China fact of the day

Recent overweighting to stem A-share plunge has made China Securities Finance Corp (CSF), central bank-backed refinancing institution, among top 10 shareholders of many listed-firms, reported Securities Times on Wednesday.

Among all investments, eight firms have been confirmed of the CSF’s stake, which include property developer Dulexe Family, Hualan Biological Engineering, resource purifying developer SJ Environment Protection, Yunnan Tin Company Group, Fujian Cosunter Pharmaceutical Co, Hunan Er-Kang Pharmaceutical Co, digital map provider NavInfo Co, and retailer Friendship&Apollo.

The CSF has been listed as the second-largest holder of tradable shares at Cosunter Pharmaceutical, third largest at SJ Environment Protection, and fifth-largest shareholders at Yunnan Tin Company, according to the Times citing disclosures to Shanghai and Shenzhen stock exchanges.

There is more here, by ChinaDaily, via Patrick Chovanec.  I wonder how they are planning to unwind all of those share purchases?


"I wonder how they are planning to unwind all of those share purchases?"

They're not.

Exactly what I was going to say.

Same here.

Hong Kong Monetary Authority acquired USD15bn equities of HK listed companies during the asian financial crisis in order to support the market. It subsequently disposed these stocks at a gain.

Neither CSF will sell the shares nor the Fed will sell the bonds they are holding. There is no difference between the two cases. Most important, contrary to what Tyler as well as thousands of professional and non-professional U.S. economists have been saying, those purchases have been financed by borrowing from banks (state banks in China, private banks in U.S.) not by printing money.

The bonds on the Fed's balance sheet will naturally mature over time. Not so with equities.

Doesn't matter- the Fed will simply use the proceeds to buy new bonds. There is no exit.

How do you know this? The Fed balance sheet shrank by more than 1% between January 14 and May 27.

As I understand it, the balance sheet (a) will grow due to the passage of time like any fixed income portfolio, (b) will fluctuate as interest rates fluctuate, assuming the balance sheet is marked-to-market, which it looks like it is, and (c) will shrink to the extent that proceeds from maturing securities are not reinvested but rather withdrawn from the money supply.

It's hard to see exactly what the Fed is doing here, but a gradual unwinding seems quite plausible, tho it will take a while. How are you sure they haven't started doing this?

I will predict right now that it will be higher or the same a year from now, and higher five years from now. Yes, you will get the occasional periods where it drops a percent or two before the Fed reinvests proceeds (which is still the policy, by the way).

Maybe. In my mind, there's precious little understanding of what this all means.

The way I see it, Treasury has issued $18 trillion in debt, and the Fed has bought (monetized) $4.5 trillion of that.

The income helps offset the increasing share of the budget that goes to debt service.

The whole thing has not produced inflation (I suspect it has averted deflation), so what's the big deal?

So, why not monetize all of it? What's the big deal?


What else you got?

$18 trillion in debt. Who's gonna pay it?

1. Keynesians: No one. Can kicking into perpetuity. One problem with this is that there's still $300-400 billion in interest due annually just to tread water. So, you're crowding out your beloved infrastructure right there or allowing the debt to truly spin out of control.

2. Right wing. No one. The system will crash.

3. Me. How about current holders of financial assets? They can be made to pay indirectly via the printing press. It's not a perfect match, but, considering that $10 trillion+ has come this century, this tells me that we either spent too much or didn't collect enough in taxes over the past 15 years (looking at you, Boomers), and you can't go back and unspend money, so future taxes it is, either explicit (income, payroll, VAT) or implicit (inflation) and, since old people have the bulk of financial assets, and that's where the Boomers are now, I say git 'em.

But they're Communists and therefore believe in a Planned Economy. No doubt they'll come up with a Five Year Plan for selling 'em.

Yes indeed. It is a system feature, not a bug.

Central banks exist for a reason.

Does this count as seizing the means of production?

"The knell of capitalist private property sounds. The expropriators are expropriated"

Sell to General Motors.

Consider it an unexpected wealth tax.

In the future, buying in the aftermath of the bubble may be seen as excellent timing. It's possible that the government will make immense profits from buying now.

2nd China Fact of the Day...

Ai Weiwei gets his passport back.

If these companies are effectively state enterprises anyway... what difference does it make if they really are owned by the state through their faux "stock market"?

I find it hard to believe that the Chinese poured a lot of money into equities for companies that actually operated as independent entities, outside government control. I thought the whole idea in China was that everything was under government control, just masquerading as capitalism.

I would watch for some accounting slight-of-hand that made the government's ownership of all that equity just disappear. I'd expect the party functionaries that control the companies to be vastly enriched in the process. That's all "capitalism" in China has ever been anyway.

It's really quite a bit more complicated than that.

The operation of the Chinese economy is probably the most complex in the developed world. Followed distantly by the Eurozome economies. And if there's one thing I learned in 'Nam...

So the question is 'when' not 'whether' on China.

The pertinent follow up is: what do we do to promote peaceable liberalism in a post-collapse China?

Is this an "on second thought, maybe capitalism wasn't such a great idea after all", moment?

The People's Bank of China need not sell the equities in a hurry. They have the luxury of holding on until there is a good time to sell or simply holding on for several decades. Who knows? Maybe they will place the equities into some sort of government pension fund.

It is interesting to see a central bank being used aggressively to promote economic growth. All bad? Or some good? was not so long ago the American right was advocating the Social Security fund equities..

Currently don't rely on Skype's Chinese translator in polite company.

"A glitch in the beta software misinterpreted the words I spoke. 'It's nice to talk to you' was translated as 'It's ****ing nice to **** you,' and other synthesized profanity,"

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