Times Online: China surges on effects of stimulus package

[touchring]

China surges on effects of stimulus package

Jane Macartney in Beijing

China’s main stock index extended recent gains, closing up 3.23 per cent today at a five-month high amid optimism that a stimulus package was taking effect and could be expanded to the property sector.
The Shanghai Composite Index rose in late afternoon trade to 2,370.79 points, bringing its increase so far this year to 27 per cent.
Rumours that property could soon be another recipient of the huge stimulus packages already announced for several industrial sectors was a significant factor.


Hopes are rising that an economic recovery could take hold within the next few months after a steep surge in January bank lending.
New loans more than doubled in January as banks heeded a government call to extend more credit to support hard-hit sectors of the economy.
Banks extended a whopping 1.62 trillion yuan (£160 billion) in new loans in January, almost a third as much as they lent in all of 2008, the People's Bank of China said.


The month's total was up sharply from 771.8 billion yuan in December and 181.9 billion as recently as October.


Ting Lu, an economist at Merrill Lynch in Hong Kong, said that the precise type of loan was unimportant.


What was crucial for the economy was that money was flowing from banks to companies and households.


“From the macro perspective, it's very expansionary," he said. "China is the first economy to see real credit expansion at this point in time, during this trough of the global slowdown. That differentiates China from other economies."

http://business.timesonline.co.uk/to...cle5725675.ece

[Guest]

Re: Times Online: China surges on effects of stimulus package

Whoever could have imagined it? China, surging despite catastrophic global trade conditions? Preposterous. :rolleyes:

http://business.timesonline.co.uk/to...cle5725675.ece

[Mega]

Re: Times Online: China surges on effects of stimulus package

I suspect Peek Oil will be back on in say 2 years?
Mike

[Guest]

Re: Times Online: China surges on effects of stimulus package

The iTulipers will give us the go-ahead when it's OK to put Peak Oil back on the front burner. :rolleyes:

I suspect Peek Oil will be back on in say 2 years?
Mike

[touchring]

Re: Times Online: China surges on effects of stimulus package

Whoever could have imagined it? China, surging despite catastrophic global trade conditions? Preposterous. :rolleyes:

It might be on false hopes, but i don't know for sure. what is quite unbelievable is how repeated stimulus by the US doesn't have any effects on credit crunch while China managed to reverse the crunch in 3 months.

The difference between real cash and the fed's "digital money"??

[Supercilious]

Re: Times Online: China surges on effects of stimulus package

Comments today made by Pettis in his blog:
http://mpettis.com/2009/02/more-terr...a/#comment-727

the stock market in China is illiquid and has never traded on fundamentals, for reasons which have to do, in my opinion, mainly with the types of tools available to the investor base, and this gives it a pretty poor track record of predicting growth. It is a very speculative market about which the most important question investors ask is “What will the government do tomorrow?” If you can answer correctly you make money. If not, no. In China it is clear that the government will pull out all stops to get the economy going, and that regenerating confidence is considered a key issue. Since the stock market is considered a major barometer of confidence, and perhaps even a ‘creator’ of confidence or the lack of it, many investors feel that the government will effectively provide a backstop if it crashes. Along with the fact that the press is mainly reporting good news, not bad, I suspect that these reasons have driven its growth. By the way there is an interesting article in today’s SCMP>

And a few quotes from that SCMP article:

Money did all the talking on the mainland stock markets yesterday, with speculative capital driving the key index up for a fifth week.But with the overhang of a slowing economy, there are fears investors are being motivated by herd mentality rather than fundamentals. Many are banking on Beijing's policy of cranking up domestic demand, believing a frothy stock market could generate extra cash for spending.


"A market rally makes some investors money and makes other people jealous to join," said Haitong Securities analyst Zhang Qi. "The main theme on the market is money rather than valuation."
Investors opened 223,859 accounts on the Shanghai and Shenzhen exchanges last week, the highest since the week to December 12 last year. Analysts expect more unseasoned investors to jump on the bandwagon now that the upward momentum is strong.
[...]
Mr Chen told a recent seminar the Shanghai index would climb further until the National People's Congress next month, to as high as 3,410 points.
He is not alone.
A commentary on the Financial News said recently that a buoyant stock market was needed to spur domestic consumption.
"A market gain helps increase people's income and rising incomes help increase spending," the commentary said. "Vice versa, economic growth driven by spending can bolster the stock market."
Obviously, millions of equity investors got the drift of Beijing's policy, flocking to the stock market with hopes to strike it rich overnight.
The market is rife with speculation that Beijing is exerting itself and orchestrating a market rally to create a channel for a growing number of unemployed workers to earn money.
"If it were true, the government is putting people's hard-earned money at stake since most of the laid-off workers know nothing about the ruthless market," said Dazhong Insurance fund manager Wu Kan. "It is only the economy that matters. Without a healthy economy, a sharp fall is inevitable."
Monetary easing also has provided a catalyst to the buying euphoria.
Commercial banks extended new loans worth 1.62 trillion yuan last month, more than double the amount in the same period last year.
Unfortunately, there are no fresh signs of economic recovery to support a hefty gain on the stock market. Exports fell a worse than expected 17.5 per cent year on year last month.
"Investors are now overly optimistic," said Mr Zheng. "They just jump to the conclusion that the economy is recovering. It remains to be seen whether the bullishness is well grounded.

Things like this remind me of the US stock markets in '29 when the shoeshine boys were getting margin loans to play the market.

To some extent the similarities between US in '29 and China in '09 are almost embarrassing, but the overall fundamentals are quite different.

[touchring]

Re: Times Online: China surges on effects of stimulus package

I'm sceptical of the Chinese rally, but how about the banning of shorts, allowing banks to release fake earnings, and releasing false economic and unemployment data?

[Guest]

Re: Times Online: China surges on effects of stimulus package

Here is an example of the difference between emerging nation GDP elasticity and that of mature economies. We deliver verdicts upon the extent of decline in these economies from the vantage point of our own, mature economies, for whom rebounds are slow, cumbersome affairs. Look at what happens to raw materials consumption metrics in a country like Vietnam, on just a puny, government contrived snap-back rally in realestate. Evidently these countries rally in a manner altogether different from the frame of reference employed in countries where the infrastructure and industrialisation are already mature.

The D I V I D E N D in infrastructure development is a totally different animal in these countries. We tend to see their infrastructure at the end of a boom as "gross overallocation of production resources" and leave it at that. But if the consumption elasticity has no resemblance whatsoever to that of mature economies that assumption may have some first world bias built into it's estimations for the future.

February 10 - Bloomberg (Nguyen Kieu Giang): "Vietnam's steel consumption tripled since October as the government's stimulus package boosted the property market, Vietnam Net online news service said..."

A "government stimulus package", something we tend to regard in mature economies as a false shot in the arm for flagging growth, triples consumption of a core industrial commodity in four months? This describes my skepticism that critics of the "false China growth story" have a firm grasp of the rapidity with which these currently shell-shocked economies can rebound. With lightning speed - because they are still unlocking an internal growth dividend which ceased to exist in mature economies 40, to 80 to 100 years ago.