I was in China when the country experienced one of the greatest stock market crashes on 24 Aug 2015. I took the opportunity to gather some local feedback. Below are some of the comments.
Government is more concern about property – Mr. M, Businessman.
Mr. M is a businessman from Shanghai at age 50+/-, who also has been investing for decades. He said, “the Chinese government do not really care about stocks, they are more worry about property!”
It's true. According to an article I read, just over 5% of Chinese household wealth is in stocks while 70-80 percent is in property. Having said that, the property market in China does not fare any better, with supply largely exceeding demand.
Mr. M anticipates that Government will intervene when Shanghai index drop to 2500. Latest is 3160 points.
I have confidence in our Government – Mr. D, Manager from government agency.
Mr. D is a manager working in government agency for more than a decade. He is in his late 30s from Northern China. While Mr. D is vested in stocks and suffered net loss, he is not overly concerned.
He said, "if stocks dropped further, government will sure introduce more stimulus, and public interest will be protected. Furthermore, China is going to use public pension funds, amounting to hundred of billions to invest in stock market!”
It is a desperate move – Mr. R, Corporate executive in listed company
Mr. R is a Singaporean in early 40s working in a Chinese listed company as one of C-level executives.
When asked if the devaluation and the stock market intervention are careful strategic moves from the Chinese government, Mr. R said "it's a desperate move by the government!"
Mr. R reckoned that more and more weaker companies in the manufacturing and industrial sectors will collapse. In particular, Shipyards will be hard hit. Over the years, due to the credit glut, foreign shipowners speculated ships/rigs newbuilding in Chinese yards for as low as few percent payment upfront and balance payment upon vessel delivery. Banks will finance the shipyards with “easy money” and insurance companies will then back the banks’ lending.
This rings similarity to sub-prime crisis in USA during GFC, where properties sale reach euphoria, simply because of the loose financing by the banks, and in turn, the mortgage loans were backed by insurance companies.
It is complex and extremely political at the top – Mr. A, Manager from private sector.
Mr. A, in his mid-30s like many others, also incurs loss in stocks. Those who were in “margins/contra” are very badly burned, he said. I was further told that it's all very complex and political in China. Over the years, high-ranking officials try to protect their personal interest by using "easy money or leverage" to grow more money.
For example, there was this province, which started a large JV with a foreign investor to open a huge plant in a backward province. During the GFC, the foreign company lost lots of money, and the JV is on verge of getting bust. The high-ranking official who approved the investment had to defend his initial decision. Otherwise his political image will be tarnish for this promotion. To cover up, he will then inject large sums of government money into the loss-making business. Years after GFC, the plant profitability is still as bad as before. The sole reason of the plant’s existence today is due to the unfounded government support and nothing related to good business fundamentals.
It was mixed feelings. For me, China is bound to experience a short-term hard landing after growing so fast for so many years. Nonetheless, my views on their long-term success remain.
China slowing growth seems the main cause of the world stock market collapse recently. Or perhaps they are just a scapegoat? Just because the country is slowing from 7% to 4-5% maybe, does not mean they are the cause of the gloominess lately. Ask yourself…how many countries are growing at 5% today?
The underlying problems, which are more critical today is not China slowdown. Look at USA…money press machines working really hard, mounting more debts every year. It is not very different in Japan. Then you have the Euro-Greece debt crisis, impending interest rates rise, oil plunge, Brazil corruption scandal, Malaysia political uncertainty, and upcoming elections in USA, where candidates can be quite absurd in their ideology.
Blame it on China only?
Growing at a slower pace now is not really a bad thing for China. This is how she can start to learn what is called “sustainability” after growing at an unimaginable pace in the last decade. I am sure China still needs to go through lots of short ups and downs in its journey to emerge as “upward trending” eventually. They are still a young nation after their economy “opened”. It takes time, but from what they are doing now, they are on the right track for the long term.
But for now, I reckon we need to buckle up and prepare for a bumpier ride ahead!?
IT’S UNCERTAINTY ALL OVER THE WORLD.