Saturday, 1 October 2011

China's Imminent Landing


"Ladies and gentleman, please fasten your seat belts,  we expect a few bumps before commencing our approach to land"

I have blogged about this 1920s Japan style crash before. Its not unexpected by any means.

I've posted before (eg here, here and particularly here) that the China Will Save Us rhetoric is nothing but exaggerated bullshit but we may as well put it to bed.

Links to Articles

China 'faces subprime credit bubble crisis'

Here Comes The "China Hard Landing" - Full Bank Of America Presentation Slides

Prominent Deflationist Schilling Sees Deflation, A China Hard Landing And 800 On The S&P

China Manufacturing Contracts for Third Month, Survey Shows (Note. Manufacturing is shrinking)

Cash Crunch in China Picks Up Momentum; Chinese Economy "Teetering On the Edge"

How Can China Save Europe When It's Defaulting On Its Own Debt? (Nothing to see here move along Australia)

Wenzhou officials implicated in illegal loan sharking practices (A prime example of The Problem, now multiply at least 1000 times)

Is anyone making a quid out of this?

Let me refresh your memory. A few months ago I posted a link with a video of Hugh Hendry doing some research in the Province of Graft and Corruption in the Peoples Republic of Bubbleland

Well Old Hughie is laughing today.

Hugh Hendry Fund Soars 40% YTD As China Sinks

Hugh Hendry was raking it in and is now up 38.65% YTD, with a stunning +22.5% in August alone (or pretty much mirroring the collapse at Paulson & Co) and another 11% in September! As the FT reports, Hugh Hendry's Eclectica fund has "has soared in value over the past two months as global markets have plummeted and industry peers have suffered damaging losses." Hendry's opinion on China is no secret, with an indicative snippet being that he anticipates a 1920's Japan-like crash in China.

Mr Hendry - a former Odey Asset Management trader - is one of only a handful of hedge fund managers positioned against Chinese growth and therefore pitted against heavyweight investors such as Anthony Bolton.

The fund, which raised a modest $150m from a handful of London investors when it launched late last year is up 38.65 per cent so far this year, having returned 22.5 per cent in August - the hedge fund industry’s worst month since the collapse of Lehman Brothers three years ago.

The news comes as concerns of a Chinese slowdown gather speed. Wu Xiaoling, the former deputy central bank governor and vice director of the finance and economy committee of the National People’s Congress said the economy would cool next year and efforts to spur growth will be constrained by inflation, in an article published by the Chinese central bank’s official newspaper.

Mr Hendry’s fund is up a further 11 per cent for September, according to an investor. Mr Hendry declined to comment.

Anyone else?

Yes, Mr Jim Chanos

June 2010
Chanos Shorting Majors, Ford; Discusses Ways To Express Chinese Bearishness

August 2010 (people thought he was balmy a year ago when he came out with this stuff)
Chanos: "China's Treadmill To Hell" Will Break This Year And The Bubble Will Pop, Kynikos Is Shorting Chinese Developers And Construction Suppliers

Forward the clock 13 months...

September 2011
Jim Chanos Debunks The Myth Of China As The World's "White Knight"

On the Chinese government's balance sheet:
"The Chinese government's balance sheet directly does not have a lot of debt. The state-owned enterprises of the local governments and all the other ancillary borrowing vehicles have lots of debt and its growing at a very fast rate. The assumption is that the state stands behind all this debt. We see that the debt in China, implicitly backed by the Chinese government, probably has gone from about 100% of GDP to about 200% of GDP recently. Those are numbers that are staggering. Those are European kind of numbers if not worse."

On how a Chinese property bubble will play out:
"I think that will be the surprise going into this year, and into 2012 - that it is not so strong. The property market is hitting the wall right now and things are decelerating. The CEO of Komatsu said last week that he is having trouble getting paid for his excavator sales in China. Developers are being squeezed. They're turning to the black market for lending, this shadow banking system that is growing by leaps and bounds like everything in China. "Regulators over there are really trying to get their hands around the problem. In the meantime, local governments have every incentive to just keep the game going. So they will continue with these projects, continuing to borrow as the central government tries to rein it in."

Chanos on his long and short positions:
"We are short Chinese banks, the property developers, commodity companies that sell into China, anything related to property there is still a short." "We are long the Macau casinos. It's our long corruption, short property play. We feel that there's American management and American accounting. They are growing at a faster rate even than the property developers."

On the IMF lowering growth estimates for China:
"A lot of people are assuming that half of all new loans in China are going to go bad. In fact, the Chinese government even said that last year relating to the local governments. If we assume that China will grow total credit this year between 30% to 40% of GDP, and half of that debt will go bad, that is 15% to 20%.  Say the recoveries on that are 50%. That means that China, on an after write off basis, may not be growing at all. It may be having to simply write off some of this stuff in the future so its 9% growth may be zero."

So, Europe is screwed; USA is bankrupt; China is facing a Japanese style financial catastrophe...

Psssst want to buy some shares and an investment property?

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