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28 Nov 2014
2015 storms brewing, China’s malinvestments – Rabobank
FXStreet (Barcelona) - Analysts warn of storms ahead for 2015 from an FT news article released on China’s over expenditure.
Key Quotes:
“In China (which arguably stands to gain from lower energy costs) there is an FT headline today that Beijing researchers suggest USD6.8 trillion has been wasted in inefficient investment, from ghost cities to over-capacity in steel mills”.
“That mind-blowing misallocation of capital in a country that still had official GDP of USD9.2 trillion as of end-2013 underlines what an enormous boost to global growth malinvestment has provided in recent years - and what a huge drag it could prove as that excess is unwound”.
“Indeed, the influential Securities Journal today noted that further government stimulus is needed to prevent a “hard landing”".
"There are also headlines that Chinese bank deposit insurance is about to be rolled out, perhaps as soon as January, and capped at CNY500,000 per account: that’s a vital step towards full deposit rate, and true interest-rate liberalization – but doing so when potentially facing USD6.8 trillion in bad loans and a hard landing risk is a major risk, especially for smaller banks”.
“With CNY now moving lower again (hitting 6.1450 earlier in the week but closing at 6.1386 yesterday), it still seems likely that a weaker CNY will be needed to help deal with this very problematic backdrop”.
Key Quotes:
“In China (which arguably stands to gain from lower energy costs) there is an FT headline today that Beijing researchers suggest USD6.8 trillion has been wasted in inefficient investment, from ghost cities to over-capacity in steel mills”.
“That mind-blowing misallocation of capital in a country that still had official GDP of USD9.2 trillion as of end-2013 underlines what an enormous boost to global growth malinvestment has provided in recent years - and what a huge drag it could prove as that excess is unwound”.
“Indeed, the influential Securities Journal today noted that further government stimulus is needed to prevent a “hard landing”".
"There are also headlines that Chinese bank deposit insurance is about to be rolled out, perhaps as soon as January, and capped at CNY500,000 per account: that’s a vital step towards full deposit rate, and true interest-rate liberalization – but doing so when potentially facing USD6.8 trillion in bad loans and a hard landing risk is a major risk, especially for smaller banks”.
“With CNY now moving lower again (hitting 6.1450 earlier in the week but closing at 6.1386 yesterday), it still seems likely that a weaker CNY will be needed to help deal with this very problematic backdrop”.