China Focus : Imploding From Within

This comes a bit late…

China is taking a back seat these days even as CNH continues to lag the CNY as the world disapproves of 7.2% growth, the new estimate from another PBOC official.



That is because the IMF expects growth to slow to 6.3% by the end of the decade.

6.3% ? That would be riches beyond any country’s dreams except for Nigeria (12.58%), Oman (+11.5%), U.A.E. (+8.06%), Egypt (+7.1%), Ireland (+7.7%), Sri Lanka (+7.8%) and some insignificant others, if you deem the risks worth taking.

For the world’s 2nd largest economy, 6.3% is good is it not ? I think China is trying to say, Take it or Leave it.

The main gripe with China now would be the unpredictable risks. Nobody knows what the government will do next, take down another high ranking official or prominent businessman, cut or hike rates, introduce some new property rules or invade another island.

The level of unpredictability and lack of forward guidance is getting on the market’s nerves and as such, we FDI at negative territory since June, with the largest outflow since 2006 occurring in August.

China Net Monthly FDI in Billions

China Net Monthly FDI in Billions


The Shanghai Composite is flying though, rising to close in on its 2 year high, after the BoJ and FOMC last week.


I would fade this move for sure because there are these little signs of distress coming back into the system, starting with Stanchart last week raising their credit impairment losses by 86% on worsening credit in Asia, mainly China and India. Worse still, this comes on the back of just a few clients.

Citi Bank is also seeing a rise in bad loans by 47% in a sign of worsening credit quality. Minsheng saw a 35% jump, whilst the big lenders, ICBC, CCB and BoC saw about 20% increase in bad loans. Consequently, the bad-debt coverage ratio has fallen for all of them and we could be seeing worse things to come if the economy continues to lag.

There is definitely less to be cheery about these days and its time to anticipate weakness into the year end.

I foresee USDCNH holding or heading higher and bonds to stay put. Credits could possibly get ugly from here and I am not holding my breath for a large scale policy move to prop markets up.

Have a nice week ahead.


Indicative Prices


Part 2