Tuesday, October 11, 2011

Government Investment Arm Swoops in to Prop Up Chinese Banks

Well at least they are transparent about it.  Chinese stocks of the banking kind, shot up overnight as an investment arm of the Chinese government, came into the market to buy buy buy.  At this point one has to wonder with the Fed intervening in bonds and herding savers into risk assets, various EU countries with short bans on financials, the Japanese central bank buying REITs and such, and now the Chinese outright buying stocks, where there is any price discovery happening on the globe.  All artifical, all the time - paper printing prosperity reigns.

More importantly, this appears to be more fallout of the massive Keynesian plan to flood the economy with stimulus during the global financial crisis.  We asked back then if China was simply following the Greenspan policy of kick the can down the road [Feb 16 2009: Is China Pulling an Alan Greenspan?] [May 27, 2009: How is China Spending their Stimulus... and How Many Loans Will go Bad?]- usually we are early on these things, asking the question two years ahead of the fallout.  And just like Greenspan's (and now Bernanke's) policy, eventually the can kicks back. [Jun 2, 2011: China Now Beginning to Feel Hangover from Lending Boom of 08/09 - Government May Assume Some Local Debt]  So all you can do as a central bank and government is simply pour more steroids on the problem.

  • China is moving to support its state-run banks and financial markets, with a government investment arm purchasing shares in the four biggest lenders as worries mount over debt and slowing growth.
  • Central Huijin Investment Ltd., an arm of the sovereign wealth fund China Investment Corp., announced it bought shares in the four big banks after the benchmark Shanghai Composite Index closed at its lowest level in more than two years on Monday.
  • The news initially boosted Shanghai shares by 0.8 percent but the benchmark ceded most of those gains in the afternoon, closing only 0.2 percent higher at 2,348.52.
  • Chinese share prices have languished despite the country's still robust growth, weighed down by Europe's debt crisis, Beijing's credit tightening, and potentially high levels of bad loans at Chinese banks after a lending surge that helped China rebound from the global financial crisis.
  • The government intervention in the stock market is also meant to counter growing concern over a debt crisis among China's small- and medium-sized businesses at a time when bank liquidity is stretched by central bank requirements to hold record levels of reserves to help counter inflation.
  • Central Huijin is the major shareholder in China's big state-run banks. The company said in a brief announcement on its website Monday that it bought shares in the Industrial & Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank and that it would continue its market-support operations. It gave no details about the amount of shares purchased.
  • Given its continued concern over inflation, which has been hovering near three-year highs but is expected to moderate further in coming months, China is focusing on local bailouts and credit easing to help smaller companies but is unlikely to announce new stimulus spending anytime soon, analysts say.
  • The banks' Hong Kong-listed shares showed significant gains. ICBC climbed 6.7 percent, Agricultural Bank shot up 12.8 percent, Bank of China gained 7.7 percent and China Construction Bank added 5.8 percent. Gains on the Shanghai index were more modest.

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