This Week's Economic News Is All About China

The week has been marked by news of defaults by China companies- Country Garden and China Zhongzhi.

To summarise, Country Garden has suspended 11 of its bonds, is facing a liquidity crunch and have not paid up on 2 bonds. China Zhizong, one of the largest mutual fund and Unit Trust has been unable to pay back its investors resulting in 2 protests in Beijing from Chinese Citizens.

Confidence by The Investing Community is Shaken

Investors are worried about the overleveraged and liquidity crunch among China companies. The indebtedness is no longer within the property sector only and has taken the second order effect on insurance/finance/construction companies. Investments has soured and defaults are rampant.

JP Morgan is now expecting a high default rate among high yield bonds across the world of which China is expected to contribute to 40% of the volume or approximately US$17 billion.

While China's debt news has been centered around the indebtedness of the private companies, little is revealed where even the state owned high speed rail companies are in fact struggling to repay the interest incurred on their debts.

The Chinese Yuan has now plunged to its lowest in 16 years, a sharp contrast to the period of Hu jintao where China grew at good economic pace and is seen as a powerhouse. The irony is China is now the sick man of Asia

The Hang Seng Index is now in a bear market

China Citizens are not Confident of China Real Estate and Unhappy with their Situation

In the housing market where China uses a housing sampling to show report its property index and show only a -5% decline year on year. Property transactions across major cities like Shanghai has pointed to a 15% decline in home prices within a year, suggesting that the communist party has been cherry picking data to disguise its economic malaise.

What is backing the latter observation is that the real estate purchase of new build has fallen off the cliff suggesting that Chinese consumers are not buying properties with expectations that home prices are going to fall further. 

It is worth noting the slowdown in property purchase is not attributed to Chinese consumers being poor or losing their jobs in mass drove. Both retail and entertainment sales in China has seen double digit growth; instead it is just that Chinese Citizens are deferring their property purchase because they know the real estate market is going lower. They are no longer confident in the upward trajectory of China home prices. Private developers are now stuck with unsold proeprty units and heavy debts as a result.

To make it worse, the constant news and protests relating to the sour of financial products and unit trusts that are not repaying the citizens of their money shows the Chinese unhappiness and lack of confidence in their economic reality