China is a phenomenon in 21 century. However, it is never clear whether one should long or short China as of today. Jim Chanos, a successful hedge fund manager, influenced by a recent Pivot Capital report, starts to get bearish on China and feels that China’s asset bubble is ’1000 times worse than that of Dubai’. Thomas Friedman, a New York Times columnist, argues back by stating that ‘I will never short a country with 2 Trillion Reserve in the central bank’. Michael Pettis is obviously furious about Friedman’s article and nail down the argument with a convincing piece (See Article from China Financial Market). Pettis argues that China’s 2 Trillion+ reserve is no doubt huge in terms of the percentage to Global GDP. However, in history the 30s US and 80s Japan had experienced similar numbers of reserve and both ended up in tears. In fact, the record reserve is more of a time bomb worth worrying as it is likely to result in over liquidity of domestic credit and excessive capacity. Continue (继续)

Ha Jimin and Mao Yushi are two famous economists in China. Recently they expressed their respective views on China’s economy (See Article from Forbes). According to Ha Jimin, 2015 is the year when China’s baby boomer growth starts to slow down. Likely the asset price will stop to grow further or even fall, like what happened in Japan. According to Mao, RMB is severely undervalued and that causes problem for both China and the world. In addition, both Mao and Ha are concerned about the asset bubble in China. However, Ha is more optimistic on the potential growth of assets – he reckons that there is still a few years to go before the asset bubble reaches the bursting time.

哈继铭和茅于轼是中国两位比较知名的经济学家。日前他们接受采访发表对中国经济看法。 Continue (继续)

According to the president of Fed Reserve Bank of San Fransisco, Ms Janet Yellen, America’s monetary policy (base interest) might be too loose for China (See Article from WSJ).  US Fed sets its interest rate virtually to zero to stimulate the domestic economy. Due to the reason that Chinese yuan is pegged to USD, the Fed Rate has a knock on effect on China’s economy. Given the fact that China recovers ahead of US, the current Fed Rate is likely to be excessively stimulative to China. Following such logic, either China will have to re-evaluate the FX policy, or run the risk of over heating given US’s super accommodating policy.

美国旧金山联储主席近来发表言论，指出美联储目前的利率政策对于中国来说可能过于宽松。由于人民币汇率紧盯美元，因此美联储的货币政策也会影响到中国的经济情况。鉴于中国比美国早先走出金融危机，美国的低利率政策可能已经不再适用于中国的经济环境。

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)