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Saturday, 15 February 2014

The biggest loser?

The start of 2014 has seen a flood of commentary regarding the Chinese non-bank (trust) financial sector - with the last minute bailout of the oddly named "Credit Equals Gold" trust fund (sold through ICBC branches) in late January and a number of predicted defaults of trust funds linked to the coal sector (or actual default in the case of Jilin Trust) in February. As Bloomberg notes, yields on debt securities are also rising making finance more expensive for businesses in China, but the borrowing binge is continuing, with the FT reporting the highest rates of lending in four years (and a flood of new entrants into the trust and wealth management sector).

As longtime financing expert Charlene Chu has noted, there is increasing currency risk in the system as more borrowers resort to offshore lending.  In the same article in the Telegraph, George Magnus of UBS notes the similarity with Japan before its crash in the 1980s.  Unhelpfully as Ambrose Evans-Pritchard notes in his Telegraph comment piece, this is occurring amidst a policy of monetary tightening and contraction as the administration in China tries to rein in the heady boom of the last decade.

Notwithstanding the current focus on losses within China it is interesting to note some consideration being given to just how much will be lost by foreign lenders.  As Sean Darby, an equity strategist at Jeffries has noted there is significant exposure not only in Hong Kong (China's primary offshore investment centre), but in the banks of Australia, Europe and elsewhere.  It doesn't help that in Australia's case, the large domestic banks which are stuffed high with local real estate loans, desperate for growth opportunities are now aggressively moving into the Chinese market (see also here).

The below chart from Bloomberg (full size image here) shows the rapid growth of foreign lenders' exposure to China and in particular it is interesting to note the high exposures of British, French and Australian banks.  This may be something they come to regret.

(c) Bloomberg


Saturday, 28 December 2013

A year to savour?

2013 saw a lot of changes to the mood in China, with the transition of Xi Jinping and introduction of a reform agenda, launched last month at the Third Party Plenum.  There was plenty of political intrigue with the trial of Bo Xilai, endless other officials and detention of Zhou Yongkang.  The first hints of the banking crisis emerged, with spikes in the interbank market in June and early December.  Property and asset markets remained turbulent and tensions in Western China remained.  And regional tensions escalated with the declaration of the Air Defence Identification Zone over the disputed areas of the South China Sea.
It seems fairly likely that recent interbank stress has involved non-disclosed defaults by Mainland institutions - China Everbright Bank's default during the first Shibor Spike was only revealed this month when a note in its IPO prospectus revealed two of its branches had defaulted in June, although quickly paid up (while at the time reports of branch closures and ATM shutdowns were dismissed as due to technical errors).  As in June the PBOC did belatedly intervene to calm the markets with liquidity injections (a Christmas offering if you like), but there is little likelihood this pattern of crisis and belated resolution won't be repeated.
As noted on the Investing in Chinese Stocks Blog and elsewhere, the shadow banking system is rampant and a massive risk to the banking system as all manner of schemes with high and unsustainable returns have spread amidst sluggish regulated below inflation rates available in the mainstream banking system.  Worse still, as has been noted before, although the entities providing such returns (trusts and other structures sold as "wealth management products") are outside the formal banking system, their products are sold to bank customers and banks either own or have exposure to the entities.  The bankruptcy of mining giant Liangsheng (a coal acquisition group overburdened by debt) is an example likely to be seen more frequently and already of a scale which could threaten China's banking system.  Most significantly losses track back immediately to the investors and a big state owned bank -  as the FT states:
Liansheng had little trouble finding willing lenders among China’s burgeoning shadow banks, which regulators have allowed to help plug the financing gap.
From late 2011 to early 2012, Jilin Trust, one of China’s vast array of non-bank financial institutions, sold to investors an investment product worth Rmb1bn backed entirely by loans to Liansheng.
Jilin Trust warned investors at the start of this month that the first tranche of the Liansheng loans was nearing maturity and that the mining company had yet to cover what is owed, according to China Business News, a local financial newspaper.
...Liansheng’s troubles are a reminder of the thin dividing line between China’s banks and its shadow lending industry. The Liansheng loan product sold by Jilin Trust was distributed in part via China Construction Bank, the country’s second-biggest lender by assets.
Banks tell customers they do not guarantee trust products, which offer returns far higher than traditional bank deposits, but buyers often ignore the warnings in the belief they carry the banks’ implicit backing. The Liansheng investment product targeted an annual return of 9.8 per cent.
And notwithstanding the proposed interest rate liberalisation, repression in the banking system creates opportunities for the shadow banking system to flourish while as the former chief economist and spokesman of the National Bureau of Statistics in China describes it, the banking system does not work in any efficient manner at all, but rather could be run by a canine:
“Banking in China has become like a highway toll system,” Yao Jingyuan said at a Saturday summit on China’s economy held at Nanjing University. “Banks charge every time money goes through them.
"With this kind of operational model, banks will continue making money even if all the bank presidents go home to sleep and you replaced them by putting a small dog in their seats.”
Yao added that there were no longer any real bankers in China, and that most bankers had become “freeloaders” who latched onto the wide profit margin they could enjoy by taking advantage of interest differences between deposits and loans.(here).
With this sort of oversight it will be a wonder if any Chinese banks don't get into trouble next year. 
In the meantime, this article will be rounded out with a couple of photographs which seem to capture the mood at the moment.
"President Li buys his own steamed buns"
The above is the actual headline from the report of an unusual purchase by a Chinese President.  Given the clear level of deference and hierarchy still in place in China, what hope is there of genuine financial reform? For example as with the PBOC, so the shipbuilding industry has also been bailed out.

