China Crisis Watch (7)

Getty Images via DaylifeIs China on the verge of a breakdown, or is the country even with an economic growth of nine percent - as announced earlier today - still keeping things on track. The Financial Times summarizes the symptoms and - rightfully - concludes that they point in both directions:

“The State Council is studying a series of measures and is ready to announce them, as the downward trend has already caught the government’s attention,” said Du Ying, deputy director of the National Development and Reform Commission, the main economic planning agency.

But for the time being dropping steel prices and slowing housing sales have not triggered a panic yet. And even despite the news about more than half of China's toy factories have closed, a commenter looks at it from a different perspective: the toy industry itself still grew with 1 percent, despite the bleaker export outlook.

Although indications point in different directions, some basic tools like letters of credit are coming under pressure. My earlier request on more information on whether rumors on problems in getting letters of credit were true, left me with interesting links, for example to the "Letter of Credit - forum". Here the editors discovered that prices for LC's were going up under pressure of the financial crisis and banks were increasingly unwilling to provide them:

This author tells us that vessels loaded with US grain are sitting at buyers’ ports waiting to unload because importers can’t get a letter of credit.Even collateralized loans seem to be difficult to get. The grain has already arrived and can be easily liened, but the banks ask for more.Bankers who drunkenly handed out cash to any poodle have become teatotallers who soberly review credit applications over and over again without finding it in themselves to approve them ("How can he be creditworthy, he approached us for a loan"). With this attitude it makes sense that banks invest in negative yield (!) treasury bills, basically giving up doing any business and promising to investors to lose money but... think of the good news: we could lose a lot more.

When the fundamentals of the export come really under pressure - and we only have increasing anecdotal evidence this is happening - long term economic perspectives indeed look grim.

Links
iBankcoin: Chinese Industry on the Brink of Collapse
AP: Factory Closure in China a Sign of Deeper Pain
China Rises: Black humor on the crisis
BBC: Chinese economy growth rate slows
NPR: Economic Slowdown Hits Chinese Industry Hard
Financial Times: Indicators hint China on verge of slowdown
Cnet: For China, the financial crisis is an opportunity
Shanghai Daily: Can China beat global crunch?

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Arthur Kroeber
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