China Economic News

[Boon]

What Clampdown? China Margin Traders Boost Debt to Record

"After a two-day decline spurred by regulatory efforts on Jan. 16 to curb margin lending by some of China’s biggest brokerages, the value of shares purchased with borrowed cash has rebounded to an all-time high. The outstanding balance of margin debt on the Shanghai Stock Exchange climbed to a record 771.4 billion yuan ($123 billion) yesterday, up from about 751 billion yuan on Jan. 20. "


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human greed knows no bounds...

Their GDP growth is slowing, their property market is dropping and further asset appreciation in stocks has been capped.

In the near future, their population growth has become stagnant and soon an aging population with health problems from things like smoking and pollution which were not well controlled are going to start taxing their hospitals and health budget.

But the main risk are the property and now the stock market asset bubbles which have to pop or deflate at some stage.

Shanghai Stock Exchange (SSE)
Total Market cap of SSE = roughly RMB 25,000 billion
Margin debt = RMB 771 billion = about 3% of total market cap
Weighted average PE ratio = 16.65

1) What is your basis of claiming that China is now in stock market asset bubble territory?
2) “Margin debt” is only 3% of total market cap, how much could this amount of “borrowing” swing the market?

[specuvestor]

I think will overtake Yen (2.69%) for global payments probably in Feb... and maybe surpass GBP by end 2016 at current rate. Whether IMF classify Yuan as reserve currency or not will become theoretical

Yuan Overtakes Canadian Dollar to Rank Fifth for Global Payments
2015-01-28 02:22:32.172 GMT


By Fion Li
(Bloomberg) -- China’s yuan overtook the Canadian dollar to
become the fifth most-used currency for global payments in
December, according to Society for Worldwide Financial
Telecommunications.
The proportion of transactions denominated in yuan climbed
to a record 2.17 percent in December, from 1.59 percent in
October, Swift said in a statement. The dollar and the euro
remained the two most-used currencies with respective shares of
44.6 percent and 28.3 percent, according to the Belgium-based
financial-messaging platform.
The People’s Bank of China is boosting global yuan use by
appointing more clearing banks overseas and expanding an
investment program allowing offshore holdings of the currency to
be invested in its domestic capital markets. The yuan passed the
euro in 2013 to become the second-most used currency in global
trade finance.
“It is a great testimony to the internationalisation of
the yuan and confirms its transition from an ‘emerging’ to a
‘business as usual’ payment currency,” Wim Raymaekers, head of
banking markets at Swift, said in the statement. The increase in
the number of offshore yuan hubs was an important driver of this
growth, Raymaekers said.

[BlueKelah]

Shanghai Stock Exchange (SSE)
Total Market cap of SSE = roughly RMB 25,000 billion
Margin debt = RMB 771 billion = about 3% of total market cap
Weighted average PE ratio = 16.65

1) What is your basis of claiming that China is now in stock market asset bubble territory?

2) “Margin debt” is only 3% of total market cap, how much could this amount of “borrowing” swing the market?

P/E as of 27/1 t.t.m from WSJ online,

Dow Industrial 16.42
S&P 500 19.71
Nasdaq 100 24.25
(Dow and S&P are already at all time high ranges for their index value.)

As for SSE PE 16.65 (of course not as high as pre-GFC of 5900+ points) thats about as frothy a market as DOW?

Given USA economy is still quite lousy (as per last night's company earnings disappointment) despite 3 rounds of QE since 2008/09 GFC and yet trading at levels before the GFC, wouldn't it seem like DOW and Nasdaq are in bubble territory?

As for the margin debt, not sure how significant 3% is and how much it could swing the market. This figure is either already too much or is starting to get to be a little too much, since we have seen a reaction from Beijing to step in and impose restrictions. (for some comparison, before GFC margin loans in aussie market was ~3.5% of market cap and post GFC dropped to ~1%)

Margin loan percentage is probably a helpful guide of how frothy the stock market is. Just like for property, if the trend of low LVR loans made to investors keep increasing very quickly, it would point to a bubble emerging.

