China financial markets



Hot money and informal banking (Jul 3)
Sorry.  My blog site was down so this Wednesday entry was posted Thursday, one day late.   I was too busy to post anything Tuesday, but there wasn’t a whole lot new to say except to bemoan the stock market’s performance, again.  The SSE Composite dropped 3.1%.  Today after a rocky start it seemed to find its legs, trading up 1.8% by lunch, before giving it all up to end the day almost perfectly flat at 2701.  It is now trading almost exactly 10% below 3000, which as recently as three weeks ago was the market’s imagined government-intervention level.   The property market doesn’t seem to be doing a whole lot better, at least in Shanghai.  Two articles in today’s South China Morning Post warn that Shanghai’s property sales are down.  According to one, “The sale of new flats in Shanghai measured by floor area, plunged almost 50 per cent in the first half, and sources said the market was unlikely to turn around until September, traditionally the peak season for property sales.”  Sha...


New Guestbook Entry by Lucia Jin (Jun 29)
Dear Prof. Pettis

I have been reading your blog, and has an economic student i found it very useful and interesting. Could i ask you a question? What do you think about the chinese currency? do you think its still undervalued? Becoze now im particulary interested in this issue.

Thank you very much.

Regards.

Lucia

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Some anecdotal evidence of risks in the banking system (Jun 29)
Before I talk about the banking system I just want to mention a quick story.  After the 18% hike in fuel prices last week I wondered how taxi cabs in the major cities would fare – obviously fuel is a major component of their running costs.  My understanding was that they had not been permitted to raise their prices in consequence of the price hike, and in Beijing I notice that I have been paying exactly the same prices for cab rides as I had before the price hike.   Yesterday Shouwang, one of my favorite local musicians (read about him in tomorrow’s New Yorker), had to pick me up in a taxi.  As I got in he apologized for the fact that the air conditioning was not on.  He had asked the cabbie to turn it on but was told that because of the fuel price hike the cabbie could not afford to do so.  That suddenly reminded me that in the previous week none of my cabs were air-conditioned, where typically half of them had been in the past.  It seems that from now on (at least until they all...


Markets worry about another interest rate hike in China (Jun 27)
Ouch!  Just as the stock markets seemed to be gaining some short-term confidence, the knock-out combination of bad markets in the rest of the world and more fears of domestic interest-rate hikes (especially the latter) slammed China’s stock market rally today.  Yesterday’s sudden drop in bond prices had, I think, the biggest impact on sentiment today – there are rumors running around that the PBoC will raise interest rates as early as this weekend.   Until yesterday, with the market up 2.5% week to date, this was going to be the best week we’ve had in a long time, thanks mainly to the fuel price hike last Thursday evening which would allow the important energy sector to staunch their losses – but today the market dropped nearly 110 points in the first few minutes of trading and went on to lose another 60 points during the rest of the day, before a small rally in the last thirty minutes clawed back 25 points.  This left the SSE Composite down 5.3% for the day, at 2748, which adds u...


Inflation? Or stagnation? (Jun 26)
For most of us the purpose of traveling to a developing country is to get the frisson of authenticity that we can’t get at home, and it annoys us no end when locals don’t play their roles correctly.  Last week at my friend’s wedding in Koh Samui I had to listen to a long diatribe by a very nice Australian lady involved in the arts who was furious that Westerners were apparently forcing Thai people to live Western life-styles rather than leaving them to enjoy their own culture.  In Koh Samui, I guess, there are too many refrigerators and motorcycles and not enough buffalo carts.  I was going to argue that the Thai might themselves prefer the modern urban conveniences, and were perhaps indifferent about helping us foreigners achieve our much-desired authenticity, but I didn’t want to be thought a cold-blooded imperialist by the many nice people at the wedding.   It’s not just in Thailand.  Most of my foreign friends who visit China, especially my European friends, are determined to ...


China’s reserves grew $40.3 billion in May (Jun 25)
I just got back from my one-week trip having taken a very early morning flight, so I am a little too tired to write much for today’s entry, but I couldn’t let pass a media report earlier this afternoon that claims that China’s foreign currency reserves at the end of May reached $1.797 trillion..  Although these media reports are unofficial, they have in every case that I can think of been subsequently confirmed by the PBoC, and these are very likely to be accurate numbers.   If so, this means that China’s foreign currency reserves grew by $40.3 billion in the month of May.  After the blowout $74.5 billion for the month of April there is the obvious temptation to think this is a relatively healthy number for China’s reserve growth, but it isn’t.  This is a huge number, materially above the $38.2 billion monthly average for 2007, a number that at the time was almost impossible to believe.  May’s $40.3 billion only seems small because monthly reserve growth year to date has averaged ...


Of course Chinese dollar holdings rose, but something changed drastically (Jun 23)
There is an interesting, if perhaps predictable, June 17 Bloomberg article by Patricia Lui that discusses China’s holding of US dollar reserves. According to the article:   China is adding to its holdings of U.S. assets, data from the U.S. government showed yesterday, easing concern the Asian nation will sell dollar investments.  Total holdings of U.S. equities, notes and bonds among foreign investors rose by a net $115.1 billion in April from $79.6 billion the previous month, the Treasury Department said yesterday in Washington. China’s holdings of Treasuries gained $11.4 billion to $502 billion, holdings of U.S. agency debt rose $11.9 billion and U.S. corporate bond investments increased $6.9 billion, data showed.   The discussion about whether or not China will continue funding the US deficit by buying dollar assets has been going on for a long time, and has caused an unnecessary amount of alarm among analysts worried about the consequences of a possible Chinese decision to ...


New Guestbook Entry by Guilhem Jaubert (Jun 22)
Hello Mr Pettis,

I am a student in a French business school preparing my masters. This year I did a one year internship at JPMorgan Private Bank in Geneva and I am more and more interested in finance. I have a paper to write for my schoolwork, the subject for which is 'How to develop the Shanghai stock exchange ?'.

I would like to thank you for your blog as I find that it is a true source of information and also one of the few reliable ones a part from the official chinese websites. Would you be able to direct me towards other sources of information or recommend any books or papers that have been written on this subject ? I am particularly interested in understanding the high volatility of the Shanghai stock exchange, the main critical differences with the Hong Kong stock exchange and how the Chinese government should act to make the Shanghai stock exchange become a mature one ?

Thank you very much for your help and for your blog.

Best Rgds
Guilhem

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New Guestbook Entry by bryan keeling (Jun 21)
Hi Michael...I have been receiving your blog for about a month...and it is refreshing to receive untainted information...straight from the horses mouth..if you know what I mean..My country has very strong commercial ties with China... so having the ability to keep abreast of what is happening in China is very important to me...
Thank you Michael ..and may you continue your success ...

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Fuel prices rise (Jun 21)
I was going to write today about speculative inflows and their impact on Chinese monetary policy, but a lot has been happening – and just in the middle of my week-long trip out of China – so I will postpone that discussion for Monday.  On Thursday, as almost everyone knows by now, just after the market closed Chinese authorities announced that were allowing fuel and energy prices to rise – fuel by nearly 18%.   This came as something of a shock to everyone because it was widely believed that although fuel-related pressures were becoming intense, nothing would be done before the Olympics because of the socially disruptive impact a price hike might have – not to mention the worries about allowing inflationary expectations to grow.  Aside from showing how little faith we should place on expert consensus, and that the embedded wisdom that nothing bad can possibly be allowed to happen before the Olympics is an exaggeration, there are at least two interpretations we might place on the t...