China CDS Soars On Continued Hard Landing Concerns

Tyler Durden's picture

Update: CDS now over 200 bps, or over 7 bps since this artice was posted.

This is an emergency announcement for bubble watchers: China CDS has soared to 194.5 bps, +14.5 in the past few hours (a trend first noted here about a week earlier), the biggest relative mover in the sovereign realm, which has just hit the widest it has been since March 2009. Ironically the incremental newsflow was mildly positive after the Final September HSBC PMI came at 49.9, still contractionary, but modestly better than the Preliminary 49.4, and unchanged from the August print. That however brought little solace to China bulls, who have seen their local stock holdings drop significantly in the last few days now that the China "Hard Landing" scenario is becoming widely accepted. Not helping is a just released UBS report which now expects Q1 2012 GDP to drop to below stall speed at 7.7%. Whether or not the country can land softly, or hardly, or at all, with that kind of growth drop, is certainly unknown. Look for more widening in CDS spreads as the China crash thesis permeates the vigilante community which has now picked its next target.

Bloomberg recaps the UBS piece:

  • Weakened global growth prospects, aggravated by financial market turmoil which might further hurt consumer and corporate confidence, will cause export growth to slow to single digits in coming quarters, which will adversely affect manufacturing investment and consumption, UBS says.
  • "We expect GDP growth to decelerate to around 8% y/y in Q4 2011 and 7.7% y/y in Q1 2012,’’ write Tao Wang and Harrison Hu, economists at UBS, in note today
  • Expected drop in developed-markets growth will hurt China’s exports and related investment, so UBS has lowered its GDP growth forecasts from 9.3% to 9% in 2011 and from 9% to 8.3% in 2012
  • When exports slow sharply, and if industrial production falters, government would likely ease macro policy, probably starting with fiscal policy: UBS
  • Says CPI inflation likely to end 2011 at 4.0%-4.5%, and to ease further to 3.5% in 2012
  • Forecasts CNY to appreciate gradually, trading at about 6.2 by year-end and 6.0 by end-2012 vs USD, unless EUR/USD weakens beyond 1.2

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GeneMarchbanks's picture

I thought they were bailing out Europe? Too confusing this is the most disordered circle-jerk ever...

Haywood Jablowme's picture


Faber did state that he expected China to implode but would also be the first to recover.  Looks like he maybe correct on that call...


oogs66's picture

europe is bailing itself out withe levered efsf so no longer need china for stocks to go up...and yeah the western world is decoupling so all good without china....

what a mess

Smiddywesson's picture

LOL, the Chinese trolls are out this morning junking anyone who says anything remotely negative about China.

Cynical Sidney's picture

7.7% is way high, china's gdp growth cannot be sustainable under the current market environment. here's why:

1. 25-30% of chinese economy is made up of black and gray market

2. chinese outclasses enron when it comes to 'creative' accounting and cooking the books, US DoJ is launching investigations as we speak

3. chinese real estate bubble, the fav tool of financial criminals, is close to bursting which will bring down housing price by at least 1/3; land is not privately owned, but 'leased' to individuals for 200 years

4. china has the least self-reliant economy in the market, should globalization decrease china economy will crash harder compared to the US or eurozone

5. their govt has little tools to fight inflationary pressure


there are huge social and political risks surfacing unless the renmingbi replaces the greenback as the global reserve currency in the near future

Smiddywesson's picture

There's also the withdrawal symptoms of being accustomed to 10%+ growth every year and suddenly having your GDP plummet as opposed to a country with mediocre growth seeing a further drop in GDP.  The pain is felt more accutely in the country that is accustomed to the crack pipe.

Shirley Wilfahrt's picture

Everything has its beauty but not everyone sees it.


reader2010's picture

Regime change follows?

Smiddywesson's picture


Freedom for the 292 separate people with their own languages that are held together in China at the point of a bayonette.

Junk this Chinese trolls.  FREEDOM!!!!

