Sharing old news on China, pre/present/post shadow banking

[evolance]

http://m.washingtonpost.com/blogs/wonkbl...omic-woes/

Found it simple for layman like me

[freedom]

is it China addicted to growth or the world is addicted to China's growth?

Anything more than 5% GDP growth is huge in any sense, but not in China?

[Clement]

Hmmm, freedom you bring up a good point. I think it's both. China has invested heavily in capacity and infrastructure and should growth slow, some of these projects might not pay off. Similarly, the rest of the world has invested heavily in mining and natural resources assuming a high rate of demand growth and are now facing write downs. 7.5% growth in most places is mind boggling, do you think the market's expectations on Chinese growth is excessive? I think the new leadership is showing a willingness to sacrifice a little growth for long term stability and therefore we should expect lower growth from now on.

[freedom]

China is building capacity and infrastructure(roads/rail roads/airports) for its future internal growth as well as for external growth(factories/production facilities). At worst case, China will not be hit as hard as the rest of the world, as at least there is domestic consumption to turn to. Don't worry about high investment ratio in GDP, eventually, all investment will turn into consumption one way or another as long as it is not waste. (Don't dig a hole then bury it, that's pure waste, so called wealth transfer). Without a doubt, the world needs China's export. So far, there has not been a country to displace China yet. Not Indonesia/Vietnam/Philippines/Myanmar/India/Bangladeshi etc, at least not yet.

It's a great opportunity for China to remodel its economy, to improve the efficiency of capital investment and to improve domestic consumption.

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Shadow banking is not that serious a problem. Subprime crisis, if you really think hard, is a problem of shadow banking running out of control. The credit that supported subprime is not necessarily from the commercial banking system, but from all kinds of investors in money market funds, private equity funds, pension funds, and all other financial products. The commercial banks and other mortgage originators originated the mortgages, sold it to investment banks, which then packaged it to various financial products, sold to investors I mentioned before. The amount left in the commercial banks was not big, otherwise, we should say banks such as JP Morgan/Wells Fargo/Bank of America to fall, other than Bear Stearn, Lehman Brothers, Merrill Lynch, etc, instead, we only see small commercial banks took a hit as they did not sell their mortgages to investment banks but retained them. The other huge loss are taken by pension funds, money market funds and other financial product investors.

Lucky for China, they have a precedence fresh in their minds about controlling shadow banking system. The shadow banking system in China is controllable. But the rich could get a haircut.

[Clement]

Let's not repeat the supply side economics and wealth transfer discussion again here. I am thinking more about how to invest in their shift to domestic consumption. I have always stayed away from Chinese equities and have gained only indirect exposure to Chinese consumption through companies listed abroad which derive significant amounts of revenue from china. I am worried that the government would further tilt the playing field in the favor of their own firms.