Dun believe China stock and property is bubble? wait and see how much it crash later. After all, the only way to really call something a bubble is only if there is a big correction/crash in prices after a rapid rise in prices.

[CityFarmer]

Local governments are cash poor but asset rich...

China tycoon sues six local governments for late payments

BEIJING — One of China’s richest men is suing six local governments for late payments on infrastructure contracts, in a rare legal action that highlights the risks of unpaid debts cascading through the country’s economy.

Local government borrowing has risen steeply in recent years, with much new credit used to service existing debt, raising fears that local defaults could spark a full-blown financial crisis.

Mr Yan Jiehe, founder of China Pacific Construction Group (CPCG), said on Monday his company’s legal actions were the first such suits launched against local governments. “We will appeal all the way to the Supreme Court if necessary,” Mr Yan told The Financial Times in a telephone interview. “We will surely win this case. The records and evidence are clear.”

CPCG is China’s largest private sector infrastructure company in an industry traditionally dominated by state-owned enterprises. Last year, it was ranked 166th on the Forbes 500 list of the world’s largest companies, with US$60 billion (S$80.5 billion) in annual revenues. Mr Yan was listed as China’s seventh-richest person by last year’s Hurun report, with a fortune estimated at US$14.2 billion.

The lawsuits involve six municipal and county governments across the country. Last week, Mr Ma Jiantang, director of China’s statistical bureau, highlighted local government debt as one of the greatest risks to the economy, which last year grew at its slowest pace in 24 years.
...
http://www.todayonline.com/chinaindia/ch...e-payments

[BlueKelah]

Wah private sector company sue the gov? If successful means the county bankrupt? Like that also can ah..

via Galaxy Tab S with Tapatalk

[specuvestor]

Municipals and counties go belly up in US now and then. China is trying to develop that debt market so that risks can be priced better

[FA+TA]

RMB breaks into the top five as a world payments currency
Published on 28 Jan 2015

According to SWIFT data, the Chinese yuan overtook the Canadian and Australian dollar as a global payments currency in November 2014, and now takes position behind the Japanese Yen, British pound, Euro and US dollar

Brussels, 28 January 2015 – After nearly one year firmly positioned at #7, the Renminbi (“RMB”) has entered the top five of world payment currencies since November 2014, overtaking both the Canadian Dollar and the Australian Dollar by value. Just two years ago, in January 2013, the RMB was ranked at position #13 with a share of 0.63%. In December 2014, the RMB reached a record high share of 2.17% in global payments by value and now trails the Japanese Yen which has a share of 2.69%.

“The RMB breaking into the top five world payments currencies is an important milestone” says Wim Raymaekers, Head of Banking Markets at SWIFT. “It is a great testimony to the internationalisation of the RMB and confirms its transition from an “emerging” to a “business as usual” payment currency. The rise of various offshore RMB clearing centres around the world, including eight new agreements signed with the People’s Bank of China in 2014, was an important driver fuelling this growth”.

Overall, global RMB payments increased in value by 20.3% in December 2014, while the growth for payments across all currencies was 14.9%. The RMB has been showing a consistent three digit growth over the past two years with an increase in value of payments by +321%. Over the last year, RMB payments grew in value by 102% compared to an overall yearly growth for all currencies of 4.4%.

See more here

[specuvestor]

^^^posted above at #112 already


Continuing the discussion on margin trading in China... nipping the problem at the bud is good or bad thing?

"(Reuters) - China's stock regulator will inspect the stock margin trading business of 46 companies, the official Xinhua news agency said, amid concerns that the country's stock markets are becoming over-leveraged and vulnerable to a crash which could strain the financial system."

http://www.reuters.com/article/2015/01/2...TC20150129

^^How many regulators curb trading in a 6 months bull market after a 7 years bear market, which was actually self induced with RRR hiked from 7.5% to 17.5%, rather than GFC? While most Asian markets are now hovering within 10% from 07 highs due to low cost of funds, Shanghai market after the recent run up is still 40% below 2007 peak.

