Least worst options

Sometimes to get what you need, dear readers, you’ve got to put aside your petty things like logic or rational thought and do what needs to be done.

Take China’s top manager of distressed debt, Huarong. This week the biggest bearer of bad Chinese bank loans took in US$1.62 billion in an initial public offering that relied extensively on cornerstone investors who wouldn’t sell off their shares when the stock hit the secondary market. Does that raise questions about Hong Kong investor sentiment? Certainly. But at least Huarong was smart enough to recognize it needed an assist (or ten).

Of course all those bad loans Huarong manages have to come from somewhere, and the banks supplying them are less likely than ever to lend to the risky businesses tasked with driving China’s next stage of economic growth. Perhaps that’s why China’s central bank recently let eleven provinces know they could use their loan assets as collateral when borrowing from it in an effort to get them to loosen their purse strings a little.

Some of you will no doubt have noticed that a central bank lending to state-backed banks who borrow against their own assets just to get them to do their bloody job is a little, well, convoluted, to say the least. But it’s hardly an innovative maneuver even by the standards of this very week: As it turns out, not only are institutional investors borrowing using bonds as collateral–many are using that money to buy yet more bonds, in a move that might even make this summer’s stock market margin investors blush.

And blush they have, dear readers: Mainland money is flowing into bonds, insurance products and real estate in top-tier cities as investors look for a safe haven following this summer’s stock market rout. Fixed-income products rose by a knee-slapping 50% in September over the previous month while stock sales fell by the same. And retail money market funds are seeing continued (albeit slower) growth, despite yields falling from their previously heady highs around 7%, drawing ever-closer to the (frankly insulting) returns offered on deposits by China’s big banks.

Really, though, who can blame investors when the stock market continues to languish around the 3100-mark? With that casino up in flames and authorities cracking down on anyone who tries to advertise actual casinos, where else can the masses stash their cash? But then National Day spending did recently give an unexpected boost to retail, restaurants and tourism, and car sales are finally looking up. Maybe that was the plan all along: Leave Chinese consumers with no choice but to consume.