Posted on 01/09/2010 8:26:55 AM PST by blam
China Boom, Or China Bust?
By Ian Mathias
01/08/10 Baltimore, Maryland – Is the great hope of the investment world little more than hype? We like to visit the “China boom or China bust?” debate every once in a while, and the argument today is pretty one-sided… the “busts” have it.
“Bubbles are best identified by credit excesses, not valuation excesses,” famous short seller Jim Chanos begins, “and there’s no bigger credit excess than in China.” He’s clearly made up his mind, calling China “Dubai times 1,000.” Given his history with Enron, then Tyco, then homebuilders, then banks and then overhyped infrastructure bets last year — we pay attention when this guy pounds the table.
Chinese investors will soon be permitted to trade index futures — on the margin, no less! (Heh, talk about credit excess.) The China Securities Regulatory Commission announced this morning the legalization of stock index futures, margin trading (where traders need only a 10% down payment to take a position) and short selling.
Of course, these could all be great ways to tame Chinese market volatility and allow prudent investors to hedge their bets. But as we’ve learned good and hard here in the U.S., nothing takes a bubble to the next level better than leverage and derivatives. The measures are expected to go into effect by March.
China’s central bank raised its interest rates yesterday for the first time in five months… another sign that credit is getting out of hand there.
[snip]
Hot money is on Beijing's hit list. Unexplained inflows of foreign currency roared back during 2009, to maybe $200bn.
By Wei Gu, Reuters Breaking views
Published: 11:14AM GMT 08 Jan 2010
The Telegraph (UK)
While policymakers gripe - a senior official railed against speculative money earlier this week - this is the result of their decision to keep China's currency cheap.
If Beijing won't revalue the yuan, the best it can do is scramble to close some of the loopholes through which hot money flows.
Speculative capital - defined as foreign money not accounted for in official trade and investment data - generally chases the idea that the yuan will be revalued. Beijing doesn't like it for two reasons. First, because it is helping fuel the asset price boom which saw stocks rise 78pc in 2009 and property prices increase 20pc.
Second, hot money is putting yet more pressure on the yuan to appreciate. To counteract that, the central bank has to print more money - and, to stop that turning into inflation, it then has to issue bonds to soak up the money.
[snip]
The Chinese aren’t going to let anyone find out the real numbers. If they are booming, we are never going to know to what extent.
The surest way for China to tank its economy is to stay tied to the dollar. Not because of the reasons you and the article mention but because Obama is quickly making the dollar worthless. If they are tied to the dollar the yuan will be worthless also.
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