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Bank risks can create system risks
CHINA FINANCIAL · In Brief · 02 Dec 2015 · 1 response

Why does an open capital account reduce Beijing’s ability to control refinancing risk? Because part of reason that what looks like liquidity mismatches between shorter-term liabilities and longer-term assets are a lot less risky than they seem for China is that liabilities may be liquid at the in...

Should China relax capital controls?
CHINA FINANCIAL · In Brief · 02 Dec 2015

But here’s another thought. SDR membership may actually hamper Beijing's ability to constrain capital flows because now that they have taken the seat they’ve always wanted, at the big boy’s table, they can’t really go back to tossing pieces of bread at the other kids. Beijing is going to have to ...

Does SDR membership weaken the RMB?
CHINA FINANCIAL · In Brief · 02 Dec 2015

There is a lot of excitement about the RMB’s having become part of the SDR basket, and so I hate to say that we risk making much ado about what, at best, is unlikely to be a very big deal, at least in the short term. Foreign investor appetite for Chinese government bonds, or indeed most other Chi...

Who gets to make money and for how long?
CHINA FINANCIAL · Report · 18 Nov 2015

Last Thursday China Shanshui Cement Group announced its default on RMB 2 billion of loans. As of this writing it isn’t clear whether or not lenders will be forced to absorb losses but I suspect that the default will be resolved by shareholders. For much of this year credit spreads have c...

Resolving NPLs in China
CHINA FINANCIAL · Report · 26 Oct 2015

Friday’s announcements on new monetary easing measure were expected by the market and do not imply any change in policy direction. They are largely a response to continued slowing but I do not expect them to interrupt the decline in GDP growth. - Unfortunately measures that relieve debt serv...

The impact in China and abroad of slowing growth
CHINA FINANCIAL · Report · 23 Sep 2015

-Given China’s size, and the ways in which its domestic imbalances have been reflected in external markets, the way in which China adjusts is likely to have major impacts both on domestic economic sectors and those abroad. It is important to work through the consequences of an adjustment to deter...

The PBoC is selling US Treasuries!!!
CHINA FINANCIAL · Report · 28 Aug 2015

Special points to highlight in this issue: The PBoC has been reported to have sold substantial amounts of US government bonds. It will probably continue to sell a lot more.This doesn’t mean, however, that there will be substantial liquidation. The reasons driving PBoC selling also mean that China...

Don't take your eye off the big picture
CHINA FINANCIAL · In Brief · 25 Aug 2015 · 2 responses

With all this excitement in the market it is important to remember the big picture: 1. GDP growth will continue to slow, either steadily, by 100-150 bps a year through the rest of the decade, or disruptively, with growth stabilizing at 6-7% for the next two or three years, and then, once China hi...

No reason to buy
CHINA FINANCIAL · In Brief · 25 Aug 2015 · 2 responses

There are four possible outcomes over the rest of this week. First, and this is highly unlikely I think, today’s measures could cause markets to stabilize Wednesday and start rising thereafter. This would do wonders for Beijing’s credibility, but I still think there are so many implied options an...

When will it stop?
CHINA FINANCIAL · In Brief · 25 Aug 2015

Tuesday the PBoC lowered lending and deposit rates by 25 bps, to 4.60% and 1.75% respectively, and lowered the required reserve ratio by 50 bps. On Monday the regulators announced that Chinese pension funds would be allowed to hold up to 30% of their assets in stocks. Will these measures matter t...

The PBoC’s currency reform
CHINA FINANCIAL · Report · 12 Aug 2015

On Tuesday the PBoC devalued the RMB by 1.86%, its biggest devaluation since 1994. It also announced a deregulation of the currency regime that will allow the PBoC significantly to reduce intervention. I expect that the PBoC will have to choose between intervening to nearly the same exte...

Can this tell us about future price action?
CHINA FINANCIAL · In Brief · 30 Jul 2015

If this model is appropriate (i.e. if enough investors believe that there is a consensus around brokers selling substantially once the index breaks 4,500), there are two obvious implications. First, if Beijing wants the market to keep rising, it must either convince investors that brokers will no...

The consensus about the consensus
CHINA FINANCIAL · In Brief · 30 Jul 2015

I don’t know if this is indeed what triggered the selling, but on Thursday, July 23, following a string of uninterrupted up days, the market closed at a new recent high of 4,124, after which it dropped sharply every day for the next three days to close down by just over 11%, at 3,663. This is exa...

Long stocks = short synthetic put?
CHINA FINANCIAL · In Brief · 30 Jul 2015

My worry was that as the index approached 4,100 or higher, the threat of intense selling by capital-tight brokers at 4,500 meant that anyone buying shares was implicitly giving away a free call at 4,500, and the higher prices went, the less upside there was and the more downside. Remember that if...

But is there a speed bump?
CHINA FINANCIAL · In Brief · 30 Jul 2015

There was one measure about which there is some disagreement as to its size and its importance, but this might be more than counterbalanced by the very simple and clear signal it gives. Sorry for repeating my earlier messages, but here is what I wrote back then: "I realize this is very abstract, ...

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