My market-following assistant Shang Ning writes today:
I understand that on Aug 16th, RMB 100 Billion ($12B) of new central bank notes have been issued. Eleven major commmercial banks and city commmercial banks have been ordered to buy the notes because of their too-rapid loan growth. The coupon is 3.69% (which is below the market rate) and maturity is 3 yrs.
Off topic; do you see any "contagion" or spillover from the market turmoil to the Chinese economy?
By dan berg - 8/16/2007 3:35 PM
Not yet, except for a little nervousness, and I don't really expect to because direct financial market transmission mechanisms are pretty weak. I am more worried about a pig flu panic or a sudden collapse in exports and how they would impact domestic credibility. Still, if market turmoil continues, we could see a repeat of the capital flight out of China that we saw after 1997-98. Serious capital flight could affect the banking system and the stock markets in a way that could hurt us badly.
By Michael Pettis - 8/16/2007 3:47 PM
On the other hand, capital flows outward would deal with the RMB appreciation and excess liquidity.
By Twofish - 8/16/2007 10:03 PM
Potential ‘Non-linear’ Impact of the Subprime Crisis on china August 17, 2007 Qing Wang and Denise Yam at Morgan Stanley attempt to answer this question.
By dan berg - 8/16/2007 10:29 PM
Capital outflows would not have an impact on external debt repayment prospects because China has so little external debt relative to its reserves. The concern would be that most flight capital would be funded by liquidating bank deposits, which may put short-term liquidity pressure on the bank. I don't see tis as a major problem unless the numbers become very large. How can I get the Morgan Stanley report?
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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Comments (6) for "Penalty bond issue"
December, 2007
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