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Jim Chanos Mocks Latest Chinese Attempt To Support Its Stock Market, Sees It As Confirmation Of Deterioration

Tyler Durden's picture




 

Yesterday we presented our cynical perspective on the latest Chinese intervention in its stock market, whose sole intention was to prop up the stock market, and create the illusion that the economy is stronger (following in the Chairman's footsteps, it appears that now the SHCOMP is the best proxy for economic prosperity) now that bank speculation of a Chinese hard landing has grown significantly louder (see here and here). Today, it is Jim Chanos' turn to jump on the, pardon the pun, cynical bandwagon, who, as Bloomberg reports "said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook. The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom. “The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in a Bloomberg Television interview." Needless to say this is glaringly obvious, which is why it will have no adverse impact and the only thing the markets will care about is how many trillions in additional government liquidity/purchases will come down the line to prop up the illusion that is the global economy.

More from Bloomberg;

Chanos, who told Bloomberg News last month he was selling short shares in “virtually all of the large banks in China,” said today that the country’s property market is in the “first parts of a very serious pullback.” China’s home transactions fell during last week’s public holidays after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd. (SFUN), China’s biggest real estate website owner.

 

The property market is what investors ought to be watching, because that drives everything in China,” Chanos said.

 

Huijin started buying shares of Industrial & Commercial Bank of China (601398) Ltd., China Construction Bank Corp. (939), Agricultural Bank of China Ltd. (601288) and Bank of China Ltd. (3988) yesterday, according to a statement on the the investment company’s website. Huijin, set up to hold the government’s stakes in the banks, said it will continue with “related market operations,” without providing details on how much it will buy.

 

The unit of China’s sovereign wealth fund spurred a temporary rally in Chinese banks in September 2008 as it bought shares to shore up investor confidence after Lehman Brothers Holdings Inc. collapsed.

For those who may have forgotten, this is the second time China has involved in such a manner.Needless to say the intervention did not work.

The MSCI China Financials index surged 18 percent in two days after the official Xinhua News Agency said on Sept. 18, 2008, that Huijin would buy shares. The gauge erased those gains in the pursuant five weeks, falling as much as 47 percent as the global financial crisis worsened.

So while China can attempt to mask the symptomes, the underlying cause has likely already hit its inflection point:

The decline in property sales volume last week, traditionally a peak period for Chinese developers, may mark a turning point for a property market that had defied the government’s recent efforts to contain surging home values, according to Credit Suisse Group AG.

China’s central bank has raised its benchmark lending rate three times this year and lifted lenders’ reserve requirements six times. China’s banking regulator told lenders in July not to extend the maturity of loans to developers and not to grant new credit to help developers repay maturing debt.

And while we already know that intervention half-lives across the developed world are getting shorter and shorter, the decision by Huijin to boldly (again) go where so many other central planners have gone before, will merely provide us with an indicator of just how short the same metric is for the world's primary economic growth dynamo, which unfortunately is getting dimmer by the day.

 

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Tue, 10/11/2011 - 11:32 | 1761010 DormRoom
DormRoom's picture

The Chinese shadow banking industry may doom China.  Shadow trust banks offering > 25% interest to help outrun inflation, can only do it via a Ponzi mechanism.  And ponzi mechanism flame out, and never fade out.

 

hard landing inevitable.

 

another externality from QE, reflating the commodities bubble, and currency inflows.

Tue, 10/11/2011 - 11:33 | 1761033 qussl3
qussl3's picture

As much as I'm inclined to agree with the ponzi characterization.

Do NOT underestimate the Chinese govt.

The banks are essentially state directed, if the govt so chooses the sipgots will open for those that they deem worthy.

There may be a dislocation, but China is very unlikely to risk widespread unemployment from failed businesses.

They will dig holes and fill them if it comes to that.

As long as they have the reserves to import food and fuel this can continue for far longer than we expect.

Tue, 10/11/2011 - 11:42 | 1761041 DormRoom
DormRoom's picture

the Chinese shadow banking industry isn't regulated.

 

http://ftalphaville.ft.com/blog/2011/10/06/695126/chinas-shadow-banking-...

 

Chinese banks are choking off credit. Property developers who can't find credit  turn to the underground market, to get bridge loans, so it can give them time to sell off stock.  They don't want to sell into a falling market, or else they get wiped out.  But they will get wiped out regardless.

 

Tue, 10/11/2011 - 11:45 | 1761082 qussl3
qussl3's picture

The "regular" banks have RRs in the 20+% range, plenty scope to increase lending.

