Please send in your suggestions…
Here are a few reasons off the top of my head – I will add more when they come to mind:
1. China’s downturn was only partially caused by the US downturn. In 2008 domestic spending was squeezed by higher food and oil prices. These are a higher % of Chinese household expenses compared with the US and EU countries. In 2009, commodity prices are down, easing one constraint on private consumption.
2. Pre-US meltdown, China had a tight credit policy aimed at curbing inflation and preventing overheating (esp in construction and real estate). The US had a lose credit policy. Thus, in 1H09 China was able to increase lending by relaxing its stricter policy.
3. Chinese households have a lower debt burden than their US counterparts. As a result tax reductions and stimulus measures are more readily spendable by Chinese consumers, whereas US households are more likely to save.
Shanghai is down 10% from its high on the 4th August, as the commerce ministry commented that the Government’s CNY4tr stimulus package is probably not big enough to offset decreases in exports.
1. July export figures were 23% down yoy
2. New loans (CNY355.9bn) were a quarter of those lent in June.
3. The president of China Construction Bank Corp (Zhang Jianguo), the world’s second most valuable bank, said that the firm will cut new loans by 70% to avoid taking on bad debts.
Below I highlight some of today’s losses:
1. PetroChina (the worlds largest company): -5%
2. China Cosco Holdings (the worlds largest dry bulk shipping operator): -6.5%
3. Jiangxi Copper (China’s largest metal producer): -7.4%
It is interesting to note that exuberance for Chinese stocks has been so dramatic, that last week alone 660,000 individual trading accounts were opened. This coincided with the end of a period in which IPOs were banned.
Look at the graph below of the Shanghai index – the drop off at the end is eerie.