Comments on: China Faces Liquidity Crunch

By: CEO

CEO — Wed, 05 Nov 2008 00:26:00 +0000

Probably too many amateur china pundits on your website. I invite them all to visit China, not Shanghai or Gunagzhou, but east to west, inland as well as coastal. You would then realize that two thirds of China doesn’t really depend much on globalisation and majority of its population has never done a transaction with a bank. And all the current chinese banks have collapsed more than 3 times over the last 2 decades, China is still around.

By: Anonymous

Anonymous — Tue, 04 Nov 2008 20:22:00 +0000

daveg: "While I am mildly sympathetic to the no on 8, people on the left side of the isle constantly want to silence other people views. It is like a compulsion with them.

Stop telling people to pull ads and loose revenue and argue on the merits."

Haha, same reason I can't stand anyone on the Right.

By: mft

mft — Tue, 04 Nov 2008 18:12:00 +0000

anon@10:28

I think you are alluding to the political consequences in Germany. I hope none of us will go down that road this time round. The resemblance in the situation then and now really boils down to the underlying global imbalances which led to the great deflation in the 1930s. That time round it was US lending in the post-WWI period to Europe above all. This time it is China lending to the USA. I acknowledge that this is very simplified , but I think there may be a kernel of truth in it.

By: Anonymous

Anonymous — Tue, 04 Nov 2008 15:28:00 +0000

mft

In your crystal ball, who plays the role of 1930’s Germany?

By: mft

mft — Tue, 04 Nov 2008 14:50:00 +0000

For anyone who can remember the bull on Japan in the early 1980s, the bull on China is all too familiar – they’re the future, they have invincible economic strength, etc, etc. History tells us that in fact economic growth on the scale of China eventually comes to an end, and more often than not with a bang rather than a whimper.

Yves, I’m glad you are covering the China story more intensively now. I’ve for some time feared that perhaps the real parallel to the USA in the 1930s may turn out to be China in 2009-?.

By: Anonymous

Anonymous — Tue, 04 Nov 2008 09:55:00 +0000

The Chinese central bank recently ordered commercial banks to reduce mortgage rates and down payments for borrowers obtaining their first mortgage, while the Finance Ministry reduced the stamp tax on real estate purchases for first-time home buyers. The consensus of opinion seems to be that these measures were not enough and further measures will need to be taken. Chinese banks pay 0.7 percent on short term household deposits and this is used to fund most of there lending at 4.6 percent to house buyers and commercial firms. Despite real estate developers threats to take the banks with them reports from Moodys and UBS suggest there is little to be concerned about for most large banks.
I perceive four potential risks arising from these problems. The first being that the Chinese central back will use its reserves and liquidate US Treasury, US Agency and US Dollar holdings to invest resources to resolve the problem. I doubt that any large scale liquidation will take place though, but expect china to severely scale back buying new issuance of US debt. The second risk is that I don’t expect them to need to buy dollars to prevent the Chinese currency rising as they continue to drop interest rates. The third risk is from social unrest in china as lots of workers loose their jobs, and the authorities are forced to be fairly ruthless as a result. This will most likely result in a withdrawal of foreign capital and a downward trend in the Chinese currency, again causing a slow down in the buying of dollars. The fourth risk is that they reduce interest rates and allow inflation to run riot for a while, which will most probably be exported to the US.
Systemic risk in China would appear to be unlikely even though the real estate developer bubble is bursting. We should remember that they introduced a quota system and specific limits in 2004 to protect banks. The steps that they will take to resolve the problem even if small could however make the US economy unstable.

By: daveg

daveg — Tue, 04 Nov 2008 05:15:00 +0000

I find "Yes on Proposition 8" advertisements from Google completely offensive...

This is way I CAN't STAND the left.

While I am mildly sympathetic to the no on 8, people on the left side of the isle constantly want to silence other people views. It is like a compulsion with them.

Stop telling people to pull ads and loose revenue and argue on the merits.

By: mxq

mxq — Tue, 04 Nov 2008 04:37:00 +0000

anon 11:28

Unemployment is the big problem.

China must maintain a relatively high rate of growth just to assimilate new workers into the workforce...otherwise, it leads to huge social problems.

FT just quoted China's PM saying:

"“We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development . . . and factors damaging social stability will grow,”"

Domestic consumption is sorely lacking, so it is going to take a heroic effort for the Chinese to convert from the export model into a system capable of sustaining itself.

By: Anonymous

Anonymous — Tue, 04 Nov 2008 04:28:00 +0000

I don't see how china will crash.
maybe some sector (eg: garment or toy manufacturing, etc)

but overall, china manufacturing is not highly integrated and most of the workers are recent urbanites. It doesn't take much to stabilize their condition. (eg. go back to farming, inject littl emoney to move domestic economy, infrastructure spending, etc)

is not like the chinese are deep in mortgage funk or credit card debt.

So as long as the overal chinese economy is moving, things will adjust. (maybe stop making toys for US market and start catering domestic market, etc)

Now, if we are looking at highly integrated industry like in the US. when GM, or DOW chemical going bankrupt...

that's it. End of the world

By: Yves Smith

Yves Smith — Tue, 04 Nov 2008 04:07:00 +0000

Thanks for the catch. Will correct the post.