Banking

Banking – Asia’s Roc Boys

Recent Economic Trends

On the left → GDP growth of China year by year in percentage

You can see a decline but why did this decline happen? Heavy Industry slowed down, and also the merchandise export declined as well. There is a trend that China is becoming a consumer economy rather than producer. One PBOC official said that “we used to build the luxury houses, now we manage leasing of it and rent it out.” In short there is a shift in the economy.

This shift resulted in the slowest growth since the Financial Crisis and also resulted in Exports exceeding Imports, which is also unprecedented in China’s recent history.

On the left → you may see the table of the recent inflation percentages. In April, 2016 inflation hit 20 months high and it is due to the heavily increasing CPI index and especially the increasing food prices. On the other hand the inflation is expected to decline by year end.

2015 – 2016 Turbulence

What you will hear next, is not 100% related to our topic, but it is crucial to mention to understand what is going on and what will happen with the Chinese economy.

On the left → you can see a picture of the Chinese stock market’s table on the 12th of June when the first crash hit their economy.

On the left → there is Xu Xiang a.k.a. the “Chinese Warren Buffet” a the most successful Chinese hedge fund manager who was made guilty for the bear market because of suspected insider trading.

Now let me tell you the story of the meltdowns.

1st Meltdown

It lasted for over 2 months during the summer and the first step down the hill was the slow down of the heavy industry. At this point Chinese government did not want Chinese stock to decline. So what they did? They created demand for stocks, which pushed up their price by 50% on average. They simply told people in the national television after the news every night to buy stocks. 80% of Chinese investors were average people without a University diploma. Can you imagine your grandparents buying for example Bitcoin shares because the Prime Minister told them to do so? Probably not, but it happened in China.

And on the 12th of June the bubble popped and until 24th of August Chinese Stock market lost 4trillion in value. Just to compare, that is more the Germany’s 2015 GDP. PBOC interest rate fell to record low as well.

But all these are minor problems and might have just been the tip of the iceberg. The real issue is that no one knows how deep is the crisis and if it will affect world, especially those who export to China.

But this is just the beginning of the story.

2nd Meltdown

According to the Chinese government the problem in January was that people misinterpreted the signs. On the 4th of January Chinese stock market opened and then it closed already after 15 minutes. In the 11 days period Chinese stocks fell by 18% and DJIA declined by 8%. Several blue chip companies required authorities to ban trading with their stocks so it will not fall in value.