China is of particular interest to me. In part it’s because of the pattern I observed in equity markets . . . Chinese stock markets dipped prior to the US/Western market meltdowns in 2008 and then bottomed and began to recover before developed markets. When economic duress was greatest, the Chinese economy was held out as a source of strength that would almost single-handedly stabilize the world.
Accordingly, I am reluctant to be dismissive of data indicating industrial output has slowed in China and of the fact that Chinese markets have declined this year.
The NY Times wrote about how Chinese banking regulators recently issued statements to allay concerns about the health of the Chinese banking system. The NY Times describes the impetus for such a statement, writing:
“Loans have been climbing steeply as a share of the economy for four years, prompting foreign bank analysts to question the sustainability of an economic model based on ever more debt invested in a wide range of industries that are already facing overcapacity.”
“Commercial banks have also shifted toward a heavy emphasis on one-year loans to corporate borrowers instead of multiyear loans, even for construction projects that may take years to complete. The one-year loans make bank loan portfolios appear less risky on paper, but their use in financing multiyear projects means that it might be almost impossible to actually collect the money after one year, because that would prevent the project from being completed.”
Part of my job is to be prepared for where things could go wrong in the world. China remains high on my list.
source: NY Times: China’s Banking Leaders Seek to Calm Concerns Over Loan Quality