The likely outcome for the Chinese financial sector in 2014?

Xie Shuizhun, a 46-year-old man from central China's Hubei province, earns his living by charging random strangers in Guangzhou's Baiyun district to beat him up, at a rate of 5 yuan (US$0.82) per punch. He insists the punches do not hurt him because he practices the ancient Chinese art of Qigong, which allows him to inflate his belly like a rubber ball.

Back in 2014!

Wednesday, 13 November 2013

The rising of three suns

Recently China watchers have added to their experience of weird weather phenomena by witnessing the rising of three suns in Chifeng city - due to the presence of ice crystals high in the atmosphere which reflect the sunlight downwards.  Perhaps symbolic the phenomena occurred prior to the convening of the third plenum Party conference (that is the significant third meeting of Xi Jinping's premiership), when the most important policies and overall direction of the administration is laid out.

Reports from the main session of the plenum proceedings were mixed, commitments to market opening and deepening were contrasted with an absence of concrete measures to tackle some of the more significant issues in China, including the rampant state owned entities which distort the Chinese economy and waste resources (summary also here).  Meanwhile foreign journalists faced difficulty getting into China to report and/or (allegedly) the prospect of self-censorship of certain significant news investigations.

On the modernisation drive Bloomberg did report on developments from the new free trade zone in Shanghai, including the opening of a massive gold vault which will store up to 2,000 metric tonnes of gold.  Gold bugs are speculating on possible future outcomes from the high volumes of Chinese gold buying, constituting a seminal moment when gold had moved from "west to east".  Adding to this, speculation of the adoption of international rather than Chinese law in the free trade zones (similar to Hong Kong) suggest that much is happening.

The reality may be different however.  China's (and the world's) largest bank ICBC, has been added to the list of globally systemically important banks by the global bank regulator, the Financial Stability Board (which is hosted by the Bank of International Settlements), meaning tougher capital requirements.  And there has been declining interest in lower tier banks coming to market - mid-sized Huishang Bank, which acts as an intermediary in the shadow sector (including transactions involving entrusted loans and other interbank off-balance sheet lending) saw lacklustre demand following its recent Hong Kong IPO, with analysts divided as to whether the IPO of one of the original four Chinese bad debt vehicles, Cinda (an asset management company) expected in December will be well received.  As even profligate local governments are staring to see more scrutiny (not only in calls for action from the central government but also from their constituents), the scale of Chinese indebtedness may be fully revealed.

More abstract perhaps but there are some analysts who doubt the short term impacts of the proposed reforms to China's financial system.  Pu Yonghao, UBS's head of Asia research, says China may experience a period of economic hardship over the next two to three years.

And in other news it was reported that disgraced solar panel company Suntech has filed for provisional liquidation in the Cayman Islands (following a buyout of some of its business and attempts to save it by the local government).  There could be more to come.

