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Wednesday, March 19

19th Mar - Special: China

As requested, here's something on China.

What makes this chart so special: 2000-2008 export-led growth. When crisis hit, domestic credit was increased massively. Now there is no large export surplus, and debt is very high. No way out but to deleverage slowly. Also means no more fixed investments for a long time. Banks' bad loans at post-crisis high.

iShares FTSE China 25 Index Fund (FXI), Chart
SHIBOR interest rates, charts (slow)
Macrodata on Tradingeconomics

Monitor: Chinese Credit Crunch – Danske Bank
The house that China built – FT

China: PBoC widens daily trading band to +/-2% - Danske Bank
PBOC Widens Trading Bans – ZH
Yuan Tumbles to 11-Month Low as Band Widening Spurs Volatility – BB
China's yuan dips in widened band, but scope for big swings seen limited – Reuters

China is shaking, sending ripples from Perth to PeruGeorge Magnus
Is the PBOC driving up the euro? – FT
Big investment banks rush to cut China growth forecasts – MarketWatch
China Bond Risk Exceeds Ireland as Defaults Unavoidable – BB
China Is Prepared for Rough Economy Ahead, Li Says – BusinessWeek
China’s Big Four Banks See $70 Billion Vanish From Stocks – BB
China and the Dangers of Debt – House of Debt
China’s banking: March of the banks – The Economist

Ranking EM vulnerability to China FT
In summary, the emerging markets most vulnerable to a slowdown in Chinese fixed asset investment are several Latin American economies, Russia and South Africa. In contrast, Hungary, the Philippines, Poland and Mexico seem fairly well positioned.

GDP growth to fallDanske Bank
Weak data suggests GDP growth could drop below government’s 7.5% growth target as soon as Q1

Economists React: China’s Slowdown Confirmed, but no Hard LandingWSJ

Exports slowing albeit far from as dramatic as headline numbers suggestDanske Bank

China's credit markets under pressure – Sober Look
Copper Posts Biggest Decline Since 2011 on China Demand Concern – BB
China Heralding $1.5 Trillion Emerging Debt Wall: Credit Markets – BB
China Gets First Onshore Bond Default as Chaori Misses Payment – BB
Maybe China’s a Bigger Worry than the Fed – WSJ
Chinese Exports Collapse Leading To 2nd Largest Trade Deficit On Record – ZH
Search for China’s “Bear Stearns moment” is flawed – Reuters
Morgan Stanley: Developed World Could be Hit Hard if EM Stumbles – WSJ

Economists React: China’s Mission Impossible?WSJ
With China's legislature meeting in Beijing, officials are setting out their goals for the year and offering a rare degree of press access in a flurry of news briefings. Economists weigh in.

EM’s dark debt squeeze exposureFT
We have of course been here before. During the subprime crisis unexpected sums of dark debt emerged from off-balance sheet bank liabilities, SIVs and such the like. The impact, as we all now know, was immense. But there’s a very good reason to suspect that “dark debt” hasn’t gone away entirely.

Emerging Market Banking Crises Are NextJames Gruber
Chinese whispers * The great economic rebalancing * More EM drama to come * Winners and losers

Will emerging markets come back?mpettis
Emerging markets may well rebound strongly in the coming months, but any rebound will face the same ugly arithmetic. Ordinary households in too many countries have seen their share of total GDP plunge. Until it rebounds, the global imbalances will only remain in place, and without a global New Deal, the only alternative to weak demand will be soaring debt. Add to this continued political uncertainty, not just in the developing world but also in peripheral Europe, and it is clear that we should expect developing country woes only to get worse over the next two to three years.

Charts point to more downside for emerging marketsMarketWatch

China’s Growth PuzzleProject Syndicate
Stephen S. Roach: Though China’s economy is now slowing, the significance of this is not well understood. The downturn has nothing to do with problems in other emerging economies; in fact, it is a welcome development.

China Must End Its GDP WorshipView / BB
Markets bear some responsibility for trapping China into reckless borrowing and lending. Just yesterday, Templeton Emerging Markets Group warned of civil unrest in China should GDP slow to below 6 percent. These kinds of scare statements box investors into a mind-set that China is just a percentage point or two away from becoming Ukraine.

Monitor: Chinese Credit CrunchDanske Bank
Money market rates have plunged in recent weeks, suggesting that People’s Bank of
China has de facto started easing.

China's home price rises ease for first time in 14 monthsReuters

4 signs of economic slowdown in ChinaSober Look
…and how it could make a slowdown even uglier

Five charts to explain China’s shadow banking systemQuartz
…and how it could make a slowdown even uglier

What if China Does Land Hard?WSJ
Over the last two weeks, several major investment houses have published reports exploring the idea of a hard economic landing in China. They include “We don’t expect it to happen” caveats. But what if it did happen? Would the rest of the world tank as well?

China a Growing Worry Among Fund Managers, BofA Survey FindsWSJ

Is renewed surge in credit forcing PBoC to tighten further?Danske Bank

PBOC Drains Funds Using Repos for First Time in 8 MonthsBB

China Banks’ Bad Loans Reach Highest Since Financial CrisisBB