Precious metals are even better in a year in dollars per ounce, gold has increased by 30% and silver of about 100%. Recently, the Chinese stock index has returned despite the slowdown of economic indicators. Nothing paradoxical in this: in China and Hong Kong, monetary factors have much more weight on the market trend as economic fundamentals. In June, the purchasing managers index rose to 50.9 down from the previous month to 52.
If one is interested in monetary factors, it should be very careful. In late May, the broad money supply (M2) stood at 76,340 billion yuan, an increase of 15.1% over the previous year. During the same period, money supply M1 increased by 12.7%.
This increase in money supply has slowed somewhat in recent months, but it is still too high. The IMF forecasts a 9.6% increase China’s GDP in 2011 and 9.3% in 2012.
If one compares these figures to 6.4% of the price index (CPI) in June, monetary policy is still expansionary. For this reason, the People’s Bank of China (PBOC) raised its key interest rate on July 7 for the fifth time since October 2010, the rate loans and deposits were increased by 0.25 points percentage.
The major concern for Beijing is growing indebtedness of the areas which the government insists on stem. Regional bodies should be more tightly controlled. Outstanding thousands of funds held by local governments are estimated at between 1 600 to 2 000 billion. Loans denominated in renminbi and foreign currencies increased by 16.9% over the previous year. From December 2007 to May 2011, outstanding bank loans has doubled.
This already looks like a credit bubble. The banks could face a substantial impairment of loans to regional governments.
It is also true for the real estate market bubble which seems to be formed, especially in coastal areas. And now as the tap liquidity tends to close, most likely we enter a period of tension and strife.
Conclusion: for the investors in the financial markets, it could become very difficult to obtain in China, satisfactory performance in the near future.