Chaos in the China stock market!
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Author Topic: Chaos in the China stock market!  (Read 5526 times)
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CrabCake
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« on: July 06, 2015, 08:25:01 PM »

Your thoughts?
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Simfan34
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« Reply #1 on: July 06, 2015, 09:27:10 PM »


If my professor from last semester is to be believed (and I tend to think he is- if a bit wishfully), this is only the start of a very, very long road down. Beyond the empty real estate people tend to focus on, China has generated an immense amount of excess industrial capacity, which has avoided collapse so far only because the government (both in Beijing and at the local level) has been propping them up, mostly by encouraging banks to roll over their loans in addition to direct subsidy (which, among other things, has left local governments deeply indebted).

Between that and the real estate issue, which has been largely driven by local governments seeking to generate revenue from industrial and commercial land leases- borrowing heavily to pay for the infrastructure needed to attract buyers- the result is that commercial banks and local governments alike have massive debt problems. Now the number of non-performing loans is rising, over 10% in the last quarter according to official numbers. All this while Xi's high-level "anti-corruption" campaign is increasingly paralysing the administrative organs of the state: perhaps the worst possible time for that to occur. Officials don't know what is going to happen to their superiors, or what now constitutes inappropriate activity, and are choosing to play it safe- by doing nothing. None of this means that there's going to be some horrific crash, but it's no surprise the markets are jittery.

The sole upside of this is that it may ease that subsidy-induced glut of Chinese industrial capacity, which has wreaked havoc on manufacturing sectors the world over. A steel industry that produces 60% of global output, and is now seeking to offload its excess capacity overseas, has more or less cannibalised that of every other country. Overcapacity in their shipbuilding industry has caused prices to more than halve (spotty construction, however, means many will have to be replaced in a few years- thankfully). Tires, cement, paper- it's clear that Chinese overcapacity is preventing manufacturing growth essentially anywhere else except at the very low end, to say nothing of the kind of heavy industry you really need for development. A correction that wipes out this overcapacity- if still decidedly a net negative for the global economy- will be one with a very significant silver lining.
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CrabCake
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« Reply #2 on: July 08, 2015, 04:53:26 AM »

Interesting Simfan. I wonder how many white elephants are flying home to roost. Ive heard that currently most of the power plants built in the frenzy days are running at ridiculously low capacity or even mothballed; and about entire ghost cities - but I hadn't fathomed the scale of it. I wonder what the political consequences of a Chinese recession (!) may be.

This will probably be good for the European solar industry as well, which was almost wiped out entirely by Chinese dumping.
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Paleobrazilian
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« Reply #3 on: July 08, 2015, 06:59:13 AM »

Just wait until China's shadow banking bubble bursts. There will be blood.
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Simfan34
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« Reply #4 on: July 08, 2015, 07:53:19 AM »

The thing is, though, that the market has risen 150% over the last year, in a time of slowing growth. Hence even after this plunge, the market is still up 80% from a year ago! It remains to be seen whether this is purely a market correction driven by overleveraged retail investors or part of a broader systemic correction- a panic or a proper crash.

It's not as if there aren't any reasons to be worried about the Chinese economy- as has been said already in this thread there are many reasons to be worried.
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JohnRM
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« Reply #5 on: July 08, 2015, 08:14:16 AM »

I am watching the developments closely. The Chinese government has tons of money to pump into their economy. Thus far, what they have done hasn't even amounted to a speed-bump in the ride down the slope, but that doesn't mean it won't level off rather quickly. Personally, for many of the reasons that Governor Simfan34 indicated, I see this development in a generally positive light.
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Simfan34
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« Reply #6 on: July 08, 2015, 08:20:35 AM »

In related news, already heavily-indebted local governments have taken to buying up empty real estate:

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In the infamous Inner Mongolian ghost city of Ordos City, authorities purchased 3,660 units in May alone.

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Mehmentum
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« Reply #7 on: July 09, 2015, 07:10:51 AM »

The market surged yesterday after the government instigated more extreme measures.  Something tells me this isn't sustainable.
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Citizen (The) Doctor
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« Reply #8 on: August 12, 2015, 02:28:44 PM »

Second day of devaluation of the Yuan, and it seems likely to continue.
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politicus
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« Reply #9 on: August 12, 2015, 07:04:52 PM »

Just wait until China's shadow banking bubble bursts. There will be blood.

