My views on China, Part II

3. The lending activities are artificial. Bankers are putting back off-balance sheet in 2007 and 2008 when they were constrained by the Chinese government lending quotas. Banks may loosen their lending standards - some are finding its way into stock market, property market and etc. Bad debts are going to show up later. Lending for the sake of lending(making Beijing smiles) will not help to boost fixed-investment.

A bit of reflation is good to stop deflation. Confidence will rise when they see stock market are property market are rising.

Purchasing Manager Index is rebounding suggesting the situation is not bad as we thought. I am still hoping it will break above 50 marking an expansion. So, I will still give a benefit of doubt money did flow into real economy despite of some negatives. In environment like this, perfect solutions are very hard to find.



4. Even if Chinese economy rebounds, Shanghai stock market rebounds - the rest of the world will still buries their heads in the sand. Decoupling is dead.



The tape says Shanghai Composite Index, Morgan Stanley China closed end fund (NYSE: CAF) and A50 China Tracker Fund (2823.HK) decoupled from S & P 500, Hang Seng Index and Hang Seng China Enterprise Index. Morgan Stanley China closed end fund and A50 China Tracker ETFs are tracking closely on A shares listed in Shanghai market. The door is not totally shut, still got a bit of hope. Good day.