Sunday, 6 October 2013

The psychology of grand gestures

These days many people approach China through the lens of superlatives - massive buildings and infrastructure, dynamic fast paced growth and grand government visions.  Local press Caixin had a photo series of some of the more opulent government offices which had been built in recent years in some of the more deserted parts of China.  This correspondent can recall travelling to Shanghai in the late 1990s and being impressed by the opulence of the central square and museum and the comparative poverty of the shopping mall below - which no doubt has long since been renovated.  Perhaps, as suggested by the Independent newspaper it is easy to misinterpret what is going on in China simply by being an outsider.  Nevertheless there does seem to be some insight from reviewing what will be termed the "grand gestures" being made by the Chinese in administration (and their possible view of events through this perspective).

To start with the US however, many have argued that the Chinese administration places great weight in its actions by what is happening in the US and arguably much of China's recent policy is seen to have been calibrated with big shifts in US policy.  Hence many analysts point to the US-led financial crisis in 2008 as having caused a pivot in Chinese fiscal policy - when the administration not only decided to embark on the massive stimulus in 2009 and 2010 which saw more money lent out by the state-directed banking system than delivered by the US administration in the TARP (troubled asset relief program) which preceded the recapitalisation of the US banking system.  More particularly, those analysts note that in addition to the decision that was made at the time, it was also a time in which the top of China's government interpreted that the US economic model itself was defunct - that no serious government would let its banking system collapse and that China was wasting its time trying to emulate the US (as it had been doing for many years since its own banks had been cleaned up in the 2000s).

Of course, such an interpretation fundamentally misunderstands capitalism, and it has been noted that in seeking to construct a capitalist economy China still hasn't taken to heart the idea that businesses need to fail (such that, although pain in the solar industry, one of the worst performers is being delayed, at some point the domestic debt market will have its first default and certain poorly performing big enterprises will go bankrupt).  Nevertheless until a day of reckoning, the Chinese are doubling down on their existing policies and no doubt continuing the status quo (or trying to).  

Free China love zone
And hence the suggestion that China is drawing the same conclusions as to US decline.  As the US government went into lockdown with the impasse over the debt ceiling, reports of frustrated Chinese tourists in Washington corresponded with the response in China itself - decrying the "ugly side of partisan politics" (here). And, as per the headline, the Chinese presidential administration was responding with one grand gesture - Chinese president Xi Jinping undertaking a charm offensive to South East Asia (as Obama's trip was cancelled).  The linked article didn't touch on the delicate nature of China's relations with South East Asia following disputes in the South East China Sea, which no doubt complicate the picture.

Likewise on the economic front, China's opening of a free trade zone in Shanghai (immediately offering customs and warehousing facilities but with the suggestion of financial reform) was launched with uncertainty as regulations were still being drawn up, while many commentators, including the Economist concluded the measures were likely to disappoint (and a damp squib in fact).  For this author the significance of the recent zone opening is more in the gesture than the outcome - many other cities around China are seeking to open free trade zones which may do brisker trade than Shanghai (including Dongjiang which is seeking to become a major aviation leasing and offshore centre) and more significantly the step is being promoted as a new track of reform mirroring the opening of the Special Economic Zones in the 1980s.

The success of the zones will remain to be seen but it is unclear whether they constitute the reforms China needs.  As a gesture though, the announcement of the Shanghai zone has had an impact and that may be enough to keep positive news going for now.  On the other hand the gesture seemed to highlight current problems rather than hide them - property prices in Shanghai around the proposed zone have risen dramatically on the opening even as the included activities were not announced and there was no indication it will be successful.

If the real problems - property boom and collapse and strain in the banking sector do flare up then as a guide we must expect significant actions such as the credit squeeze of June 2013 - of which there will undoubtedly be more significant gestures to reassure confidence as real measures.  

Tuesday, 20 August 2013

A massive China sinkhole

Several major news outlets have reported on the problem of sinkholes in China.

Similar to the formations in the US and Central America, sinkholes often appear as a result of human activities - mining and construction or extraction of water for agriculture which alter the composition of below ground rock and soil which can then collapse.  As CNN reports these appearances can not only result in the occasional damage to pavements and roadways, but to vast swathes of often agricultural land in some areas which can end up sinking below the water level.  Relocations of infrastrucure and people can follow in what is a disturbing development for some localities such as Jining in Shandong Province.

Infrastructure revealed in China (c) AFP

Also disturbing and seemingly potentially catastrophic are emerging insights into the scale of capital shortfalls in China's banking system and economy. With the inner vaults of banks hollowed out by excessive lending, diversionary schemes and sources of risk concealed from regulators it is becoming a certainty that significant writedowns of bank assets will have to be made at some point.