HD's picture

Slow motion train wreak...

buzzsaw99's picture

With as many yearly double digit economic growth rates as they've had they must be 10, 11, 12 feet tall by now. lulz

Sequitur's picture

The news is ugly all over. China, Europe inflation, German sales, U.S. banks leaving TARP early to avoid executive compensation restrictions. I am as certain as I've ever been that in the days and weeks ahead, these markets are going lower. Much lower.

Dick Darlington's picture

By Bloomberg News
     Sept. 30 (Bloomberg) -- Beijing home sales in the first
nine months of the year fell 19 percent and average prices
dropped 10 percent from a year earlier, according to Soufun
Holdings Ltd., the country’s biggest real estate website owner.
     Shanghai home sales was down 5 percent while prices rose 14
percent during the same time period, Soufun said in an e-mailed

Smiddywesson's picture

No problem, it's not like these houses were extremely leveraged and are all underwater now.

ivars's picture

Here is comparison chart between my feb 6th chart of DJIA and actual prices. After 8 months with mistakes in the middle, its for last 2 months within 0-5% of actual DJIA:


In original chart, the trend continues to go down with increasing speed.

Dick Darlington's picture

Fear not, Birinyi is baaaaaack!

S&P’s 12% 3Q Loss May Signal 5.5% 4Q Rally: Birinyi

o2sd's picture

CDS on what underlying? PBC bonds? Regional bank bills?

Is this the 5Y like the previous article, or has the time horizon contracted?

I thought the PBC was a nett lender, not borrower? No? Couldn't they unwind their UST positions to avoid any kind of credit event on local issue?



myne's picture

Pfft, if China starts copping some problems they'll eventually just dump treasuries.

spiral_eyes's picture

Hard landing for China but on what?

America dependent on Chinese output and treasury pruchases.

Hard landing for China on America's head. 

Smiddywesson's picture

Hard landing for China on America's head.

Everything is tied together.  Hard landing for America on China's head too.

junkyardjack's picture

World War 3 in 3....2....1....

Zeilschip's picture

Do China CDS trade on a bonds & loans basis? It has virtually no hard-currency bond debt but I would guess billions of hard-currency loans issued by government-guaranteed entities that rank pari passu with senior bond debt. Still, I would rather buy CDS on Chinese property companies. The sovereign is sitting on trillions of dollars, default is not going to happen. If anything, I'd sell China CDS if they reach 350-400.

o2sd's picture

Good question. I found this:

Which is quite old, but indicates that China CDS underlying are NOT pari passu, but issued on a single asset class. Which would mean that the credit stress in 'China CDS' is for a particular issue of some debt instrument.

If Chinese CDS is not traded pari passu, then the above chart is not particularly informative, as the spreads may be widening on provincial bank bills, but not on PBC bonds (which, as you say, are almost non-existent).

Occaisionally, ZH has very detailed articles, but this is kinda fluffy.

One more thing: Keep posting Zeilschip, ZH needs a lot more people with a clue as the comments tend to get flooded with 'Silver bitchez!'

Smiddywesson's picture

Ho, hard landing coming, we build more ghost cities.

Smiddywesson's picture

Is all barbarian lies.  Student squashing tank production is up 100%.

This is domestic issue, stay in own back yard Yankee dog.

You appologize now.

Ben Bermonkey's picture

How to enter charts here in?

I have my little .china basket consiting of the five big names (btw look at the market cap of these bank fishs versus european ones, the chinese market cap is by far bigger...)

but I am not interested in fundamentals, since I do not understand a lot when bank analysts speak.

I simply check the chart, and this just took a new low...

short chinese banks and fasten your setbelt for a hard landing


chinaboy's picture

What does "hard landing" mean?

We in China are deeply concerned by things like high urban housing price. But it is hard define risk approprietely. GDP number that brainless global wall street types worry about is least of our concern here in China.


For regular readers of ZH, you already know not to place trade for/against US GDP. For the same reason, we don't trade on China GDP. However, this is exactly what the China CDS trade all about. For those who think they will money by trading this trade, I refer them to JC Flowers.


There are problems in China. And Chinese stocks are falling. This is a good time to buy. You should not buy if real economy is suffering but stocks keep rally.



RyanW525's picture

The lack of cheap energy is coming home to roost....collapse is nearing.