China’s Financial institutions are now world’s No.2 in terms of scale only after USA. In fact China is even bigger than USA in some aspects, such as the size of the bank (See Graph from Chinatells). However, the decision making system in China’s financial institutions are a complex mystery to outsiders (See Article from Economist). It seems that the heads of big 5 state owned banks are mostly government officials and have a political agenda. Some of them might be shifted between competitors due to political consideration. China’s bank lending mandate looks more like a government verdict rather than a market behavior. On top of the commercial banks, there are government entities such as China’s Bank Regulatory Committee, State Administration of Foreign Exchange and People’s Bank of China. To figure out who does what and who is the boss appears to be a mission impossible for western observers. Continue (继续)

According to a statement from China’s Banking Regulatory Commission, China’s Banks have a risk of tripling their Bad Loan rate should the property price of Shanghai drop by 10% (See Article from Bloomberg). Shanghai is the second most expensive city in terms of residential property in South China, only after Shenzhen. The average property price in Shanghai is about 20K RMB per square meter, which is beyond most people’s affordability. Due to the fact that China Banks have lent record amount of loan during 2009, and foreseeably in 2010, it is largely suspected that a significant portion of the loan has been channeled into Real Estate Market, which could be hit hard if the property price corrects.

根据中国银行监管委员会的最近一份报告，如果上海的房价下跌10%，那么中国银行的坏账率可能上升300%。 Continue (继续)

A lot of scholars and commentators have compared China of today to Japan in 1980s. Japan’s property and equity market collapsed by the end of 1980s, after which Japan went into a two decade of ‘economic loss’. Whether China has the caveat of falling to the same trap is highly debatable. Recently there is an article from Economist (click here to read) to argue such case. The article presents three compelling arguments that today’s China is NOT 80′s Japan. I think the argument is convincing from the following perspectives.

There are three main reasons for commentators to see a potential similarity between China and Japan: 1) Undervalued exchange rate leading to high current account surplus; 2) Over investment resulting in excessive capacity and falling returns on capital; 3) Surge of bank loan leading to potential bubble in equity and property market, and probably higher NPL ratio in the future. Continue (继续)

There are a few signs recently that suggests that China government might consider tightening the money supply. These signs include: 1) Price Recovery is happening; 2) Export growth is recovering; 3) An export growth plus a price recovery potentially points to inflation. The central bank is particularly sensitive to Price Recovery, and normally they will adjust Bank Reserve Ratio first before touching the base rate. PBOC’s announcement today seems to have confirmed the above logic (See Article from Bloomberg). I believe  through such an increase of 50 basis point, the government  is trying to send a message to the market that they are aware of the price increase and would take serious actions against potential threat of inflation, before it becomes out of control. Also a by-product of such message is to give a warning to the rampant property market.

中国央行今天宣布提高准备金率0.5%。这个和最近市场所观察到的价格回升有密切关系。 Continue (继续)