All the Far East markets took a plunge today. Japan lost a whopping 3.5%. It’s largest loss this year.
Some of the losses are a reverberation rolling around form last Friday’s close on the Dow. Which has since also pulled Europe’s markets down. But last week’s worries about European defaults and debt, while still very much with us and getting worse, still don’t account for it all.
I suggest that the other component is China and Oz. China’s bank worries are increasing. China’s interbank rate for 7 day loan has doubled recently. The Shibor, which is basically the Libor but in Shanghai, has recetly gone tearing skywards. A replay of interbank unwillingness to lend seen in Credit crisis part one in London and US, still playing to packed theatres throughout Europe and now taking hold in the East. Is there a bank anywhere in the world that trusts any other bank? Would you please stand up so we can see you!?
Chinese banks know they are all sitting on huge debts to regional governments for property. And property is so volatile it is bewildering. Prices quoted in some places as having gone up 20% in the last six months. In other reports, prices in major cities are quoted as having declined by in the last month by 18%. Both could be true.
Chinese Banks are being forced to tighten lending but at the same time new money and new land is being made available. In short a buggers muddle.
The result at the moment is confusion and consternation. Lenders are very cautious about lending to each other while still wanting to lend to regional governments – if only they could cover their own debts over night. Sound familiar?
The OZ part of this brew is the increasing synchrony of financial worries in Oz and China. For a while they looked to be in a seesaw realtionship. Tightening in China squeezed money to Oz which fed its bubble. But if the worries get into synch, there will be trouble. And that is how it is starting to look to me. Both have property prices stalled and possibly going down. Both have interbank lending fears and both have bank debt worries and stock market declines.
Last week I mentioned in “Understanding China’s growth and instability” that wages in China – low and no raises in 5 years – would become an issue. And so it has. Major increases across the board announced in may areas. A 20% minimum salary increase in the Beijing area for example . Of course its a major increase from a very low base. But nevertheless it will have an effect. Particularly because it is happening when everything else is also rather delicately unbalanced as well.
I think the East is preparing for a China-Australia double header.
From Times, I quote; "Agricultural Bank of China is understood to be scaling-back plans for what would have been the world’s biggest IPO, while Bank of Communications has made a 20 per cent reduction in the figures it was hoping to raise from its impending rights issue."
Interesting names these institutions bear. Although Agricultural Bank may not sound more ominous than Credit Agricole, but "Bank of Communications"? Exposed mostly to the charlatanery of PR business? Any reason you know of to suggest that Chinese banks are especially exposed to just one sector of the economy, making it less diversified and riskier? (Apart from real estate, that will sink them anyway).
Mr Eirik the names mean very little. Alost every insitutions that has money has invested in , bought or made loans for ral estate. Bank of Communications is the fifth largest bank in CHina I think. ABC is smaller but important.
They are all in it up to their necks in land deals and loans. That is the epicentre of their problems. The scale back in IPO's is a tell-tale sign. The banks don't want to lend to each other why should anyone else 'lend' to them by buying their shares. They are trying to avoid an IPO failure. Just as Italy had a bond failure today.
We are nearing a crunch point. A BIG one.
If the German courts do as rumoiured and strike down the Germany's agreement to the Greece Bail outn find then watch out below.