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G-20 is Relying on China To Drive the World Economy ... But China Isn't Looking So Hot
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The G-20 is apparently relying
on China to drive the world economy.
But as I (and many
others) have previously pointed
out, China isn't necessarily the unstoppable powerhouse that people
assume.
The Telegraph notes
that:
China's chief auditor has warned that high
levels of local government debt could derail the country's economy, with
some observers suggesting that a number of Chinese provinces are even
more fiscally-troubled than Greece.
CEBM is also warning
that Chinese exports and imports will decelerate in the third
quarter and going forward.
And yesterday, Tyler Durden reported
on a startling development:
This week's DTCC
data [shows that] with a total of 456 million in net notional
derisking, France was the top entity in which protection was sought in
the past week. [For more on France see this.]
***
But
what is probably most notable, is the sudden and dramatic appearance
of China in the top 3rd position. Welcome China! And after tonight's
surprise PMI miss [see this
for details] and the resulting market drubbing, we are confident
within a week or two, China will promptly become a mainstay of the top
3, and will quickly rise to the top position, where it rightfully
belongs. We are also confident those perennial Eastern European
underdogs, Romania and Bulgaria will shyly make an entrance in the top
10 next week.
***
Not shown on the table, but certainly in
need of noting, was our very own state of California, which with 377
million in net derisking, was the 3rd most shorted entity of all. Is
the last bastion of "all is well" propaganda about to fall?
(For
more on sovereign credit default swaps, see this).
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As goes GM, so goes the country. (still fits)
As goes China, so goes Australia.
If you divide the resources of Australia by the population, every Aussie is already fundamentally wealthy. Resource nations do it the old fashioned way; slow and steady; but it will work. Some kind of almighty huge crash in the ASX wouldn't surprise me on notice of serious problems with China; and they're real estate bubble will pop, of course; but over the next ten years they'll muddle thro.
So much for those that felt China would not be affected by the U.S. downturn.
Rots of Ruk round eye.
I remember the first time I read that I laughed out loud. And then there's China will soldier on with Domestic Demand; right, right. Watch and see it's going to be grimly amusing.
the baltic dry index isn't saying that, just the G20 group of morons.
The BDI isn't also telling you how many ships where in the index in 2006, 2007, 2008, 2009 and 2010 either. So don't link the BDI to china production only.
There are a lot of rumors about transfers of stocks from China to Europe, India and America and that the next 4 to 5 months the chinese industrial machine will come to a halt.
Okay, Leo, is it time to buy Chinese solars yet?
Oh yes, definitely; lots and lots of Chinese Solar panel manufacturers. The more the merrier.
As noted elsewhere, the rapid rotation between countries shows that the stress is spread regularly over numerous countries. Therefore probably an indication of resilience. It would matter more if one country's topped the rankings for months.
What's Italy rank a few iterations ealier?
As to China, the very idea they can relay the world growth is a non sense. The western world is already occupying most of the resources supercify required to enable growth.
The day China is on assuming the share of world growth, the day the western world is in arms at their doors.
The cat, having once sat upon a hot stove,
will not sit on a cold one either...
China has already strongly implied they may not honor their side of outstanding CDS contracts (just my memory-don't have the link handy).
bonddude,
China said it WOULD NOT HONOR them.................I read the same thing, and they were adamant.........and pissed off.
As for their RE Mkt, they have built city, after city, emptier than Detroit.........rows upon rows of brand new housing, homes, condos, streets...........Zerom Zilch, NO one in sight.
And no one to occupy...........
Love that youtube of Hugh Hendry walking
around there point out all of the empty
skyscrapers. Classic.
LOL; only idiots would use China as their CP on any CDS related trading activity; especially buying one from a Chinese institution on Chinese debt. Go to JPM or DB; they sell all kinds of shit; they will sell you this as well. Why would I care if China does not oblige industry standards or refuses to participate in the trade any longer if I didnt use it as a CP in the first place. Thats why CDS are beautiful instruments; you can both exploit the morons selling one to you, the morons you are selling to and the morons you are shorting.
Since they do participate in that casino my only point is their defaulting collapses the whole casino. Perhaps I should have been clearer.
I believe it was GW who brought it up last year.
http://www.reuters.com/article/idUSPEK1183220090831
Those are not CDS.
Those are either:
a) cash-commodity swaps with defined maturity [think REPO; but with say; silver or gold or any other commodity the counterparty accepted as collateral; and with 6M maturity and a fixed swap rate of say 50bps + 6M SHIBOR/LIBOR/x-BOR]
b) futures contracts with deliverability clause [meaning no cash settlement but actual delivery of physical stuff]
c) OTC contracts [same as futures; but without need to be processed by a CCP. They are traded OTC]
So very very VERY different from CDS. Firstly because they are not as dangerous; secondly because the OTC stuff, AFAIK, has no margin requirements; no ISDA-esque legal/contract structure c) the impact of Chinese refusal to honor these derivatives will have only minor impact on the broad market [meaning broad commodities market] since there is always [except in futures and OTC forwards] collateral posted [i mean that's the whole point of cash-commodity swaps].
I think you would be hearing much more about China if it was indeed indicating it might default on CDS or IRS or any other of derivatives that have a higher net-notional participation in the overall volume of derivatives outstanding.
Now as to Chinese CDS spread; that a whole different story and a topic which is very much debated and current among CDS market participants. But that not really important for this comment.
Yeah I saw that. Thanks for the explanation.
I was a little off point except for the basic
premise that I don't like important sovereign
reneging on any otc derivative contracts.
Kind of like well what else won't they honor.
You know about that curse thats fucking up China for almost 3K years now; every-time they are thisclose to rule the World; they blow themselves up. I expect we will see themselves blowing up very soon [that is; if the havent already]
Thanks CB.
That would be unfortunate...just as it would be if the U.S. valued all the debt that China holds of ours to zero...