It is with this in mind then that reports are emerging of steps being taken to put into operation the clean up of banking balance sheets by special "bad bank" vehicles - namely "asset management companies" (AMCs) which were set up in the late nineties to absorb bad loan portfolios from the largest Chinese "Big Four" banks - ICBC, BOC, Ag Bank and CCB (which became Cinda, Huarong, Orient and Great Wall, each taking on the bad loan portfolios of one bank).  

Fraser and Howie in their book Red Capitalism walk through the tainted origins of the AMC's which bought the bad loans at full face value and failed to achieve much running off of the portfolios (often recovering as little as 20 cents in the dollar, barely covering their costs and instead rolling over the bad loans).  Since then, apart from what the FT has investigated as seeming repayments from the central government and the AMCs taking on new debts and branching into active financing business, there has been nothing to quell serious doubts about whether the AMCs are fit for purpose (a historical perspective on the recovery process is here).   

While analysts debate the room for manoeuvre for AMCs, the scope of the task is substantial:
...In 1998, when these AMCs were formed, the first Rmb1.4tn batch of bad loans were bought at face value, or 100 cents on the dollar, which was great for the big four banks, but less good for the bad banks. They recovered only about 20 cents on the dollar. 
However, in the late 1990s, that Rmb1.4tn accounted for about 15 per cent of bank loans, according to CLSA. Ms Chu calculates that the Chinese banking system’s assets grew by $14tn between 2008 and 2013 – equivalent to adding the entire US banking system to its banks’ balance sheets. 
This illustrates why China needs more than merely a government bailout to tackle bad loans this time and that it will probably take a lot more than four privatised AMCs.
And with the application by Cinda to launch an IPO in Hong Kong, some are starting to question the viability of any such venture (given one as author contended, they have become "toxic waste dumps" of bad loan portfolios) : China's four big asset management companies look on the surface like respectable universal financial services groups, with solid balance sheets and handsome earnings. In February, Cinda announced profits for last year of 14 billion yuan (HK$17.6 billion), while Huarong made 12 billion yuan. 
Sceptics claim these profits are illusory, produced by the companies trading assets among themselves at artificially inflated values....For potential investors, however, earnings quality should be only a minor concern compared with the enduring doubts that surround the strength of the asset management companies' balance sheets. 
Offsetting the liability of their bonds, their assets now consist largely of what amount to IOUs from the Ministry of Finance. These are not sovereign bonds, but merely a vague promise to pay at some point in the future....If these IOUs are comparable to similar IOUs held by state banks, then their eventual repayment is to be funded by recoveries from the bad assets injected into the "co-managed accounts". 
In short, it appears the recent restructuring of the asset management companies was nothing more than a cosmetic exercise, which still left them exposed to their original portfolios of worthless loans.  If so, their liabilities far outweigh the true value of their assets; they are insolvent. 
 And what could be the likely scale of losses in the banking sector? Goldman Sachs has come up with an estimate of $3 trillion (which presumably doesn't factor in any downward adjustment to rates of growth stemming from the fact that official Chinese GDP may be overstated by $1 trillion), which is about the size of China's coveted foreign reserves (which by the way may not be of any use in a domestic currency crisis, being held offshore and in another currency). And this may be the nail in the coffin - the backstop of every China watcher - the ability of the state to bail out any distressed entity may simply not be sufficient enough - as stated by Charlene Chu:

There is tremendous confidence in the ability and the willingness of the Chinese Communist party to bail everyone out....But as the system gets bigger and bigger, there are more questions about how feasible that is.”

Rather a large hole to fill.

Thursday, 8 August 2013

In need of heroes

A motley crew of martial arts masters gathered in Xinjjiang last weekend for a martial arts conference involving training sessions, discussions and lots of photos being taken using smartphones which some Chinese internet users derided as "cosplay for the elderly".  Novelty photos aside the amount of conflicting messages now flooding out of China's economy and political management all points to authorities which are losing the initiative and are out of ideas.  Reform needs to occur, but can the recently installed team deliver?
The recession avengers?   (c)

It is telling that global markets have moved recently in a big and coordinated way on announcements of improving Chinese data - does anybody question the provenance of the official data? A few like Caixin do, but for the moment the theme is one China bringing support and stability to markets - quite absurd given the recent credit shutdown only back in June, when markets briefly went into a complete tailspin.  Expect more volatility, not less.

