Please don’t call it a liquidity crunch, but it rather looks as though China might have had to sell a sliver of its vast hoard of U.S. Treasury paper to fund its private sector’s big overseas foray.
The Great Debate
The stock price seems to be the only thing growing at Hewlett-Packard, the world’s largest computer company. HP shares have risen 75 percent this year, despite few signs of a revival in technology spending.
Seven summers ago, in a crowded conference room of a Washington hotel, an Iranian exile leader gave the first detailed public account of Iran’s until-then secret nuclear projects at the cities of Natanz and Arak. It greatly turned up the volume of a seemingly endless international controversy over Iran’s nuclear intentions.
Investors met the news that Japan’s economy has emerged from a bone-breaking recession calmly and rationally: they sold shares quickly and in large amounts and made bets that consumer prices are going to be falling for years to come.
Chinese banks are like enthusiastic runners on an accelerating treadmill. The weakening economy means poor lending decisions are threatening to catch up with them, but the banks are sprinting ahead by expanding their loan books ever faster. They cannot keep this up for ever.
Chairman Mao believed the economy needs to run on two legs, but when it comes to corporate financing, China is advancing in a series of giant hops. Its banks are flooding the market with credit, while equity markets actually supply less capital as a proportion of the whole.