China tightening and/or China slowdown thread

Discussion in 'Economics' started by m22au, Nov 30, 2010.

  1. 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:

    Zero Hedge article:

    Bloomberg chart of 3 month SHIBOR fixing:

    Bloomberg chart of 6 month SHIBOR fixing:

    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:
  2. m22au


  3. Yes, thank you for making us aware of the fact that we will be unawared when the bubble bursts...
  4. benwm


    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...
  5. m22au


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


    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.
  6. 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.
  7. The question is - how to play it if it happens?
  8. m22au


    some possible ideas:

    * short $SSEC (SSE Composite Index)

    * short AUD against another currency

    * buy Australian bonds
  9. m22au


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

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

    "Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy"
  10. Good stuff from AEP.
    #10     Dec 6, 2010