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Chinas growing worries

China is in the midst of “the greatest bubble in history,”
March 17 (Bloomberg) –The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”
Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of an overheating and potential crash in China’s economy following a rally in stocks and property prices. The government has raised lenders’ reserve requirements twice this year to cool an economy that grew at the fastest pace since 2007 in the fourth quarter.

Leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance- sheet debt through regional governments and the country’s human rights record are concerns, said Rickards, who worked for LTCM between 1994 and 1999, helping negotiate a $3.6 billion rescue after the hedge fund lost $4 billion in a few weeks in 1998.

“Take Russia and China together, neither of them is really deserving any investment” except for short-term speculation, Rickards said. India and Brazil are two of the “real economies” among the developing countries, he said.

U.S. Treasuries
Rickards also disputed an argument that China could hold U.S. policies hostage through its U.S. Treasury securities holdings. The Asian nation remained the largest overseas owner of the debt after trimming its holdings by $5.8 billion in January to $889 billion, according to Treasury Department data released March 15.

China would suffer massive losses if the debt was dumped, reducing the funds available in the U.S. securities market and forcing the prices lower, he said. The U.S. president also has the authority, rarely used, to freeze such positions, he said.
Harvard’s Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments.
To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net.

March 18 (Bloomberg) — Chinese companies owned by the central government should speed up plans to pull out of property development if it doesn’t form part of their main business, their watchdog said today amid complaints that private real- estate groups are being squeezed out of the market.

PEs preferring China, India for investments in 2010
The survey noted that distressed private equity and small to mid-market buyout funds continue to attract a significant degree of investor interest, with 35 per cent and 36 per cent of respondents citing these as areas of the market that present the best current opportunities respectively.
Economics Inside China bubbling, NPL rising and local government fiscal insolvency are clearly increasing. Though still under debate, macro tightening (monetary policy and property) has begun
China’s 8,000 Credit Risks
Beijing’s stimulus has spawned thousands of special government investment funds holding billions of dollars in off-balance-sheet debt.

As the world struggles to recover from the most severe economic slowdown in a generation, China seemingly has accomplished a miracle. Growth registered at almost 9% last year, yet the government debt-to-GDP ratio still stood around a modest 20% as of December 31. Has China enjoyed the proverbial free lunch?

Far from it: The Chinese government has financed much of an enormous stimulus package through thousands of investment entities created by local governments. If Beijing doesn’t soon recognize this problem and put a stop to it, banks in China, which have provided the bulk of the funding, may soon face …

Source: SinoRock, 18.03.2010

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