For a banker, no panic in China

November 6, 2008

“Well insulated” China, though suffering from sharp drops in its own equities markets, doesn’t have the sense of crisis that exists in the U.S., says Philip Partnow, managing director of UBS Securities Ltd in Beijing. UBS, the first Western bank to assume management control of a domestic mainland brokerage, points out the fact that what’s hitting companies is not subprime-related securities gone bad.

“I think there’s nothing here we feel is toxid,” he told Reuters on Wednesday at the Reuters China Summit in Beijing. He goes on:

“The Chinese capital market has responded quite differently than global capital markets and that is because the Chinese capital markets are still pretty well insulated by the way China controls the RMB and by the other financial controls that China has.

“It is true that both the Shanghai A-share market and the Heng Seng market have fallen quite steeply, but that is more in response to a correction from what many people believe was an over-inflated stock bubble, rather than a direct response from some financial crisis or concern. That’s been then followed on by some concerns that people have about a weakening economic sentiment in the U.S. and Europe and Japan, which are China’s key export markets, and what the knock-in impact will be in China. So there is also a fundamental concern.”

“But there is not a sense of distress or of crisis, or that things that people thought were valuable suddenly vanishing into thin air, along the same lines of what we’ve seen with some of the things that were happening with Subprime and the complex structures that were set up around the subprime, back in the United States. So I think there’s nothing really that we feel that is toxic, out here in China, so we are broadly comfortable with the businesses that we’re in. “

By Lucy Hornby

16 comments

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The toxicity exists in the notion that 8 in 10 Chinese people are riddled with fear about financial security as they don’t trust that the gov’t will support them. That’s why the savings rate is so high and that’s why their domestic economy can’t sustain the country by itself.

Posted by mxq | Report as abusive

the chinese never dare to expect the gov to provide financial security to individual. sounds pathetic. however, it is a matter of fact and is also different kind of mindset at the moment. no country can sustain by itself, but chinese indeed is far better insulated from the financial crisis.

Posted by kiwi | Report as abusive

In such a big agricultural country, saving more and spending less has been a part of Chinese tradition. Their saving habit has nothing to do with how they think about the government.

Posted by lynn | Report as abusive

You are right. Chinese like to save more and spend less ! unlike the Aussie govt where Kevin Rudd encourages everyone to spend more, and the rest of dumb Aussies follows.

Posted by Mia Wei | Report as abusive

The falling Aussie dollar yo-yo is largely due to the risk associated with our trillion $ debt load. Consider also the ballasting effect of the Super funds have lost 40% of value. In contradistinction the Chinese Govt. cash warchest is several times what is officially known. Eg., their 4th largest bank ABC (where the farming peasants save) in 2003 had over a trillion in USD cash reserves, if that gives any indication, the total PRC savings warchest is doubtlessly now is much larger than $10 trillion USD.

Posted by Dennis | Report as abusive

Interesting comment.
So you think china capital market will recover or it has a fair pricing?

Posted by Pablo Paredes | Report as abusive

I think the writer’s view is premature.Being known as
factories of the World with ten & thousands of factories
closure….China does has a major problem!!!!!!!

Posted by liang | Report as abusive

In the time of lovely rising stock market prices many students “invested” their annual tuition and maintenance fees in the ever rising Shanghai or Shenzen stock market. Most of them must have been be underwater (heavy loss) because of that.
How many had rich parents who bailed them out so they could continue their studies ?

Posted by Lotus Blossom | Report as abusive

This up-beat report sounds just like party-line communist propaganda, doesn’t it?

Posted by david | Report as abusive

I think the writer has a vested interest in trying to get everyone to stay invested in China. He has to know what the rest of us know and that is China is in as sad a situation as the rest of us if not worse.
China manufactures for the world. They don’t invent or come up with anything on their own and as such when the buyers pull in their horns, it is sad times ahead for the manufacturers. It has started already and the writer waves it off as a simple market correction. Wrong!

The keyword being toxic here is not easily realized until it blows up one day. The notion that China is insualted when over 40% of their economy is exports, and that number may even be higher. Remember we are dealing with China, and we may never know what numbers are real or not. Also this guy is representing a Chinese bank, hmmm, let me think, propaganda. The guy would quickly be chastised for negative comments, so the lies must continue.

These same ideas that China is just fine, are the same stuff that came out of the US on how sub prime would never spill over to prime and other. And where is the world now, in deep recession.

The fact is, many Chinese banks are going to fail from over lending, bad lending practices, over supply in numerous industries from a massive over build out and little over sight. The Chinese have not gone through this type of crisis before, and they will have wrongully assumed exports would pick up again soon. They have to believe this, as the other possibility of a prolonged world recession, would crush China into another Asian Crisis. Which I beilieve is happening right now in slow motion.

Asian Crisis aka “China Crisis” is on the table right now, and not one analyst in the free world has recognized this?

Posted by David fischer | Report as abusive

China is in much the same situation we were in 1930. We were a creditor nation with lots of savings but that didn’t help us because when jobs start going away, which they are likely to do in China faster than in the US, people quit spending and that exacerbates the situation. Having money in the bank helps the individual during a period of deflation but does not hel society if people won’t spend it.

It seems that the whole world treats their own economic
problems as something that will go away,and fairly soon.Unfortunately, this “head in the sand” attitude, will have them awakening to an ongoing world depression.

Posted by Chris | Report as abusive

Ironically, the growth within both the economies of China and India are the direct result of failed economic investment policies in the United States. As an example, it was previously inconceivable that China would attain a superior broadband infrastructure — when compared to the U.S. But, that’s exactly what has occurred.

Manufacturing for US consumer products will fall, and jobs will be lost in China as a result – we see it in our business in China already where orders are shrinking. There is huge stimulus planning by the China Central Party already – reported even in the state-run media. They are not doing this because they are “well insulated,” but becasue they have something to fear in potentially huge job losses.

BTW – the internet here in Beijing is tolerable at best (relative to the US)- i love visits to the US, where even at my parents rural farmhouse, they enjoy real broadband, not the 512k ADSL “broadband” we get here in Beijing. I can only imaging the internet in rural China. Superior broadband in china sounds as about like this article – a rosy version of things, to say the least.

I think people are confusing Lucy Hornby, the writer, for the fellow she quotes. As far as I can see, Hornby is a Princeton graduate who is in the journalism industry and has no vested interest in Chinese banks. She talks to Chinese bankers, yes, and therein lies the bias, so perhaps the argument that the tone of the article is skewed is still valid. But don’t blame it on Hornby.

Don’t forget the trouncing the “Made in China” brand is getting, along with rising protectionism on the part of the American consumer. I have no data on how strong those trends are, but this poster is responding to the crisis by buying American, so there you go, sample of 1.

Posted by wabewalker | Report as abusive