|The bad news just kept on coming for Those in Command this week. The Shanghai stock market and the RMB rate - the most immediate and transparent of the measures we have available to us for gauging the state of China’s economy - both fell. There was a lot of talk of “changes in the weather.” What it all means and where it is going is not clear, but uncertainty on the futures seems to be the real “new normal.”
Speaking of which, the word “real” is something we see more and more, as in an update from Nomura Securities today entitled “Real GDP Growth Slows Further in Q3?" “The Real Economy” is a phrase we have been hearing for years, but only in a China context. The reason, of course, is that much out there is not real. Such as the decision in the past few days to pump money into listed companies that are threatened by the declining stock market because they took on loans secured by shares at a certain price. It was irresponsible of them to take on the loans with such collateral, but everything remains too big to fail, it would seem.
Meanwhile, the National Team must be spending a fortune on RMB and stocks, which must at some point exhaust their hidden reserves and force them to draw down further on other funds, including forex reserves. Tellingly, a senior former finance official, Fan Gang, this week brushed aside the often-touted possibility of China dumping much of its holdings in US Treasurys as a response to the US trade war moves. It doesn’t make sense because it would hurt China more than anyone - there is nowhere else to put that much money except in US Treasurys.
Have a great weekend.|