# How healthy is the Chinese economy - really?



## wayneL (20 February 2007)

http://www.marketwatch.com/News/Sto...B458055B6}&siteid=netscape&dist=netscapeclick

Uh-Oh!



> *Bad loans may cost China $220 bln: Fitch
> *
> By Ilya Garger, MarketWatch
> Last Update: 7:30 AM ET May 30, 2006
> ...


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## Knobby22 (20 February 2007)

Interesting, Wayne.

I think it could be caused by political influence. Important people in thte ruling party being able to get loans without adequate due diligence.
We saw what happened to the Japanese banks and what that did the their economy. 

Obviously failure of China to grow is a far bigger bear scenario than many of the others regularly talked about. However it took years for the Japanese problem to materialise and the Chinese may also act on it if it becomes too great a problem. I can't see it causing any problems in the medium term.


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## rico01 (20 February 2007)

There are many people neervous about china, suddenly I,m feeling a little cautious about AGF now!!!
  And so from the free  site we have this              

www.stocktiming.com 

Let me say this very simply ...

China's Stock Market will Crash sometime this year.

I spent two days posting updates on China's bubble last week (See links: China1 and China2) .  The Shanghai Index
is now in a "parabolic rise" moving much higher and faster than our Internet bubble ... the chart is at the bottom of this page.

On Friday, a friend forwarded the link and information to this important story about China's stock market.
Link: http://www.latimes.com/business/la-fi-chinastocks16feb16,0,4095761,print.story?coll=la-home-business 

After listening to CNBC applaud the historic rise in the Shanghai index, I was elated to see the responsible reporting that the 
Los Angeles Times did on the subject.  Staff writer Don Lee wrote the article in with the help of Cao Jun in the Shanghai Bureau.  
My congrats to them for writing a timely and informative piece that the rest of the media is avoiding.

If you recall, I mentioned last week, that shoe shine boys were buying stocks, while other Chinese investors were mortgaging
their homes and borrowing on their credit cards to invest in the Chinese stock market.   The Los Angeles Times and Don Lee
did a much better job than I did of getting to the heart of the situation in China ... as you will see on their link and article below.

You may be horrified when you read about the mania levels the Chinese stock market has reached.  The reality is, that as 
a country, we were doing things just as crazy before the stock market crash in 1929. 

Please ... take the 3 minutes necessary to read the Los Angeles Times article below, and my posting at the bottom of this page 
showing the 20.97% that the Shanghai 180 Index has gone up in the last 9 days. (The Shanghai 180 Index has gone up over 
10% per week for the last 7 weeks, and has been in a parabolic rise since last year.)

StockTiming Comments ... Surprisingly, the Shanghai stock market is probably going to run up higher before it falls. 

Why?  Because China's lunar new year began on February 18th.  According to the Chinese zodiac calendar, the upcoming year is 
the Year of the Golden Pig.  The year of the Pig is traditionally thought to bring good luck and prosperity.  Some believe that
the 60 year convergence of the "Golden Pig year" means double luck and double prosperity. This has many Chinese investors
feeling that it is Chinese destiny for their market to soar even higher in its already parabolic rise. 

I read a Chinese report this morning that said, "It is now estimated that 90% of Chinese loans are going into the equities markets".  
In an effort to combat this, the Chinese government just raised interest rates on the eve of their lunar New Year.  

Somewhere, between now and the next 8 months, three Chinese stock market challenges will likely unfold:

1. The amount of inflowing money into their stock market will have a dramatic decline.  There will be no more inflows from those
who have already mortgaged their homes, or maxed out their credit cards to raise cash for stock purchases.  Where will these
people get more money after they are tapped out?   For those who haven't yet done so, the government will step in with restrictions
and interest rate policies that will help stem this risky practice.  

2. Another lurking problem, is the inability of China's present system to handle a sudden spike in volume that would occur in 
the event of investors rushing to sell.  This creates a high probability that the government will have to "shut the Shanghai Index
down" when such an event occurs.  The government is already worried about this, and about the possible social instability
that this could cause in their country.  Think of it this way ... many Chinese citizens have all their life savings and assets
in the stock market.  For many Chinese investors, the stock market "is their bank".  If they need cash, or are become afraid 
of the market dropping, there will "be a run on the bank" ... just like we experienced in the 20's.  There won't be the necessary 
volume of buyers to soak up the volume being sold by sellers unless the government buys the stocks being sold.  

3. In the L.A. Times article below, you will read about the Jinbao borrower that took out a $40,000 mortgage to invest in the
market. (This is now a common occurrence in China.)  When warned that he might suffer losses, he said, "I have targeted 
one good stock and I just need the money for one month".  Think about it ... the unrealistic expectations in this mania are at 
an extreme.  The investor's "expectation" is that he will make "a 100% return in 1 month".  What happens if it doesn't go up, 
and the stock falls while he is required to meet the payments on loan with a 36% annual interest rate?