The ponzi finance you speak of is very real, but i suspect we wont hear too much about it regardless of how spectacular the collapse.

It's likely the "regular" banking establishment can and will step in to fill the void where necessary.

It is also likely that shadow finance mechanism is what is providing the fuel for the property bubble and also some excess demand for commods, killing those 2 birds may actually be positive for China.

Chinese consumers on the whole are NOT particularly levered in real estate nor do they rely on home equity for consumption.

It will not be pretty, but the Chinese and HK indices are already plumbing 08-09 lows, sure it could get worse, but its unlikely China blows up spectacularly.

Tue, 10/11/2011 - 11:54 | 1761103 DormRoom
DormRoom's picture

??

 

Chinese consumers use real estate as an investment vehicle.  Real Estate makes up 40-48% of their investments.  If the propery market collapses, a whole lot of Chinese are going to feel an awful lot poorer.  This likely decrease in consumer demand will have a ripple effect across the emerging markets.  How do you think that's going to effect SPX company outlook, given that 60% of their revenue is in emerging markets.

Tue, 10/11/2011 - 11:59 | 1761135 moskov
moskov's picture

Chinese consumers use real estate as an investment?

 

You meant those ones who owns 10 houses in a row for investment purpose?

 

They are not the backbone of Chinese consumers. they are professional traders just like hedge funds. It's nothing to do with regular Chinese who live within their means which make out about 70% of population

Tue, 10/11/2011 - 12:04 | 1761173 qussl3
qussl3's picture

They didnt borrow to buy, well not as much as Americans.

Americans drew down on home equity to finance consumption, to the point where there was the savings rate was negative.

Chinese consumers are net savers in the double digits.

There is massive room for increase in consumption, as long as the state expands the social net.

Is it possible that the Chinese will mass panic and waterfall liquidation of real estate occurs?

Yes.

But the key difference here is that in the US, RE crashed because of forced liquidations and massive job losses, the decline in home equity values greatly impacted Americans' ability to spend as they had been on aggregate drawing down on home equity to fund consumption.

The Chinese consumer is a different animal.

China may very well still have a hard landing as growth is largely in fixed asset investment, alot of which is real estate, but if the state has any say the only limits on them further expanding that insane policy is domestic food inflation and a trade surplus.

As long as the govt can keep the people fed and import the materials needed to continue the crazy building, it's likely they will and the circus plays on.

Chinese history suggests that the masses will let themselves be led as long as they eat.

Tue, 10/11/2011 - 11:55 | 1761119 moskov
moskov's picture

China's food reserve does not rely on import. They have their own food production which tops the chart of table in the world. Only PORK is specifically shortaged currently because nobody in the past few years bothering invest in that field.

Tue, 10/11/2011 - 12:10 | 1761214 qussl3
qussl3's picture

Well at the current rates of water resource depletion and rising incomes, and land confiscation China will be a net importer in due course.

Which is positive btw, as it implies a healthy consumer and rising incomes.

Water is the real issue, a collision with India sometime in the near future is probably inevitable.

Damming up the Ganges tributaries does NOT sit well with Delhi.

Tue, 10/11/2011 - 12:11 | 1761220 Don Birnam
Don Birnam's picture

"...the country’s property market..."

In a communist command economy -- an oxymoron to be sure. 

Tue, 10/11/2011 - 11:28 | 1761012 SheepDog-One
SheepDog-One's picture

What? Currency printing and pumping of stocks is now getting 'mocked'? Uh oh.

And just as we thought they'd perfected fraud and outright manipulation as the new economic model the world would ride on from here on out. Dammit!

Tue, 10/11/2011 - 11:29 | 1761017 bigdumbnugly
bigdumbnugly's picture

yeah, the pot, kettle thing...

Tue, 10/11/2011 - 11:31 | 1761013 GeneMarchbanks
GeneMarchbanks's picture

Supposing it's true and a one-way bet, you still have to keep in mind the reserves they sit on. China is only (paradoxically) more transparent in their attempts to sure up various markets whereas in the West we're still pretending that they are 'free' and that nationalizations are 'good' and temporary.

Let's say it all crumbles. Now, would you rather be indebted or have savings?

Tue, 10/11/2011 - 11:39 | 1761052 CapitalistRock
CapitalistRock's picture

They cannot use their savings in a meaningful way. Doing so would appreciate the yuan faster and put them in a depression. Remember, those currency reserves were bought to keep the value of the yuan down. Thinking of it as liquid savings that can be deployed to help their economy is incorrect. They have an export driven economy.

