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Friday, July 10, 2009

A Second Failure In Chinese Bond Sales

Chinese exports dropped again (although slightly higher than May), but the big news is that a Chinese bond sale failed again:
The Ministry of Finance sold 25.1 billion yuan ($3.7 billion) in bills of the 35 billion yuan it had sought, according to statements on the Web site of Chinabond, the nation’s biggest debt-clearing house. The government fell short of its target in a bond sale for the first time in almost six years on July 8.
First, there are already stock and housing bubbles. It seems to me that everyone's still happily playing in those sandboxes.

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I'm really in the dark as to the reasons behind these failed Chinese bond sales. Who normally purchases China's bonds? Don't they set the interest rates artificially low, such that individuals and private companies wouldn't be buying them, just government-sponsored institutions?

Is this a case of distrust in the government, or something else entirely?
Neil - they don't need money - they have huge reserves. What they are trying to do is supposedly to pull money out of circulation to control the effects of the crank.

Over the last few years massive amounts of savings were withdrawn from banks and put into stocks and housing. See this article.

I don't know what this means, but I suspect it has something to do with the flow of money from private depositors.

See also this comment.
This is a better description.

If you don't have good lending options, you park money in government securities. In theory, inflation rates should be bringing money into banks.

In India, consumer inflation in rural areas remains high. The same might be true for China.

"First, there are already stock and housing bubbles. It seems to me that everyone's still happily playing in those sandboxes."

Gambling addicts will always be "happily" playing. Perhaps that's just the video game addict in me though. ;)

This post and the comments remind me so much of what I wrote in 2007 describing the mindset. It's not hard to see that the investors KNEW it would bust and played anyway.

Savvy Chinese Know Exactly When Bubble Will Burst!

"Zhu Qiuxia, for one, is not worried about a bubble. The power grid worker has put all her savings into shares, and is planning to keep them there until the Olympic Games next year, when she plans to put her original principal back in the bank and continue to speculate with the profit she's made."

Hindsight was fairly kind to my heckle. Too bad I didn't have the courage to "bet" against it. I'm just not much of a gambler it seems.
OK, I've been mulling this all weekend. I guess I have to chalk it up in the "Beijing losing control of the provinces" category.

Beijing shoveled money into the system, trying to keep employment up. Now, they're apparently trying to suck some of that liquidity back out. But the banks didn't show up to auction. They've got something better to do with the money. But in China, loans get made based on "relationships", i.e. political clout. Ergo, the banks are lending to somebody with more clout than Beijing.

If somebody has more clout than Beijing at a time when the central government is trying hard to reign in the provinces and get everybody focused on the problem at hand, something has gone very, very wrong.

That's my tentative theory, anyway.
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