Policy feast
Perhaps more noteworthy than statistics were policy announcements.  A lot of them and conflicting as usual, but it seems that in pursuit of the great rebalancing, Xi and Li are ready to offer up the most sacrificial cows - could the authorities really be planning to ditch the one child policy, start radical agricultural land reforms, allow a privatisation of a major bank and ditching the hukou household registration system? These and other areas involve policies that have been established for decades and there are too many with vested interests and different objectives throughout the system to allow the process to be easy.  It must follow that there are two likely possibilities here:  (i) such announcements are pure puffery and the administration does not intend to follow through with any such reforms (this would explain bad habits like shadow financing and subsidising inefficient industries like solar are seemingly dying hard in the current administration) or (ii) the circumstances have got so desperate that officials are willing to consider anything (likely given the constraints).

One voice that is reasonably clear on this issue is Ambrose Evans-Pritchard in the Telegraph who recently commented that Chinese authorities had capitulated and given in to demands for more stimulus and to hold on reforms:
Mr Li’s implicit argument is that kicking the can down the road buys time to push through the market reforms needed as China abandons its obsolete, top-down, investment-driven, 1980s catch-up model, and switches instead to a grown-up economy. 
No doubt Mr Li genuinely hopes to push though these reforms, but he is up against an army of vested interests, and half the Standing Committee. 
As the IMF’s Article IV report makes clear, very few reforms have actually happened. Investment is still 48pc of GDP. The savings rate is still rising. China still has the most deformed economy of any major country in modern history.  
Reform under the microscope
Emerging litigation provides an excellent insight into the extent to which prior reforms have stuck and signs are not good.

The ongoing liquidation of former world leading solar cell maker Suntech in Wuxi is suggesting the recently introduced 2007 Enterprise Bankruptcy Law is not assisting an equitable distribution of assets or an efficient winding up of the bankrupt Suntech enterprise while the Wuxi government is seeming to have commandeered the process to the detriment of other creditors, including and especially foreign creditors.  

As has been noted for some time, foreign investors who use offshore structures to invest into Chinese entities (typically through holding companies in the British Virgin Islands and the Cayman Islands) often end up holding not shares but low priority claims to revenues of the onshore Chinese company, often without adequate security.  The result is several significant investors could end up with nothing:
Under Chinese law, foreign bondholders would be reimbursed only after domestic creditors, which means bondholders may end up with very little. Last week Suntech defaulted on a $541m bond issued in the Cayman Islands, which sparked a cross-default with other loans, including one from the International Finance Corporation, an arm of the World Bank.
“There are very, very few cases of defaults among offshore Chinese bonds and the recoveries have all been negotiated often with very unique circumstances, so there is no template to use to estimate the outcome in a case like Suntech,” says Kalai Pillay, Fitch Ratings’ head of industrials for Asia.
“But, no matter what, as an offshore creditor you are always structurally subordinated to onshore creditors. Any offshore bondholder has to assume that onshore creditors will get a full dollar before they get one cent.”
And in another dispute centred on the tropical island of Hainan, a British investor has been barred from leaving the island and fears for his safety while unsuccessfully pursuing claims corrupt officials with fellow local directors from his property development venture conspired to illegally transfer and strip from the project entity the key valuable asset.  It sounds more like post Soviet Russia than the great Chinese Dream Xi Jinping has been promoting of late (though the author is not quite sure exactly what that is!), leading to the question as to how many foreigners will be wiped out by an asset price collapse and general slowdown in China and how much money will they lose?

Monday, 15 July 2013

Growth is dead!! Long live growth!

It is a criticism with some basis that the pursuit of economic growth in China at all costs has become something of a mantra or cult and that even as the new fresh-faced regime seeks to move away from this to rebalancing and broader aims and social goals, western business media seem obsessive in their coverage of all pronouncements and speculation seeking to divine whether the magic number (annual GDP growth) will be 8%, 7.5%, 7.7% or something lower.  What did Finance Minister Lou Jiwei mean when he said 6.5% growth was tolerable on the sidelines of a China-US summit in Washington? That 6.5% was expected? That there was more comfort? to scare foreign speculators? To test the market impact perhaps?

Alas, since the SHIBOR shock when the PBOC cut funding in the interbank market for a time, the Chinese administration is having to posture a lot and send signals to try and guide the markets - not something it is necessarily good at!

