China stock plunge – From Horse Mouth of Mainland Chinese Residents

I was in
China when the country experienced one of the greatest stock market crashes on
24 Aug 2015. I took the opportunity to gather some local feedback. Below are
some of the comments.
Government
is more concern about property – Mr. M, Businessman.
Mr. M is a businessman from Shanghai at
age 50+/-, who also has been investing for decades. He said, “the Chinese government do not really care
about stocks, they are more worry about property!”
It’s
true. According to an article I read, just over 5% of Chinese household wealth
is in stocks while 70-80 percent is in property. Having said that, the
property market in China does not fare any better, with supply largely
exceeding demand.
Mr. M
anticipates that Government will intervene when Shanghai index drop to
2500. Latest is 3160 points. 
I have
confidence in our Government – Mr. D, Manager from government agency.
Mr. D is a manager working in government agency for
more than a decade. He is in his late 30s from Northern China.
While Mr.
D is vested in stocks and suffered net loss, he is not overly concerned.
He said,
if stocks dropped further,
government will sure introduce more stimulus, and public interest will be
protected. Furthermore, China is going to use public pension funds, amounting
to hundred of billions to invest in stock market!”



It is a
desperate move – Mr. R, Corporate executive in listed company
Mr. R is
a Singaporean in early 40s working in a Chinese listed company as one of
C-level executives. 
When
asked if the devaluation and the stock market intervention are careful
strategic moves from the Chinese government, Mr. R said  it’s
a desperate move by the government!” 
Mr. R
reckoned that more and more weaker companies in the manufacturing and industrial
sectors will collapse. In particular, Shipyards will be hard hit. Over the
years, due to the credit glut, foreign shipowners speculated ships/rigs newbuilding
in Chinese yards for as low as few percent payment upfront and balance payment
upon vessel delivery. Banks will finance the shipyards with “easy money” and
insurance companies will then back the banks’ lending.
This rings
similarity to sub-prime crisis in USA during GFC, where properties sale reach
euphoria, simply because of the loose financing by the banks, and in turn, the
mortgage loans were backed by insurance companies.
It is
complex and extremely political at the top – Mr. A, Manager from private
sector.
Mr. A, in his mid-30s like many others, also incurs loss in stocks. Those who were in “margins/contra”
are very badly burned, he said. I was further told that it’s all very complex
and political in China. Over the years, high-ranking officials try to
protect their personal interest by using “easy money or leverage” to
grow more money. 
For example,
there was this province, which started a large JV with a foreign investor to open
a huge plant in a backward province. During the GFC, the foreign company lost
lots of money, and the JV is on verge of getting bust. The high-ranking
official who approved the investment had to defend his initial decision.
Otherwise his political image will be tarnish for this promotion. To cover up, he
will then inject large sums of government money into the loss-making business.
Years after GFC, the plant profitability is still as bad as before. The sole
reason of the plant’s existence today is due to the unfounded government support
and nothing related to good business fundamentals.
Rolf’s Thoughts
It was mixed feelings. For me, China is bound to
experience a short-term hard landing after growing so fast for so many years.
Nonetheless, my views on their long-term success remain.
China slowing growth seems the main cause of the
world stock market collapse recently. Or perhaps they are just a scapegoat?
Just because the country is slowing from 7% to 4-5% maybe, does not mean they
are the cause of the gloominess lately. Ask yourself…how many countries are
growing at 5% today?
The underlying problems, which are more critical
today is not China slowdown. Look at USA…money press machines working really
hard, mounting more debts every year. It is not very different in Japan. Then
you have the Euro-Greece debt crisis, impending interest rates rise, oil
plunge, Brazil corruption scandal, Malaysia political uncertainty, and upcoming
elections in USA, where candidates can be quite absurd in their ideology.
Blame it on China only?
Growing at a slower pace now is not really a bad
thing for China. This is how she can start to learn what is called
“sustainability” after growing at an unimaginable pace in the last decade. I am
sure China still needs to go through lots of short ups and downs in its journey
to emerge as “upward trending” eventually. They are still a young nation after their
economy “opened”. It takes time, but from what they are doing now, they are on
the right track for the long term.  
But for now, I reckon we need to buckle up and
prepare for a bumpier ride ahead!?
IT’S UNCERTAINTY ALL OVER THE WORLD.

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9 thoughts on “China stock plunge – From Horse Mouth of Mainland Chinese Residents

  1. You write so well and easy to understand.
    Not like uncle. Always hint hint hint. Write what pig and hen go breakfast story….

    Should ask him come to read and learn how to write in proper way.

    1. yes
      learnt a lot from him. thanks for his guidance and time.
      really appreciate him to spend so much time to teach me and answer my super stupid query.

      hope he will not find me irritating.

  2. Ha! Ha!
    Now you know why Rolf is in SALE ma. Anyone with money can hire him as PR. That reminds me of SMOL.
    Pen pusher and tools handler will lose in competing with them for PR jobs.

    1. Hi temperament,

      I love to be in PR job. Sales different leh…got target and stress!

      PR is shiok, just wear nice nice, go here and there to chit chat, drink, and sing.

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