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interestrateripoff

China's Recovery In Question As Stocks Plunge

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http://business.timesonline.co.uk/tol/busi...icle6815999.ece

A sharp drop in Shanghai stocks and weak industrial data reverberated throughout Asian exchanges today and raised fears that Chinas much-vaunted economic recovery may be built on sand.

Shanghai stocks plunged by 6.7 per cent with a growing overhang of new share issues and evidence of corporate hardship being widely blamed for the collapse of confidence.

Chinese industrial profits in the first seven months of the year were 17.3 per cent lower than over the same period in 2008, according to official data.

China Southern Airlines, the country largest carrier, further dented sentiment with the announcement of a 97 per cent collapse in first half profits.

The splurge of red across trading screens triggered selling in Hong Kong and Seoul it even managed to cut short a post-election “honeymoon rally in Tokyo.

The nosedive took the main Shanghai index below its 125-day moving average, putting it officially in bear market territory and raising fears that September will see an even deeper sell-off as government stimulus measures begin to wear off.

Dealers in Hong Kong said that the turmoil on Shanghai would dramatically increase the scrutiny of a series of data releases expected in coming days. The August manufacturing index and bank lending numbers are expected to be especially sensitive: the government-backed, six-month deluge of credit was supposedly leading China and the region out of its slump, although senior economists have warned that the cracks in that theory are now clearly visible.

Chinese banks have extended credit at astronomical levels since the start of the year a frenzied response to a government demand that they open the lending taps to help to break the credit crunch. According to Fitch Ratings, the banks lent about $757 billion in the first four months of 2009. Should it now turn out that, with the taps now turned off, much of that money went to speculate on property or to pay company wages, the damage could be significant.

If the bank lending numbers turn out to have fallen too far, Ben Simpfendorfer, RBS chief China economist Ben Simpfendorfer, said, the Middle Kingdom’s economic recovery will start to look distinctly ordinary. China could now be moving into a phase where investors are pounded with an onslaught of confidence-shaking bad news, he said.

The huge Monday drop concluded a torrid month of trading in Shanghai: shares lost a total of 21.8 per cent in August, making it the second worst month for Chinese equities in 15 years.

Now the fact that profits have fallen could be due to tax evasion although I doubt that's caused such a huge drop.

It appears China has been papering over the cracks just like everyone else, but thank god the global recovery is here.

Viva recovery.

It's hard to believe that the stimulus boost has created a recovery build on sand.

Edited by interestrateripoff

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I must say I thought the recovereh had more wind in its sails. Now I'm convinced this is just a blip and we're well on the path back to full prosperity. Hurrah!

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Good thing my chinese investments are still showing solid gains. At least in sterling terms.

I expect volatility in China, but an upwards trend. In contrast to the UK.

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http://business.timesonline.co.uk/tol/busi...icle6815999.ece

Now the fact that profits have fallen could be due to tax evasion although I doubt that's caused such a huge drop.

It appears China has been papering over the cracks just like everyone else, but thank god the global recovery is here.

Viva recovery.

It's hard to believe that the stimulus boost has created a recovery build on sand.

no, they have turned off the taps of credit in order to dampen the property price rises and the stock bubble.

rather than let it get out of control they are deliberately trying to cool things down. that way you can have sustainable long term growth rather than short term boom and bust.

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no, they have turned off the taps of credit in order to dampen the property price rises and the stock bubble.

rather than let it get out of control they are deliberately trying to cool things down. that way you can have sustainable long term growth rather than short term boom and bust.

Umm is that not exactly what the Fed and the BOE were trying to do in 2007.

Edited by up2nogood

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Umm is that not what the Fed and the BOE were trying to do in 2007 which kicked off thr whole credit crunch.

nope they said keep lending, everything is fine, nothing to see here. property tripled in 10 years, no problem, keep it going.

right now with the economy broken, it needs time to heal, cut the dead wood. but the boe and fed are trying to force us to keep borrowing.

Edited by mfp123

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no, they have turned off the taps of credit in order to dampen the property price rises and the stock bubble.

rather than let it get out of control they are deliberately trying to cool things down. that way you can have sustainable long term growth rather than short term boom and bust.

So 8% growth is sustainable then?

Don't forget China needs huge growth to keep it's population in check.

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It's those pesky people again. The puppet masters are pulling all the right strings, but the people save it or give themselves massive pay rises. All these stimulus plans might look good on paper but they never consider the human element of self preservation and greed.

There will be no 'real' growth until the masses feel that their day to day outlook is better. This can only come from the world of real things, not from fictional money that they want us to pay interest on.

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nope they said keep lending, everything is fine, nothing to see here. property tripled in 10 years, no problem, keep it going.

right now with the economy broken, it needs time to heal, cut the dead wood. but the boe and fed are trying to force us to keep borrowing.

Well the record shows that the Federal reserve in the US started raising interest rates in 2006-2007 just prior to the start of the crash.

http://www.federalreserve.gov/releases/h15...al/H15_FF_O.txt

It was this monetary tightening plus the spike in oil prices in 2008 that probably kicked the legs out from under the credit boom

.

If you think the same might not happen in China then you are being a bit naive particularly as there has probably been as much malinvestment in factories there as there has been in houses in the West. Many of these were funded by loans from the Chinese banking system which will probably never be repaid. Factor in the fact that ecomic crisis are gripping China's major export markets and you have a recipe for trouble.

http://mpettis.com/2009/08/it%E2%80%99s-no...ssive-stimulus/

BTW if you are invested in the Shanghai Index you will have lost 9.5% since last Friday which is quite a haircut. In fact it is down 25% from its recent peak.

Happy investing.

Edited by up2nogood

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