With so many negative news on Xi's anti-corruption drive, and even listco getting hit, is that negative for China in the longer term? At what point do we say they are actually in the process of defusing the "time-bomb" rather than the west waiting for the invisible hand to ignite the bomb?

China's policy making is not perfect with many micro-hiccups but I think the big picture is roughly right. I think their will to improve on quality growth will be evident, and a rerating catalyst.

[BlueKelah]

^^^posted above at #112 already


Continuing the discussion on margin trading in China... nipping the problem at the bud is good or bad thing?

"(Reuters) - China's stock regulator will inspect the stock margin trading business of 46 companies, the official Xinhua news agency said, amid concerns that the country's stock markets are becoming over-leveraged and vulnerable to a crash which could strain the financial system."

http://www.reuters.com/article/2015/01/2...TC20150129

^^How many regulators curb trading in a 6 months bull market after a 7 years bear market, which was actually self induced with RRR hiked from 7.5% to 17.5%, rather than GFC? While most Asian markets are now hovering within 10% from 07 highs due to low cost of funds, Shanghai market after the recent run up is still 40% below 2007 peak.

With so many negative news on Xi's anti-corruption drive, and even listco getting hit, is that negative for China in the longer term? At what point do we say they are actually in the process of defusing the "time-bomb" rather than the west waiting for the invisible hand to ignite the bomb?

China's policy making is not perfect with many micro-hiccups but I think the big picture is roughly right. I think their will to improve on quality growth will be evident, and a rerating catalyst.

depends on how much of a bubble has formed. If SSE index is still only worth 2000+ points fair value, 3000+ could be considered overvalued and restrictions could see price plummet back towards 2000+ as investors sell off since their margin loans are not going to be profitable anymore.

However if the SSE index is really worth 3000+ then this restriction should not do much to the market.

And what is the reason it went up to 5950+ pre-GFC? was it something like the dot-com bubble when nasdaq IIRC was trading at 75 PE? At 5950points, PE would be double to 30+ which is clearly overvalued.

Given the storm brewing with declines in the China property market which is tied to financial sector and stocks, and the sluggish global economy post GFC. Add on to that, the state controlled companies, which have very little to bring to the world in terms of product innovation, and very poor transparency, the SSE should not be trading at any premiums at all to their earnings. The previous trading 2000+ points seem to be pretty fair value.

Looking at the number of S-Chip listings in SGX that have turned out to be fradulent and crap businesses, one can reasonably draw a parallel that a fair number of SSE listed co. are just the same but not exposed due to "saving face" by the gov. China may have allowed a couple to fold recently, but most companies facing bankruptcy are still being bailed out.

[CityFarmer]

A counter-act from China, after US block China M&A deals, citing security issues?

China’s new tech rules upset US firms

HONG KONG — The Chinese government has adopted new regulations requiring companies that sell computer equipment to Chinese banks to turn over secret source code, submit to invasive audits and build so-called back doors into hardware and software, said a copy of the rules obtained by foreign technology companies that do billions of dollars’ worth of business in China.

The rules, laid out in a 22-page document approved at the end of last year, are the first in a series of policies expected to be unveiled in the coming months that Beijing says are intended to strengthen cybersecurity in critical Chinese industries.

As copies have spread over the past month, the regulations have heightened concern among foreign companies that the authorities are trying to force them out of one of the largest and fastest-growing markets.

In a letter sent on Wednesday to a top-level Communist Party committee on cybersecurity, led by President Xi Jinping, foreign business groups objected to the new policies and complained that they amounted to protectionism.

The groups, which include the US Chamber of Commerce, called for “urgent discussion and dialogue” about what they said was a “growing trend” toward policies that cite cybersecurity in requiring companies to use only technology products and services that are developed and controlled by Chinese companies.

The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and technology policy.
...
http://www.todayonline.com/chinaindia/ch...t-us-firms