Courtesy of Mish.
Bulls think China is on the mend. I don’t and neither does Michael Pettis at China Financial Markets.
Bullish Arguments
1. Property Prices Rising
The Financial Times reports China house price surge raises prospect of steps to cool market
Prices for new homes in Beijing, Shanghai and Shenzhen – the country’s three largest cities – surged 18-19 per cent year-on-year .
The sharp increase in prices in the biggest cities is the latest evidence of a full recovery in the Chinese property market after it was smothered by several tightening measures this year. A series of land sales have set record prices since August, with real estate developers ramping up their competition for the best plots in the biggest cities.
2. China Rich in Reserves
The South China Post reports US meltdown shadow looms large over China but observers believe Beijing could use its massive foreign reserves to save financial system if shadow banking activity spirals out of control.
Mervyn Davies, a former head of Standard Chartered and British government minister, said: “China is very rich in reserves … At the end of the day, the [Chinese] banks do need recapitalising, which is not a huge challenge to them because the government can recapitalise the banks.”
Echoing Davies’ view, Hang Seng Bank’s executive director Andrew Fung said: “Underlying assets of shadow banking on the mainland are very different from US subprime assets. It is more liquidity risk rather than credit risk. I do not see the risk of a big bank failure in China.”
3. Hidden Debt Doesn’t Matter
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