Sunday, June 25, 2017

Drawing a Line Between Shadow Banking and Real Banks

Regulations meant to limit the reach of the shadow banking sector are having their biggest impact on the banks in China. I think no one quite understood the extent to which banks were making off-balance sheet loans through shell companies and mysterious investment funds to avoid scrutiny of those loans. A series of new rules make shadow loans much more difficult for banks to do. Some of the shadow loans have moved onto the balance sheets now, painting a less rosy picture of banks’ financial results. Some have moved out of the banking sector entirely.

The shadow banking sector is more than just banks getting around the rules, though. Real estate developers also seem to be steering clear of shadow-bank financing for now, worried about what might happen if authorities catch up with them. In other areas such as investing and trade, though, there are few signs that the stricter rules are reining in shadow-bank loans as intended.

Monday, June 19, 2017

Peak Pork

Peak pork? I guess we can call it that. Reuters reports that consumer demand for pork in China is down for the third year in a row, despite falling prices. [ http://www.reuters.com/article/us-china-meat-demand-insight-idUSKBN19A31C ] China consumes so much more meat than any other country that if pork is passé there, it must be declining globally. It is not that pork dumplings are disappearing, but manufacturers are mixing in more vegetables to appeal to increasingly health-conscious consumers. For the first time in China, large numbers of people are trying to eat less in general in order to be more healthy.

Pork producers in China could take losses on recent investments in plants and equipment, but it is foreign suppliers that hoped to sell into the Chinese pork market that will have to make the biggest adjustment. The decline in pork runs counter to official forecasts, much like the soft demand for dairy products in Europe and North America. It seems to have caught everyone by surprise, but it is just the latest example of a decline in quantity for manufactured products.