Tue, 10/11/2011 - 11:50 | 1761101 moskov
moskov's picture

What's wrong of having YUAN stronger? Those currency reserve is meaningless while at the same time Dollar is being manipulated down by the FED day by day. They don't have as much as export driven economy than you think. They don't have to trade their export with a bunch of countries by using dollar. Yuan itself would have to used by the EU if they want to expand their business in China

Tue, 10/11/2011 - 11:58 | 1761129 DormRoom
DormRoom's picture

Chinese manufacturers are very sensitive to movements in the yuan, given their extremely low margins.. If the yuan moves stronger in a short period of time, it would make these firms uncompetitive, and they'd likely go out of business.  So you'd have mass unemployment.

 

The chinese move slowly on the yuan issue, so it can give firms time to adjust (buy new machinery, better technology, processes etc), and so firms can move up the value supply chain.

 

 

Tue, 10/11/2011 - 12:10 | 1761211 moskov
moskov's picture

First of all,Chinese are sick of producing cheap socks and shoes for extremely low profit except Chinese gov at the moment are supporting this twisted free market force by using massive tax return. This is not sustainable as well as it's against the government's plan to shift the economy into more value added trendand internal consumption. It's all based on the fact of DOLLAR as the trade currency hijacked the Chinese economy. So what China needs to do it's internationlize Yuan as the trade currency instead of using dollars. There are 25% of middle class in the world are based in China.  Chinese won't get poor just because they can't use dollar to purchase anything since almost everything is made in and can be made in China these days. Being uncompetitive is not just because of the currency, it's the whole packaged. I assume almost 99% of US solar panels are made in China in the US because they do better in both the prices and reasonable quality compares to the US. 

Tue, 10/11/2011 - 12:21 | 1761269 qussl3
qussl3's picture

The dollar didnt hijack the Chinese economy, it enabled it.

The relatively strong dollar for decades has allowed China to destroy the manufacturing bases of large swathes of the developed world, the most visible example being the US itself.

China's merchantalist policies have worked wonderfully well for the Chinese worker, but now it is reaching the limits of that game as China is fast running out of consumers to export to.

Dollars will be important as long as the house of Saud uses it exclusively, which looks to be a while yet.

In fact, it is in China's benefit to have a STRONG dollar not a weak one.

Tue, 10/11/2011 - 12:49 | 1761422 topshelfstuff
topshelfstuff's picture

The Strongr the Yuan, the Cheaper ALL Commodities (Raw Materials) cost. At the same time the Wages of the workers Increase via Purchasing Power <<< this is aside from the annual Nominal Pay Increases in China and most all Emerging Market countries. Manufacturing has two main Costs = Raw Materials and Wages, both Benefit by a Strong Yuan. Think about those from the US Pushing for China to ReValue the Yuan...and who pulls their strings, who do they represent

When you think about it, its the countries whose currencies have Strengthened over the years, versus the USD, who have a Trade Surpluss. Understand there is A LOT that isn't mntioned in the news we're fed via the MSM. Also, remember China advocated the Purchase of Gold beginning at the end of 2005, beginning of 2006, and Urged the Purchase of Silver by The People the last time Silver was around $10 an oz

Tue, 10/11/2011 - 11:55 | 1761102 GeneMarchbanks
GeneMarchbanks's picture

Nonsense. There's nothing here worth refuting, you've only been paying attention to China recently. Hit the books kid. You're going to need a deeper understanding to get the meaning at least geo-politically speaking.

Tue, 10/11/2011 - 12:19 | 1761256 ChacoFunFact
ChacoFunFact's picture

Yes, I think Donald Trump said: "if i borrow a little money from you and don't pay you back, I'm fcuked.  If i borrow A LOT of money from you and dont pay you back, you're fcuked."

Tue, 10/11/2011 - 11:34 | 1761035 GeneMarchbanks
GeneMarchbanks's picture

I can topple that house with a sneeze. I'm sure some Canuck will indebt his grand-child to live in one of those...

Tue, 10/11/2011 - 11:41 | 1761057 oddjob
oddjob's picture

Here's a link between your chinese trade surplus and the Canadian housing market.

http://www.edmontonjournal.com/business/giant+Sinopec+buys+Calgary+based+Daylight+Energy/5525777/story.html

Tue, 10/11/2011 - 11:29 | 1761018 bania
bania's picture

burrish!

Tue, 10/11/2011 - 11:31 | 1761023 Conax
Conax's picture

So China has their own PPT.  Dirty commies propping up the phony stock market..

We would never stoop this low, since we are exceptional.

USA USA USA!