Could you elaborate a bit?
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Simfan34
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« Reply #10 on: August 12, 2015, 07:17:01 PM »
« Edited: August 12, 2015, 07:18:54 PM by Simfan34 »

Just wait until China's shadow banking bubble bursts. There will be blood.

Could you elaborate a bit?

I more or less touched upon this in my first post.

Such dramatic devaluation bodes ill for the health of the economy, or perhaps just as importantly, the Party's assessment thereof. If they are reversing years of carefully planned cooperation with their trade partners on the yuan's appreciation, it suggests they take a bleak view of things and are desperately trying to boost exports.
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Yelnoc
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« Reply #11 on: August 12, 2015, 08:06:23 PM »

Any thoughts on the impact of this morning's explosions in the port of Tianjin? Right now the death toll is at 17 with hundreds injured, but that is expected to rise sharply. Early reports suggest everyone within a kilometer radius of the explosion is dead, which would put the likely death toll in the thousands. As of now, the government is imposing a blackout on news coverage to try and keep panic to a minimum.

Human cost aside, I imagine the economic impact, both in terms of damaged goods and ships, ships unable to leave the port, and even more ships bound for Tianjin which have been forced to find an alternate harbor, can't be good for China's stock market.
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Simfan34
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« Reply #12 on: August 12, 2015, 08:34:33 PM »
« Edited: August 12, 2015, 08:48:52 PM by Simfan34 »

I haven't read anything suggesting something so calamitous. The explosion seems to have been in an industrial area, although I did see something about a building 10 km away collapsing. If it is that bad then the main port for Beijing and the whole Binhai Bay region will have been taken out of order, which would be disastrous.

e: Now I've seen a couple, and seen the location... death toll is up to 66 and I'm no longer as skeptical as I just was about what you said.

If people on Reddit are to be believed, there are heavy fatalities on ships and the hit to affected insurers is a heavy one.
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Southern Senator North Carolina Yankee
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« Reply #13 on: August 14, 2015, 07:57:10 PM »

It sounds to me from the details included, that casaulties are going to be far more massive than what has been listed. "Worker's dormitories and 'every window' on neighboring apartment complex containing several towers blown out", would indicate several hundred unless of course the buildings were largely empty.
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Simfan34
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« Reply #14 on: August 24, 2015, 07:52:10 AM »
« Edited: August 24, 2015, 07:54:00 AM by Simfan34 »

Down 8.5%. Government frantically trying to pump money in the market. Still up 45% for the past 12 months.
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Frodo
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« Reply #15 on: August 24, 2015, 09:59:18 PM »
« Edited: August 24, 2015, 10:01:01 PM by Frodo »

Worth a read -helps put everything in context:

The Chinese model is nearing its end

August 21, 2015 2:50 pm
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jfern
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« Reply #16 on: August 25, 2015, 03:05:26 AM »

Down another 7.63% today
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muon2
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« Reply #17 on: August 25, 2015, 07:09:10 AM »


But the Chinese government intervention seems to have helped other markets recover today.
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The Free North
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« Reply #18 on: August 25, 2015, 10:52:16 AM »

Worth a read -helps put everything in context:

The Chinese model is nearing its end

August 21, 2015 2:50 pm
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Good article. I always thought it would be fascinating to see if the Chinese style of development could match what other East Asian nations (Singapore/Taiwan/etc) did with their 'State-led' development model.

China obviously had a much tougher start because of their history of totalitarian government and a communist society that was very much at odds with economic liberalism. With the other Asian Tigers, they had little to change since in 1950 most of them were backwater, rural states with little political history that would impede their development.

Perhaps we may be able to draw some parallels to the Soviet Union in the 1970s when growth there started to slow as the extrinsic development the USSR had relied on for decades began to show its lack of sustainability. China really needs to set up a system where the rule of law is firmly established, there is clarity and openness between government and business, and economic liberties are extended to all people. Perhaps the state needs to take a step back here, they did do a good job of transitioning away from the horrors of Marxism but I think its clear that the Chinese model can only go so far.

