"Neither a borrower nor a lender be"

Posted on Monday, 26 July 2010 [GMT +1]

Polonius - famous for the above aphorism - was clearly not Chinese. New property development loans in China rose 26% in the first half together with fresh personal consumer lending up by 72%. Nor was the father of Hamlet’s girlfriend stupid: “for loan oft loses both itself and friend”; viz the fact that some 23% of all loans to local government financing vehicles are unlikely to be recouped. Okay, the Nation’s top five banks are raising $53.5 billion in new capital, the CBRC has said that all non-performing project loans must be written off by the end of this year and stress tests are also being carried out on China’s property trusts. Nonetheless, it remains a concern.

In Act 4, the stock market caught its breath today after its 6% leap last week and bandwagon jumpers Goldmans, CICC and Citic are now all positive. Spending on flooding is also set to accelerate as in the south of the Country alone this year it has already caused $21 billion of damage. The latter galvanised the belief that the Government will introduce further stimuli and bond yields rose from, in some cases, record lows.

Finally, tucked away in a dusty corner of the stage, was ‘China, the new importer of corn’. Yes, the quantities are relatively small right now, given the Nation is also the World’s number two consumer. But is this the beginning of a “new era” of domestic buying from outside China? “That is the question”.

Shanghai Composite:
Today: +0.65% at 2,588.68 at close
Last week: +6.1%
YTD: -21.0%

Hang Seng:
Today: +0.12% at 20,839.91 at close
Last week: +2.8%
YTD: - 4.7%

Oil: $78.50
Gold: $1190.60
Euro/$: 1.2908

Headlines

• Banks will struggle to recoup up to a quarter of their loans to local government financing vehicles
• H1 new property development loans rise 26%; consumer lending up 72%
• China runs stress tests on property trusts
• Goldman Sachs is “constructive” on China's Yuan-denominated shares; CICC and Citic Securities agree
• China to increase spending to protect against flooding
• Yuan Forwards halt their six day loss; while bond prices fall, as does the repo rate
• Shanghai should be pricing centre for Yuan-denominated products, says PBOC
• China and Singapore agree to Yuan 150 billion currency swap
• China and Iran in talks to use Yuan for oil contract settlement
• Property prices may tumble 30% in China as growth slows, says Nikko; while HSBC looks for a fall of 15% in house prices
• China’s fiscal revenue may grow by as much as 17% this year; but no property tax on a family’s first home
• China's CIC may post record year for 2009 as markets and commodities rallied
• China to buy 15 million tons of corn in “new era”