Tue, 10/11/2011 - 11:32 | 1761026 HistorySquared
HistorySquared's picture

The sovereign wealth fund hides virtually all its investments, disguising purchases in gold, currencies, foreign mines, out of fear of being front run. Yet, it decides to publicize it's purchase of banks. It's beyond transparent and one of the few opportunities foreigners will have to get their money out of the country in the next few years on favorable terms. 

Tue, 10/11/2011 - 11:43 | 1761071 NotApplicable
NotApplicable's picture

All banks in the world will be nationalized before this is all over, because ZIRP is going to starve them off. In the end, all debt(money) will be owned by the governments (via each others bonds and/or the IMF) who will unleash the controlled economy hell-on-earth, as they starve us off.

What they can't steal directly this way, war will suffice to obtain the remainder (or at least destroy it so it isn't unwanted competition).

The only alternative is people abandoning external government, and I can't see that happening anytime soon, since most are too dependent on it.

Tue, 10/11/2011 - 11:32 | 1761029 Belarus
Belarus's picture

will merely provide us with an indicator of just how short the same metric is for the world's primary economic growth dynamo, which unfortunately is getting dimmer by the day.

What is happening here, depsite the on-going depression, is that the goose-market-makers will keep the half-lives alive with ongoing intervention until the housing market truly hits a bottom (sometime in 2012 based on inventory). The despots can't allow the two biggest assets tanking at the same time while they battle ( a losing one at that ultimately) the ongoing depression.

It's why all attempts, no matter how illegal and perverse and even if it means using off balance sheet HFT's that no one has ever heard of, are never questioned by any of our sychopants. So long as they bent is toward keeping it goosed higher--all is fucking well. They've got it under control (until it's impossible to keep in control).

Tue, 10/11/2011 - 11:38 | 1761050 RiverRoad
RiverRoad's picture

Now watch as the Chinese people buy gold.......

Tue, 10/11/2011 - 11:39 | 1761051 GottaBKiddn
GottaBKiddn's picture

Look at those stupid Chinese, trying to prop up their banks and equities markets, why they almost look as stupid as Western nations have for years.

Tue, 10/11/2011 - 11:43 | 1761075 thefedisscam
thefedisscam's picture

LOL. How pathetic! What Chanos should concerned the most is the U.S. ponzi game, NOT China.

He has bashed China for more than 2 years, China still stays STRONG!

Keep bashing, China will get even better.!

One day, China will have hard landing, but that can ONLY happen after the U.S. collapse!

Tue, 10/11/2011 - 11:44 | 1761076 moskov
moskov's picture

 


Jim Chanos is just dickhead wants to get some attention out of the OCUPY WALL ST MOVEMENT

 

WHO CARES ABOUT SOME HEDGE FUND PEOPLE

Tue, 10/11/2011 - 13:09 | 1761547 Freddie
Freddie's picture

Chanos is actually one of the smarter and more thoughtful hedge fund managers.

Tue, 10/11/2011 - 11:57 | 1761128 disabledvet
disabledvet's picture

Right to raise the alarm cuz it makes sense that China would be your trigger for a 1998 type event on a grand scale. I still think even as the BRIC's sink like bricks taking commodities with them the true risk of the late to the two year surge in US equities has yet to be priced in. Diversification has been the age old lesson taught this year as it's treasuries that have been the big and surprise winner.

Tue, 10/11/2011 - 12:07 | 1761194 ZackAttack
ZackAttack's picture

But... but... didn't Leo tell us that Chanos was WRONG? And to go balls to the wall long on China?

Tue, 10/11/2011 - 12:31 | 1761316 zorba THE GREEK
zorba THE GREEK's picture

I have followed Chanos for years, he is rarely wrong.

Tue, 10/11/2011 - 13:12 | 1761368 RemiG2010
RemiG2010's picture

J.F.

Tue, 10/11/2011 - 13:54 | 1761743 PulauHantu29
PulauHantu29's picture

RE is a massive Bubble there that the gubberment was slow to curb. In Shanghai condo prices were rising 12% per month an dnow slowed to 8% higher each month. Obviously, wages are not risin gthat fast (and furious).

PRC is already behind the 8 Ball and they are trying to soften a crash converting it into a much needed correction.

Just as here...too much greed, money and selfishness.

Tue, 10/11/2011 - 15:05 | 1762023 Ku
Ku's picture

OK, so what could be a way for me to short the china story, other than shorting copper, I don't want to sell individual stocks, Is there any say chinese property ETF's

Wed, 10/12/2011 - 02:33 | 1764653 chindit13
chindit13's picture

A couple of points.