I would even hasten to argue that at this point China has enough intellectual capital to begin on a full repudiation of the communist system and adopt a Western style liberal democracy. Obviously the political maneuvering would be extremely difficult, but it remains a possibility. Ultimately as wages continue to rise, as the environmental conditions continue to deteriorate and as the service and consumer sectors grow, China is drifting further away, at least in the more developed regions, than the simple mass-producing, cheap labor, export economy it was based on for decades. Again, all things considered, they did a tremendous job of getting the country this far and took on the challenges posed by essentially kicking millions of government workers out of their SOEs but I do not know how much longer China can continue to masquerade as a communist state, retain an authoritarian government, and remain weak on the rule of law and make a healthy transition to a post-industrial economy in the coming decades. 
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Blue3
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« Reply #19 on: August 25, 2015, 11:38:40 AM »
« Edited: August 25, 2015, 11:40:21 AM by Blue3 »

I remember the CCP being terrified of the PRC becoming a democracy for three reasons:

1. Afraid that a democratic China would allow nationalism to run amok and start a war with Japan (for WW2 revenge), Taiwan (re-establish unity and show strength), or the United States (show the world that China is back to its former glory).

2. Afraid that a democratic China would be less likely to raise more people out of poverty without a centralized planning approach, since the CCP's anti-poverty program over the last few decades is the most successful in human history. Or that attempts to do so would just lead to capitalistic short-sightedness and further environmental devastation.

3. Afraid that a democratic China would eventually lead to a civil war or USSR-style disintegration, with the western provinces declaring independence.

(and that all three would devastate the world economy too)
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The Free North
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« Reply #20 on: August 25, 2015, 11:42:05 AM »

I remember the CCP being terrified of the PRC becoming a democracy for three reasons:

1. Afraid that a democratic China would allow nationalism to run amok and start a war with Japan (for WW2 revenge), Taiwan (re-establish unity and show strength), or the United States (show the world that China is back to its former glory).

2. Afraid that a democratic China would be less likely to raise more people out of poverty without a centralized planning approach, since the CCP's anti-poverty program over the last few decades is the most successful in human history. Or that attempts to do so would just lead to capitalistic short-sightedness and further environmental devastation.

3. Afraid that a democratic China would eventually lead to a civil war or USSR-style disintegration, with the western provinces declaring independence.

(and that all three would devastate the world economy too)

Even simpler: Democracy likely means the CCP is ousted from power.
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Blair
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« Reply #21 on: August 25, 2015, 12:00:57 PM »

With my extremely shaky economic knowledge (insert lefty joke) I remember learning that China's economic growth wasn't as many lazily assumed a certainty. I mean there's been a perception that China was only going to go up when in fact wages have been rising at an extremely high rate which damaged the traditionally low wage industries.

Likewise there demand on foreign oil and coal is a massive hurdle, the expansion in the east China Sea isn't just nationalism-it's them wanting to defend their energy pathways 
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politicus
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« Reply #22 on: August 25, 2015, 02:03:57 PM »

I remember the CCP being terrified of the PRC becoming a democracy for three reasons:

1. Afraid that a democratic China would allow nationalism to run amok and start a war with Japan (for WW2 revenge), Taiwan (re-establish unity and show strength), or the United States (show the world that China is back to its former glory).

2. Afraid that a democratic China would be less likely to raise more people out of poverty without a centralized planning approach, since the CCP's anti-poverty program over the last few decades is the most successful in human history. Or that attempts to do so would just lead to capitalistic short-sightedness and further environmental devastation.

3. Afraid that a democratic China would eventually lead to a civil war or USSR-style disintegration, with the western provinces declaring independence.

(and that all three would devastate the world economy too)

Even simpler: Democracy likely means the CCP is ousted from power.

Democracy will likely mean the CCP will break up in three factions, that will become parties.
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Blue3
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« Reply #23 on: August 25, 2015, 02:50:43 PM »

Yeah, China is facing a demographic time bomb. The CCP admits they'll probably slow to 2% growth by 2030. Their plan is to use their economic engine to raise as many people out of poverty, and put China in a strong and stable a place as possible (domestically and internationally), before that time. But they're worried it could come sooner than planned.
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Kevin
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« Reply #24 on: August 25, 2015, 08:54:53 PM »


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