China Watch

China is walking a tightrope – Shan gao huangdi yuan

Managing expectations and its stock market since 2011, China continues trying to bring their “shadow banking” market to heel without creating a panic and economic stall speed. Clearly Bernanke/Yellen with our Federal Reserve Bank have been more successful. China’s Shadow banking refers to the unregulated capital loaned by non-banking institutions usually Trusts that pool money from businesses and individuals seeking high returns.

Shan gao huangdi yuan— “the mountains are high & the emperor is far away” is an old Chinese proverb we would apply to the weak control of China over its banking. Local Governments and entrepreneurs depend upon shadow banking’s outside capital that germinated from China’s restrictive bank regulation in an explosive entrepreneurial growth environment..

We KNOW that China can and will ease credit and regulation  when shadow banking and property prices come down which virtually guarantees at least a further mild panic and slowing of the Chinese economy in 2014.

Chinese export growth

Currently in an export contraction that rivals late 2008—early 2009 when the global lights were turned off, this trend implies that inventories are swelling until manufacturing slows or sales surge.

Once stocks and the economy fall enough to generate widespread fear or unrest then we should expect increasing stimulus that will also serve as a major boost to emerging market stocks and resource commodities like Copper.

What level will trigger the monetary floodgates is speculation , but watching their stock market support levels  on the Shanghai Composite will be a strong clue. 2000 – 2500 is the critical range.

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