China continues to fall apart.
Despite 4 rate cuts since November and much looser restrictions on bank lending and a very aggressive stimulus package, this weekend the PBOC admitted what we already know – that China's economy is still slowing and there will be no quick turnaround. Even worse, they aknowleded that the 2Tn Yuan ($322Bn) that they set aside for local Government bond swaps would be inadequate to cover the problems in that sector – indicating the extent of local Government defaults is far greater than China has previously admitted (something we warned you about in June).
PBOC Director Sheng Songcheng says he expected second-quarter net profit growth for banks to fall, adding that banks' exposure to risk "has become clearer" but he said the real-estate market could rebound in the second half and provide support for the economy. Other analysts say that view is unduly optimistic, pointing to huge inventories of unsold homes and high local government debt which is curbing their ability to spend on infrastructure projects.
That means we'll have to keep a close eye on China's property market to see if it really is stabilizing. This weekend we got another poor reading (47.8) on China's PMI, down from 48.2 last month and again, I cannot stress enough that this is despite MASSIVE stimulus. There have also been a lot of major property sales in China as the Top 1% have been dumping their holdings on speculators betting on a turnaround – not really a good sign or, as Zero Hedge puts it:
To sum up: misrepresentations about local government debt, lies about bad debt levels, and now, the wealthiest locals are quietly, slowly getting out of Dodge, er, China. We can only hope that China's desperate attempt to hold up its stock market, the final frontier before all confidence in China crumbles alongside, lasts a few months longer, or the great Chinese hard landing that has been discussed for years, and always delayed in the last moment, is now virtually inevitable.
Looking at the PMI numbers, the hard landing…