Japan tried this back in the 1990's.  Even though it was a sign of desperation---as China's action is now---it worked for a while because the people wanted to believe that the government could dictate prices and prosperity.  The Nikkei had fallen from near 39,000 to 14,000.  The first direct purchases---using the Postal Savings and Postal Insurance---were made at around 16000 Nikkei, as people front ran the actual disbursal of the funds.  Various waves of PKO buying (Price Keeping Operation) drove the Nikkei above 22000 by mid 1996.

Today the Nikkei is below 9000.  Most all of the equities bought by Yucho and Kampo---which represent a substantial share of Japanese savings, are still held.  They are NOT marked to market.  They are greatly underwater.

Perhaps China will have better luck.

We always return to the greatly misunderstood concept of foreign reserves.  These are largely a result of export revenues, which the PBoC takes from exporters in return for freshly printed yuan.  It is not some large pot of idle cash looking for a home.  The export revenues that are the source of those reserves might well have stemmed from a business loss, because all one has is one side of the equation (revenue).  Cost is unknown.

If we look at the financial and accounting practices of Chinese IPO's, we might get some idea of how profitable (or not) and how reliable (or not) are Chinese statements.  Absent the gains from domestic real estate, it is not inconceivable that Chinese private firms are as unprofitable from ongoing operations as are the SOEs.  While we don't know, now that RE in China seems to have peaked, we might find out.

Articles about liquidity problems, bankruptcies, and non-Foxconn suicides suggest China is not doing so well.  Anecdotal evidence I have gotten from my perspective in Asia suggests the same. Here is one glaring example.  Burma holds several jade auctions every year.  Mainland Chinese buyers make up 95% of the attendees, with locals the remainder.  Non-Chinese are no longer allowed to attend.  Winning bidders must make a small down payment, and remit the rest of the funds after returning home before shipment of their winning lots can be made.  In two auctions this year, Chinese buyers held winning bids for $2.8 billion and $2.4 billion.  Few have paid.  Subsequent auctions have been cancelled until the buyers pay for and clear out their purchases.

Anecdotes aside, the FACT that Chinese banks spewed out loans to the extent of 45% GDP equivalent in early 2010, and nearly the same amount in early 2011---yet that only generated 8.88% GDP growth shows that China is no miracle land, but rather a debt induced bubble machine.  Also, I do not think China has mastered credit analysis any more than Angelo Mozilo did, so it is likely not all of those loans are going to be paid back in full.

Many people claim that Chinese home buying is capital, and not debt driven.  Reality doesn't seem to back this up.  Ninety-nine percent of Chinese earn 50,000 yuan or less per year, the equivalent of less than $8000.  How they ate, paid rent, commuted and bought clothes---all the while saving for a 40% downpayment---is a puzzle.  (How they are going to create a domestic demand driven consumer economy with $8000 per capita income amongst 99% of the populace is another, unless it is going to stem from consumption of Shat Oh Ho Bree Ong wine and pirated intellectual property sales.)  The  greater than $1.5 trillion shadow banking system, where interest rates run from 25% to 180% per year, might be a source of a lot of those downpayments, often with Mom and Dad borrowing against the business to fund Junior's downpayment.  It is doubtful Mom and Dad can cover the vig, however.  If Chinese real estate prices were a simple small multiple of average income, one might believe there is no big problem.  Chinese RE, however, is not cheap by anyone's standards, except maybe by 1989 Marunouchi Tokyo or Geneva anytime.

The SSE hit a multi year low last week, down nearly sixty percent from its high in 2007.  Something untidy is going on.  This latest Hail Mao Li pass from the government backs that up.  We are going to find out if China really is the Middle (Magical) Kingdom or just a paper tiger.

Mon, 01/09/2012 - 15:10 | 2047342 billsykes
billsykes's picture

Ninety-nine percent of Chinese earn 50,000 yuan or less per year, the equivalent of less than $8000.  How they ate, paid rent, commuted and bought clothes---all the while saving for a 40% downpayment---is a puzzle.

Pre boom numbers are 2006 the average income is $2025

Still low but we are told that chinese are big savers- 30% so $607 a yr. (this doesnt include taxes)

$607

so at $3000 a sq meter in shanghi - maybe a 500 sq ft place or a 46 sq m place will set you back $138,000.00 USD
(plus condo fees)

30% (I know it is what 40% down now?) = $41,400

So 68 yrs of saving. or say you have a big family, 10 people throw down 7 yrs of their savings. 

My point is if real estate pops there is going to be a lot of pissed off broke ass people.

 



 

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