Trying to understand an open, transparent economy is daunting.
Trying to figure out what’s really happening in China is almost a shot in the dark. I can’t shake a feeling of dread after reading this last week:
In quiet conversations and background chats with Chinese officials and analysts about the state of things in China, the tone of despondency and cynicism was pervasive while the views of international attendees on China were generally bullish and upbeat.
Today, Reuters has a story about steel in China that was used as collateral in loans. When the loans went unpaid, the banks ‘foreclosed’ on the steel, the warehouses were empty, the metal was never in the warehouses in the first place.
First, remember that those steel stockpiles would have gone into GDP calculations.
Second, the bank losses will now be much larger than expected.
“What we have seen so far is just the tip of the iceberg,” said a trader from a steel firm in Shanghai who declined to be identified as he was not authorized to speak to the media. “The situation will get worse as poor demand, slumping prices and tight credit from banks create a domino effect on the industry.”
No one has been able to make sense of the endless slump in Chinese stocks but perhaps the insiders have a better sense of what is really going on.
