So far it doesn’t look like the Chinese government is committed to ending financial speculation.
Look at the mis-match between the amount of cash Beijing has pumped into its economy and the tiny steps it has taken recently to take money out of the financial system.
The river of cash flowing in consists of $585 billion in official stimulus spending. And bank lending that doubled in the first 11 months of 2009 to $1.4 trillion from $615 billion in all of 2008. And continued run away lending of $88 billion in the first week of January. If that rate were to continue, China’s banks would wind up lending 50% more in January 2010 than they did in 2009.
All this has led to an explosion in the country’s money supply. Money supply as measured by M1 was up 35% in December 2009 from December 2008.
On the tightening side there’s the tiny hike in the interest rate that the People’s Bank of China will pay banks that keep money on deposit with the central bank and the increase, effective January 18, in percentage of their assets that banks will have to keep on reserve with the People’s Bank. The increase, announced on January 12, will take the reserve requirement to 16% at big banks. That’s up just 0.5 percentage points from the old rate.
 I think the government’s tepid response to the truly horrifying January loan figures so far is telling. Every regulator at the People’s Bank must be going scared to death at the possibility that bank lending, after running at a record rate in 2009, is not only not slowing down but actually accelerating.
And all they can get the country’s leadership to accept is a 0.5 percentage point increase in reserves?
Economic growth is still the name of the game. Expect more volatility since all speculators in China know their bets are only good until the government does move decisively. (For how to invest with this uncertainty see my post https://jubakpicks.com/2010/01/07/how-to-buy-into-emerging-market-stocks-now/ ) But we haven’t seen that move yet.
China has been very successful with its plan. When all this growth started, many companies open factories in Tier 1 cities (Shanghai, Beijing, Shenzen). These cities are now too expensive. My best guess is that these will be the next design centers of the world as the factories move west for cheaper prices and cheaper labor. There are many jobs in China to transport factories from Europe, the US and even Mexico to China. The “new” transfer is now internal. Move a plant from Shanghai, Shenzen, or Beijing to the west of China. There is still much room for growth.
Also, in regards to the one child policy, minority groups in China can also have more than 1 child.
sigli, “I also hear much of the village portion of the nation doesn’t abide the 1 child law.”. – That is very much the case here in China. Also they have loosen the 1 child law, single child parents can have 2 now.
Adante, I think the common response you’ll get is the same was said by many “on the ground” in the USA. Thanks for the opposing viewpoint though, always appreciated (and dkchinabiker as well).
Georic, an aging demographic in China is different than the developed world. Developed, aging populations lack 1) new workers, and 2) retirement support.
China has millions of potential employees that are currently under producing. Also, I bet the extremely poor seniors are willing to work much later in life too (no need for young to support old).
I also hear much of the village portion of the nation doesn’t abide the 1 child law. The population is still growing in China.
YX,
That is why the Friedman article carries weight. He is basically saying the China naysayers are missing a lot of vital info in their China gloom and doom predictions.
Jim,
I am surprised to see that no one refers to a very specific feature of China. With their policy of one family, one child, their population is aging at a rapid pace. What consequences for the Chinese market?
The Chinese housing market has increased in property prices drastically over the past 18 months. This increase though is in many tier one cities as compared to tier 2 cities. An example would be Suzhou compared to Xian. Presently a square meter in Suzhou can run you anywhere around 10,000RMB+. In Xian the same square meter runs for about 4000-5000RMB.
China resently added a tax which will tax home owners who sell their homes within the first five years of purchase. This new tax is intended to stop the flipping of houses. This tax should also stabalize the housing prices or bring the prices down. Many of my local friends have now opted to buy new homes instead of picking up flipped houses due to the tax.
The first house purchased by a homeowner must have AT LEAST 20% down. A second home purchased by a homeowner must have AT LEAST 50% down. I am not sure if I see a bubble here or just alot of homeowners who will lose hard earned cash, note cash money, not leveraged money as in the US.
I would still stay away from stocks such as XIN and EJ. Much of their money is probably being made from tier 1 cities. Also, their are way to many China stocks with better fundamentals than some of the real estate stocks.
I like China growth. I am long on it, but I would stay way from CTRP. Its valuation is too high and everyone and there dog is in CTRP. terryw I like the look of HOGS. I might also dollar cost average in on that one.
Does the Chinese housing market remind anybody of anything?
Follow up to Jims Blog
China’s Property Prices Rise Most in 18 Months
http://www.bloomberg.com/apps/news?pid=20601087&sid=at_0LijtNUJc&pos=4
John Naisbitt has come out with a 2010 book, “China’s Megatrends”. For what it is worth, in a recent CNBC interview he said that he doesn’t think that China has a bubble economy. He has been on the ground in China and started an institute at a university there.
I will most likely dollar average into China, i like ctrp, hogs, and CHII etf
Similar to josola, also curious if you will be making an annual update to the Jubak picks 50 portfolio? Many have moved dramatically (up!) in the last year, so it would be helpful to know if you still see them as being reasonably valued, fo rthose of us who missed the ride. thx Jim
Caution:
NYT’s Thamos Friedman has long history of talking (or writing) down China. He does not like China.
Terry,
I read that Friedman article. I’d call that a must-read to any China doubters.
http://www.nytimes.com/2010/01/13/opinion/13friedman.html?em
Jim:
This is unrelated with this post but when will it be an update to the jubak picks performance in the 4th quarter of 2009?