It will be quite on the Shanghai index this week, because financial markets are closed Monday in mainland China, Hong Kong, Taiwan, 
South Korea and Malaysia for the Lunar New Year holiday.  Markets in Hong Kong and Malaysia will reopen Wednesday, while markets 
on the Chinese mainland and Taiwan will remain closed all week and reopen next Monday, Feb. 26.

Next week, many Chinese investors will plow more money in the Shanghai because it is the beginning of the new year of 
double luck and prosperity.  Unless their government does something to quell the enthusiasm, they are likely to see another
record week with a 10% to 15% rise.  This is a game of musical chairs, and when the music stops, only a few will find
chairs to sit on. 

In a rebuttal, I received a call from a subscriber.  He said that he has visited China and that the Chinese government will
not allow the Shanghai index to fall.  

How are they going to do that ... when they haven't been able to stop the Shanghai from rising 11.5% per week ... every week,
for the last six and a half weeks?  If they put in restrictions that stops this 10%+ rise per week, what will happen when
those who borrowed at 36% interest rates can't make the payments the following month? (See the L.A. Times article below.)

How are they going to do that, when they have already put restrictions in where no one can take out a mortgage or
loan and put the money in the stock market ... and yet by their own report, 90% of the loans are still going into the
stock market?
___________________________________________________________________________________________

The L.A. Times article ...

Page Two ...

___________________________________________________________________________________________

We are now going to shift to our charts of China's stock market.

On Monday, we reported that the Shanghai 180 Index had an 11.5% average weekly rise over a six and a half week period.

It had a pull back on February 5th., landed exactly on a support line, and moved back up from that point.

Here is how it moved:

The low on February 5th. was 5056.  This morning, the Shanghai 180 was up to 6116.

If you do the math, it went up 1060 points or 20.97% in 9 days.  It is now at a new high on its parabolic
up move as seen in the chart below. When do you remember any of our indexes going up 20.97% in a year,
much less doing it in 9 days?  How long do you think this bubble will last?


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## Knobby22 (20 February 2007)

rico

The writer is drawing a long bow comparing the immature Chinese stock market with the USA market before the Great Depression. If the Chinese stock market crashed and hurt some of the emerging middle class of China, how can that affect the growth of China and link it to to world economy? 

The Great Depression also was not caused only by the stockmarket crashing but also by the government reactions around the world.

The Chinese government would want a correction to stop the excessive speculation.

I notice the writer made a lot of money on a previous fall of the stockmarket. He is a Uberbear looking keenly for his next killing. (bit like Wayne) but has let his keeness colour his judgement.


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## Dr Doom (20 February 2007)

I guess this is the problem with the argument that the world is less reliant on the US because China will step up to the plate and takeover the reigns as the economic powerhouse for the world. This may be true sometime in the future, but as per the thread title, what is driving the current boom in China. Probably the same thing that is driving the rest of the worlds economies ie excess liquidity. The problem is China's rulers are accountable to nobody, and are probably fully aware of the market mania taking place in the countries stockmarkets but are basically unable to stop it, let alone be prepared for the inevitable consequences. 

The Fitch report is some 9 months out of date, and asuming there were statistical errors as I would assume nobody really knows what the total debt for China is, todays figure would be proportionally worse.

If this does eventuate ie a Chinese market meltdown of gigantic proportions then it doesn't look good for the Australian economy. All a matter of timing..... still in cash, waiting on the sidelines.....


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## Noskcid (20 February 2007)

Knobby22 said:
			
		

> Interesting, Wayne.
> 
> I think it could be caused by political influence. Important people in thte ruling party being able to get loans without adequate due diligence.
> We saw what happened to the Japanese banks and what that did the their economy.
> ...




Also might want to take into account that the government subsidises alot of money (in the billion range) annually to pay for the use for petrol/fuel, to the supply companies.

Also in china theres a lot of ##### within the government, I dont know if I should use that word here but you know what I mean.


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## CanOz (20 February 2007)

Its a worry for sure. Does anyone where i can get a delayed chart of the Shanghai index, with volume? 

Cheers,


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## radarz (21 February 2007)

CanOz said:
			
		

> Its a worry for sure. Does anyone where i can get a delayed chart of the Shanghai index, with volume?
> 
> Cheers,




http://markets.usatoday.com/custom/usatoday-com/html-markets.asp

don't know about volume...  but usatoday has most markets...


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## Freeballinginawetsuit (21 February 2007)

CanOz said:
			
		

> Its a worry for sure. Does anyone where i can get a delayed chart of the Shanghai index, with volume?
> 
> Cheers,





www.marketwatch.com >markets>global markets>asia


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## rico01 (28 February 2007)

rico01 said:
			
		

> There are many people neervous about china, suddenly I,m feeling a little cautious about AGF now!!!
> And so from the free  site we have this
> 
> www.stocktiming.com
> ...





I guess we,ll all find out today how a small correction in china will affect us
 I,m sure glad I didn,t buy the the AGF  [ AMP china growth fund],cos I think it might stop growing for a while  
  I,m sure glad I got into WBC puts yesterday at 20 cents though


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