I think we all know that China’s economy suffers from widespread excess capacity in manufacturing and a glut of properties. There is also too much pollution and corruption. The government has been targeting the latter in a campaign that has instilled fear among party and government officials—so much so that it has probably contributed to the property bust by cooling the investment demand for residential real estate. It has also reduced the number of Chinese high-rollers going to Macau to gamble.
Instead, China’s gamblers have turned to the stock market. The Shanghai-Shenzhen 300 index is up 63% from last year’s low. It dropped 7.7% on Monday after regulators clamped down on margin trading. It bounced back 1.2% yesterday. In addition to the margin restrictions, China’s banking regulator also released draft rules on Friday to curb the growth of entrusted loans. This type of company-to-company loan has surged in recent years along with other forms of shadow banking. The new rules forbid the use of entrusted loans for equity investment. These loans rose a record 458 billion yuan during December.
We all know that China’s economic growth rate has slowed. The unknown is how quickly it might continue to do so. The latest data show that the growth rate stabilized last year just north of 7% for real GDP. Industrial production eased to 7.9% y/y in December from 9.7% the year before. Retail sales growth was 11.9% last year, weaker than 2013’s 13.6%.
Today's Morning Briefing: Will the Other Shoe Drop? (1) The neighbor upstairs. (2) The unknown consequences of known free-falling commodity, forex, and bond markets. (3) Iranian oil minister says $25 a barrel possible. (4) What will consumers do? (5) Will oil debt defaults trigger a calamity? (6) What about Petrobras (NYSE:PBR)? (7) How big a hit to capital spending really? (8) Houthis in Yemen. (9) What killed the commodity super-cycle? (10) Real world experiment: Does devaluation work? (11) A bubble in Chinese stocks? (12) More about foreign earnings.
