Chinese bank risk
A story caught my eye in Hong Kong’s English language establishment paper related to Chinese bank risk. Goldman Sachs issued a report on (maybe) five Chinese banks, changing their ratings to neutral and sell. Eastmoney.com is a subsidiary of government newspaper People’s Daily, came out to stoutly defend the banks against concern about Chinese bank risk.
Communist Party mouthpiece takes issue with Goldman Sachs report calling a ‘sell’ on some major Chinese bank stocks | South China Morning Post – I had a look at the article in question. From a Chinese bank risk aspect of things a number of things caught my eye:
- Ping An Bank and China Merchants Bank have the largest exposure to real estate, accounting for 8% and 6% of total assets which the report authors are flagging as a canary in the coal mine for Chinese bank risk
- CMB real estate loans accounted for 5.61% of about of total loans and advances
- Ping An Bank real estate-related business bearing credit risk totalled 322.093 billion yuan, also down from the end of the previous year, and if this is taken as the numerator and divided by its total assets of 5.456 trillion yuan, it yields a share of about 5.9% – interesting choice of wording
- Overall, the non-performing rate of the mainland real estate industry is still in a period of accelerated exposure in 2022, and the overall non-performing rate of listed banks for public real estate continues to rise to over 4.3%
- There was a reference to “Industrial Bank” that has “deteriorating assets and liabilities” – I think that this is Industrial and Commerce Bank of China better known as ICBC. ICBC is recognised as a systemically important bank
Systemically important bank means that Chinese bank risk becomes global economic risk. While it is state-owned (being one four original institutions that spun out of the Bank of China in 1979), it still exposes retail shareholders and bond holders around the world. Word on the grapevine is that a number of Goldman Sachs partners had long term holdings in ICBC for well over a decade, which explains the banks irrational exuberance for China AND means it would have been extremely hard for the analysts to name check ICBC in this kind of report. During the 2006 IPO, Goldman Sachs purchased a 5.75% stake for US$2.6 billion, this apparently was the largest sum Goldman Sachs has ever invested at the time.
Of course issuing this kind of report in China means that they can’t talk about associated Chinese bank risk. For instance:
- Property development company bonds which just a few months ago Goldman Sachs thought would deliver high returns partly down to Chinese government support in the sector.
- Local governments depend on property development for their main source of revenue and have issued a lot of debt which they may now find harder to pay off resulting in further Chinese bank risk. Given that this is more directly linked to government, it may get less scrutiny
- Finally China’s industrial and services economic growth seems to be an issue with youth unemployment running very high at 20%
Business
Scaling up or selling out: a German take on a corporate dilemma | Financial Times
China
The ‘Curse of 35’ in China: Job-hunters battle age discrimination — Radio Free Asia
Consumer behaviour
Meet the Psychedelic Boom’s First Responders | WIRED– this is likely to end very badly for some people. Having known p eople who had bad experiences growing up, I am leery of the trend towards psychedelics
Interesting research from IPSOS, it sounds like the Cold War all over again circa early 1970s through to the mid-1980s.
Economics
Did supply constraints tilt the Phillips Curve? – Bank Underground – trying to understand global supply chains
Trying to get reliable economic data on China as the government data tends to ‘harmonised’. Part of the problem is the information that local governments provide the central government and part of it is central government choosing to ‘tell the best China story’.
Energy
Will Toyota’s solid-state battery win bring back the magic? | Financial Times
Expect China to increase solar panel dumping due to massive over-capacity. In addition these panels seem to be of low quality with a lower than expected panel life. Given the challenges that the Chinese are experiencing recycling the materials, they represent an environmental problem with a substantial risk of pollution.
Finance
Another nail in the coffin for private sector pension capitalism? | Financial Times
Don’t lose the exponential benefits of fractional share trading | Financial Times
Hong Kong
Hong Kong police arrest five for helping exiled activists — Radio Free Asia
Innovation
Military briefing: Ukraine provides ideal ‘testing ground’ for western weaponry | Financial Times
Ireland
Changing demographics in Northern Ireland and unification
Korea
South Korea allows new bank entrants for first time in 30 years | Financial Times – echoes UK government criticism of banking sector
Marketing
Beyond belt-tightening: How marketing can drive resiliency during uncertain times | McKinsey – interesting read that’s about 50 percent right, probably too much of a bottom funnel focus and a more critical consideration of the marketing technology stack McKinsey are about 50 percent right. One thing that they haven’t done is leverage the marketing science research supported by the Institute of Practitioners in Advertising on relative marketing spend and relative impact on market share. Also in-house agencies have serious problems due to cultural issues in clients.
Tech brand TCL hands BCW global comms duties | Marketing-Interactive – makes sense given BCW’s history taking Chinese brands abroad with Huawei and DJI
Materials
Start-ups: smart clothes have been wearing experience for investors | Financial Times – smart fabrics didn’t win out over wearables
Why is China blocking graphite exports to Sweden? | The Economist – China was trying to cripple Sweden’s electric battery industry before it even got off the ground. This wasn’t about national security but economic domination
Stella McCartney-backed leather alternative Mylo halts production | Vogue Business – US startup Bolt Threads has called time on its mycelium-based leather alternative Mylo — backed by Stella McCartney, Kering and Adidas — after failing to secure the funding necessary to scale
Media
The Eagles Announce ‘Final’ Tour Dates – Variety – following the lifecycle of their customer base. The Eagles attitude to covers, remixes and sampling always sat badly with me which is why I never bought any of their music new. I am sure this tour will keep them wealthy for the rest of their lives however
TikTok for Business | Marketing & Advertising on TikTok
Nineteen minutes inside Sir Martin Sorrell’s head | Unmade – interesting comments on media planning, will this range of technology actually get programmatic right?
Irish Voice newspaper ceases print after 36 years | Irish Central – print edition finishes with the publication continuing online only as Irish Central
Daring Fireball: GQ Shits the Bed
Online
Who’s behind all those weird product ads on Twitter? | Financial Times – fascinating bit of investigative journalism that ends up with a Vietnam based company that fuels drop shipping
Retailing
Japan Airlines gives tourists chance to reduce baggage by renting clothes | Financial Times – this could impact Japanese companies like Uniqlo tourist sales.
Interesting to see the reasons why US retailers have failed when looking to expand internationally. Target’s failure in Canada is fascinating.
Security
Russia deploys ‘Albatross’ made in Iran-backed drone factory | Financial Times
Daring Fireball: Le Monde: ‘France Set to Allow Police to Spy Through Phones’
Software
The environmentally conscious Fairphone 4 is finally coming to the US – The Verge – interesting focus on privacy within the software that Fairphone is using for the US market launch
Interesting YouTube clip about how open source software is being used to extend the lives of Nissan Leaf electric cars. It raises interesting points for consideration about the right to repair debates that have been happening in areas like agricultural machinery through to Apple smartphones.
The devil is in the details of the claims and the research with regards ChatGPT driven trading. TL;DR ChatGPT didn’t trade any better and ChatGPT 4 did worse than earlier versions, implying random chance rather than ability
Style
Highsnobiety to cut 10 percent of jobs in cost-cutting measures | Fashion United