Problems in China continue to mount. Money supply is growing rampantly out of control, property prices are in a bubble, exports are weak, commodity speculation is pervasive, and GDP growth is more of a mirage than real.



Money Supply Growing Record 29.74%



Please consider China Monthly New Loans Are 294.8 Billion Yuan, Above Forecast



New local-currency loans totaled 294.8 billion yuan ($43.2 billion), compared with 253 billion yuan in October, according to data released by the People’s Bank of China on its Web site today. The median forecast of 19 economists in a Bloomberg News survey was 250 billion yuan.



M2, the broadest measure of money supply, rose a record 29.74 percent in November from a year earlier.



China’s banking regulator plans to slow new lending to between 7 trillion yuan and 8 trillion yuan next year, a person familiar with the matter said this week. China is trying to ensure that there is enough credit to support an economic recovery without increased risks of bad loans and asset bubbles.



“We believe slower credit growth in 2010 will be key to avoid a boom-bust scenario in the economy,” Wang Tao, a Beijing-based economist for UBS AG, said in a report.

What is China doing with all that printing?

China Plans To Control Property Prices

The government “plans to control property prices by accelerating property investment and increasing supply,” economists Lu Ting and T.J. Bond said in an e-mailed note today. That contrasts with efforts in 2006 to cool prices by controlling investment, the economists said.

China Is Overbuilding Already

China's Empty City

China Has Trouble Maintaining Demand Growth

China, the world’s third-largest economy, faces “increased difficulties” in maintaining growth in domestic consumption, the nation’s top economic planning agency said.



A recovery in external demand is “difficult,” the National Development and Reform Commission said on its Web site today, citing Vice Chairman Du Ying. The nation’s economic recovery “is not yet solid,” the agency known as NDRC said.



China will maintain a “moderately” loose monetary-policy stance and “proactive” fiscal policies in 2010 as its economic recovery isn’t solid yet, the official Xinhua News Agency said Dec. 7, citing a statement by the annual central economic work conference.



The country still faces a “very challenging” international environment and “the domestic problems it is confronted with are also complicated,” Du said in the statement today. “The potential risks in the fiscal and financial sectors can’t be underestimated,” Du said.



Economic growth in China, which is spending $586 billion on a stimulus package, accelerated to 8.9 percent in the third quarter after slipping to 6.1 percent in the first. The government is targeting 8 percent growth for the full year.



Moderately Loose Monetary Policy?!

Bubble Concerns In ‘Sizzling’ Shanghai

Escalating prices in Pudong, transformed within two decades from vegetable fields to skyscrapers for Citigroup Inc. and HSBC Holdings Plc, underscore a Chinese property market that set record highs this year after the government unleashed $1.3 trillion in new bank lending to counter the global recession.



Premier Wen Jiabao said Nov. 28 that property speculation must be suppressed, and the government on Dec. 9 reinstated a sales tax on homes sold within five years of purchase after reducing the period to two years in January. That change is superficial and will have minimal impact, said Lu Qiling, an analyst at Shanghai Uwin Real Estate Information Services Co.



“It’s only a token measure,” Lu said. “It won’t change the upward trend in housing prices.”



“The government is clearly in a dilemma,” Luk said. “It wants to address the surging property prices and concerns on bubble-bursting, yet it dares not take drastic measures for fear of hitting the market too hard.”



The nation’s real estate and stock markets are a “bubble” that will burst when inflation accelerates in 2011, former Morgan Stanley chief Asian economist Andy Xie said in an interview in Hong Kong today.



“China’s asset markets are a Ponzi scheme,” said Xie, now a Shanghai-based independent economist. “Property is heading for one huge bust that will take a year and a half to unfold.”



The Shanghai Property Index, which tracks 33 developers listed in the city, has more than doubled this year, compared with a 75 percent gain for China’s benchmark Shanghai Composite Index.

True Believers

It won’t change the upward trend in housing prices.

China’s asset markets are a Ponzi scheme



Copper Stockpiles Soar

Copper stockpiles held in duty-free warehouses in China, the top user, may be re-exported after surging to as much as 350,000 tons from almost none at the start of the year, according to Xi’an Maike Metal International Group.



“We can hardly find buyers for refined copper,” said Luo Shengzhang, general manager of the copper department at Xi’an Maike. The company ranks among the country’s three biggest importers, according to the executive. “China’s got to export some copper from now and next year,” Luo said in an interview.



Luo’s estimate of the bonded-zone stockpiles compares with 60,000 tons by Macquarie Group Ltd. in July. It’s also more than triple the inventory in Shanghai Futures Exchange warehouses, which stood at 104,275 tons as of the week of Nov. 2. A bonded zone holds imported goods before duty has been paid.



In addition to the bonded-zone stockpiles, China may also hold 150,000 tons in the Shanghai area, including in exchange- monitored warehouses; 235,000 tons at the State Reserve Bureau, which maintains government holdings; and 200,000 tons with fabricators and private investors, Luo, 36, said yesterday.

Chinese Pig Farmers Speculate In Copper

Private investors in China, the world’s largest metals user, have stockpiled “substantial” quantities of copper as the government ramps up stimulus spending to spur the economy, according to Sucden Financial Ltd.



Pig farmers and other speculators may have amassed more than 50,000 metric tons, Jeremy Goldwyn, who oversees business development in Asia for London-based Sucden, wrote in an e- mailed report after a visit to China. That’s about half the level of inventories tallied by the Shanghai Futures Exchange, which stood last week at a two-year high of 97,396 tons.



Sucden’s estimate underscores the difficulty analysts face in gauging metals demand in China amid increased speculation by retail investors, whose holdings remain outside the reporting framework undertaken by exchanges. Private investors in China also had as much as 20,000 tons of nickel, Goldwyn wrote.

Before getting into to the relationship between copper and pork products, I want to draw your attention to what makes me nervous, have a look at these photos from China. They are excerpted from a China Central Television Channel (CCTV) program documenting private speculation and hoarding of metals throughout the country. According to an associate of mine at an Asia-focused hedge fund who was just in China, “It’s pervasive; people are piling this stuff up in their backyards.”

China's Banks Capital Strained

Dec. 18 (Bloomberg) Chinese banks’ capital strength is probably more “strained” than it appears as lenders use more off-balance sheet transactions to make room for loan growth, Fitch Ratings said.



The increasing amount of unreported transactions, including repackaging loans into wealth management products to sell to investors, and the outright sale of loans to other financial institutions, represent a “growing pool of hidden credit risk,” Fitch said in an annual review of Chinese banks.

Music, Pumpkins, And Lessons Not Learned

When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing

Chinese Banks Learned Nothing From Citirella

Asset Bubbles And Inflation In China

Scylla or Charybdis?