8 percent in 2010.

    Goldman said Asia would benefit from strength in China, which it now expects to grow 9.4 percent this year and 11.9 percent in 2010. Previously the bank had forecast 8.3 percent and 10.9 percent, respectively.

    Explaining its upgrade, Goldman said Chinese growth momentum remained strong and policy tightening was behind the curve.

    Michael Buchanan, the bank's chief economist for non-Japan Asia, said the National Development and Reform Commission and the State Council, China's cabinet, remained very cautious about any significant tightening.

    "We believe policymakers will only choose to tighten more dramatically via significant hikes in policy rates once the consequences of above-trend growth become obvious (i.e., actual inflation or supply bottlenecks or significant asset price bubbles)," he said in a report.

    This may mean that increases in interest rates will not come until next year, perhaps after discussions at December's annual economic policy-setting meeting, Buchanan added.

    Premier Wen Jiabao said at the weekend that Beijing would stick to an appropriately loose monetary stance and proactive fiscal policy to achieve its goal of 8 percent GDP growth this year. [ID:nPEK220133]

    That target looked out of reach until data for the second quarter started to show the impact of the government's 4 trillion yuan ($585 billion) stimulus spending and a record burst of lending by China's mainly state-owned banks.

    Goldman said Asia would also draw strength from a rosier outlook in the United States.

    The bank raised its 2009 GDP forecasts for Hong Kong, Malaysia, the Philippines, Singapore, South Korea and Taiwan, but kept its projections for Indonesia, Thailand and India unchanged.
  8. achilles28


    Thanks for posting.

    That's 1000% Bubble.

    220 Billion / 4.4 Trillion = 5% of GDP in new loans, made IN ONE MONTH.

    The equivalent - US Banks making 700 Billion in private loans, in one month.

    Definitely a bubble. Chinese Real estate has gone nuts. So it looks like a copy of the US collapse. Chinese Developers, Home builders, Banks and the Stock market will take a huge hit.