Friday, July 3, 2015

China's financial problems dwarf Greece's

A few days ago I mentioned the meltdown in China's leading stock market as one factor that might precipitate a global economic meltdown.  It's getting worse by the day.  Bloomberg reported yesterday:

"What happens in China will turn out to be far more consequential than any sting that Greece may deliver over the coming weeks or months," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "As China's equity markets lose their roar, the risk is that demand more broadly on the Mainland could take a hit. That would knock out an essential engine of world demand over the past decade."

There's more at the link.

The figure is so immense that one simply can't wrap one's head around it.  $2.36 trillion in value lost???  That's almost the size of the US government's annual budget . . . and it's been wiped out in a matter of two or three weeks!

Zero Hedge notes:

What is most troubling is that ... this clear bubble bursting is not done with the government's blessings - as should have been the case since a crash was clear to anyone - but despite the government constant attempts to intervene and prop up the bubble.

It all started with appeals to buy and hold because, well, it's patriotic:  "Fan Shaoxuan, a senior executive at Weibo TV who has more than 12,000 followers on Sina Weibo, posted a photograph showing the slogans: "Hold stocks with confidence. Win glory for the country even if you lose the last penny."

Then overnight Bloomberg reported that in one sign of utter desperation, China is telling underwater investors to literally "bet the house on stocks" because under new rules announced Wednesday real estate is now an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. Clearly this also means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker.

. . .

And if indeed the Chinese government is now helpless to halt the all out rout which, as we have warned countless times over the past 6 months, will leave millions of Chinese "traders" with nothing and thus desperate and angry, then the next step is also very clear and was laid out last week in a note by Nomura which warned that "A Market Crash 'Poses Great Danger To Social Stability'."

Again, more at the link, and in this article as well.

If Greece goes under, the Eurozone is headed for ultimate disintegration.  If China's economy hits a brick wall, the single largest economic engine in the world breaks down.  If both happen together . . .

Batten down the hatches and prepare for rough weather, folks.  The next few days are going to be extremely interesting.



kurt9 said...

I would relax about this. China's stock market is still way overvalued compared even to the beginning of this year. It's only dropped half of what it needs to to get back in line.

Stu Garfath. Sydney Australia. said...

Here in New South Wales, the domestic property market has been aggressively invested in by Chinese investors, with property prices pushed up to an all-time high, the median price for a house and land in Sydney is now at AUD1000,000!, and still rising as the avalanche of Chinese buyers shows no sign of stopping.
We have a regulatory body called the Foreign Investment Review Board, whose supposedly keeps tabs on foreign property buyers, as there are some very strong rules and regulations that apply to foreign buyers, but unfortunately, the previous State Labor Government did absolutely nothing to enforce these regulations, hence the unchecked acquisition by the Chinese.
The above scenario is also happening with Australian Agriculture and infrastructure assets, the Chinese Government has been buying up big, with absolutely NO Government oversight applied.
It's a real shitfight, with no signs of letting up, yet Australian Government agencies appear to have no intention of regulating the markets, to the detriment of domestic buyers, who are being priced out of the property market.