Let's go back a step.  There are plenty of reports indicating (from the Chinese authorities themselves and from outsider's analysis) that the existing model is dead.  No more shopping centres/bridges/trains/roads to nowhere and hello consumerism.  Sounds simple enough - after all it is the lack of consuming that causes the high savings which distort the global economy and cause deficits in developed countries (which have been the centre for slowdown which is threatening China's exports and the exporting model), goes the reasoning.  Simple right?  And follows a nice circular logic?

Well not really!  Some points to consider:

Upside down fundamentals

China bull...hanging in a tree (c) CEN

The low consumption is a result of the structure of the banking system and economic policy.  The export preferencing low fx rate (in the RMB trading band) causes excess liquidity which is stored in US treasuries.  The PBOC buys the US dollars from exporters injecting RMB into the economy which must be sterilised to prevent inflation by forcing banks to buy PBOC bills and hold high reserves.  With scarce funds the banks prefer to lend to SOEs and live off the spread over fixed rate depoist source of funds which pay a low interest that is negative after inflation (due to the above).  The Chinese people get negative interest rates at the bank and can only buy gold (which they are doing in record numbers) or real estate (did we mention the world's biggest building was built in Chengdu at the size of 20 Sydney Opera Houses?!- this in addition to more shopping space in that city than much of Europe).

Regulation light wealth-management products have appeared to fill the gap offering high interest avenues for risky investments causing a further bubble, but the overlying point is that there is relatively little consumption.  Currently, ordinary people in China subsidise the state and its enterprises.  Their funds are transferred into investment.  Along with Michael Pettis who has been saying this needs to change (and will change) for a long time, many key figures have made this point, including Patrick Chovanec who said recently on twitter that the solution is to reverse the process, by liquidating the US treasuries.  Bringing the US dollars back into China to counteract receding investment and unsterilising - repurchasing the bills to put back yuan into the Chinese economy.

It is the view of this blog that this will not happen without a crisis, because i) the treasuries are impossible to liquidate easily without risking the valuation of the remainder (although that is what the US wants and is trying to force through its QE based US dollar devaluation), ii) it would fracture the edifice of China invincibility that is keeping the economy running, iii) as Victor Shih has noted, by the time it did so wealthy individuals would have already withdrawn enough of their funds from China to wipe out capital in the Chinese banking system rendering it insolvent.

That is a dire end-game scenario, but to return to the main point - consumption - no consumption is going to occur in a significant way unless all of the above happens.  Consumption can't happen without structural reform (Chovanec would probably argue that Yuanisation of US treasuries so to speak could kick start sucha process, but this is splitting hairs somewhat).

If not for anything above you should at least get a sense that consumption will take a bit more to take root than a couple more empty shopping centres!

Reactionary forces gathering
It has been noted that the SOEs, citadels of investment are fighting hard to stave off reforms and keep their privileges.  This will slow or block reforms and recent articles suggest the reform movement is slowing - investment still made up a significant and growing part of gdp in growth the second quarter.

Another more poignant example is the recent announcement of a massive ramping up of spending in the solar power sector - a sector flooded with capacity (45MW production capacity in China compared to global demand of 35MW) where high profile and industry wide bankruptcies are only starting occur. An official was quoted last year saying there would have to be consolidation and solar firms would have to close.  Instead there is this recent announcement that screams return to the bad old days:
China aims to more than quadruple solar power generating capacity to 35 gigawatts by 2015 in an apparent attempt to ease a massive glut in the domestic solar panel industry.
Within top sections of the Party there are reportedly divisions between different commissions and the Politbureau and this will only be likely to intensify.

China on consumerism: You're doing it wrong!
Many will have seen the report of a cartel seeking to sell chicken feet 46 years past its sell by date and many will have seen the reports of GSK and other multinational food and pharmaceutical companies investigated over corruption and also allegations of profiteering.  Taking a step back from the specific facts and the overall sense seems to be that China is unhappy with and unable to bring about conditions for sensible prices for certain consumer goods (feeding into high inflation and risks of unrest) and instead of addressing the underlying cause is going about in a ham-fisted manner attacking the multinationals to try and force a way around the problem.  A short term solution at best.

More fundamentally as illustrated by an excellent observational piece in the FT about passengers on China's first cruise ship, Chinese consumers are just venturing into whole new markets and are very different from preconceptions.  As with all China's modern history, things will not turn out as expected.

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