Worry about China, not Ukraine

It's tough to see through the political smog in Beijing, but the world's second-largest economy is looking a bit like the US did in 2007.

By TheStreet.com Staff Mar 14, 2014 11:46AM

China © Lawrence Manning, CorbisBy Dana Blankenhorn, TheStreet


Forget Ukraine for a moment. Stop fretting about General Motors (GM) and Herbalife (HLF). If you are in the money business, you can even put Syria on the back burner.


The reason the market tanked Thursday is China.


China's economy is suddenly starting to look a lot like the U.S. did in 2007, when it became apparent that insurance on bad mortgages wasn't worth the virtual paper it was printed on. Those mortgages were about to blow up in Wall Street's face.


If China sneezes, we may catch cold. If China gets a cold, our economy may take to its bed. If China has full-blown pneumonia, we too may be going back into the economic hospital.


TheStreet.com logoGiven the opacity of the Chinese economic and political system, however, it's hard to see clearly how bad this is going to be. That uncertainty may be the worst news of all for the markets.


Premier Li Keqiang held his once-yearly press conference in Beijing Friday morning. Reporters were instructed not to ask the big questions. Then they were warned of a coming wave of bankruptcies. Highlights were translated by Reuters, and made even less sense in English.


If you thought Ben Bernanke was cryptic, try getting it in Mandarin. China is "paying great attention to risks" and debt. We will face "more complicated factors" this year. We need to find "a reasonable equilibrium."


It was the kind of talk that means the ship is either facing waves or is taking on water. All is troubled, but all will be well. Keep calm and carry on, we're doing all we can. If Li Keqiang's intention was to inspire confidence, he failed. If he wanted to say "you were warned" when the economy hits an iceberg, he succeeded.


Speaking of icebergs, one of China's Internet giants, the publicly-traded Tencent (no relation to American rapper 50 Cent) was told to halt the use of its WeChat service as a mobile credit card.


The service was being operated through China CITIC Bank, whose shares were halted after falling 8 percent.


Worse, according to Foreign Policy, some of the service's most popular accounts, including those of top news outlets, were suddenly deleted.


WeChat's explanations were about as transparent as Li Keqiang's talk on the economy. Was this action taken by the government? Is it the start of a wider political crackdown?


A second deadly knife attack, this time on the city of Changsha, reported by the South China Morning Post, did not help matters. These attacks are making people skittish.


This should directly hit the U.S. market Friday, as Alibaba was also handling mobile payments through CITIC, and the valuation of Yahoo (YHOO) is based mostly on its stake in Alibaba. Yahoo was down only marginally in early trading, but watch this space.


China's largest banks were taking on the appearance of our banks in the run-up to the 2008 crisis as well. Shares in the country's largest bank, Industrial & Commercial Bank of China, are now trading below net assets. Together the country's "big four" banks have lost $70 billion so far this year. JPMorgan Chase (JPM) is once again the world's biggest bank.


When the U.S. market turned wobbly, there was a lot of speculation back and forth. Officials tried hard to be reassuring. Those who saw this as a warning to get out kept their money. Those who were reassured became vulnerable to the crash that followed.


The same sort of thing seems to be happening in China now, only without the same transparency. If the world's second-largest economy is about to undergo the kind of paroxysm we took five years to recover from, there's going to be a lot of selling pressure.


At the time of publication, the author held shares of YHOO. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


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20Comments
Mar 14, 2014 1:25PM
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Everything China has done in the past 40-years has been on a huge, massive, spectacular scale.


China has fully absorbed practically the entire out-sourced manufacturing base of the United States of America, along with the economy that supported the American Middle Class. Not that any of our criminal shyster class politicians cares.


What use to be the American Middle Class is now spread out among 1-billion serf class Chinese. slaving in Chinese ghetto cities, on .30-cents an hour.


To support this kind of growth China needs to soak up and extract as much of the world's commodities and raw materials as it can. China's docks are piled high with coal and copper. 


China's housing bubble of brand new empty cities makes the U.S housing bubble seem puny by comparison.


China's pollution is beyond description.


Stands to reason that if China's economy ever falters the crash will be catastrophic. 

Mar 14, 2014 12:59PM
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"The reason the market tanked Thursday is China.

China's economy is suddenly starting to look a lot like the U.S. did in 2007, when it became apparent that insurance on bad mortgages wasn't worth the virtual paper it was printed on. Those mortgages were about to blow up in Wall Street's face."


China is but one of many Reasons the Markets may go up or down. It's literally asinine to talk about China's Problems without talking about the far bigger problems in America and Japan. Eventually robbing Peter to Pay Paul comes home to Roost. The Problem is, by then, all the Super Wealthy will have Cashed out and the average Joe/Sue will be left holding a empty BAG.

Mar 14, 2014 1:39PM
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The media continues to blame everything about Obama's economy on problems other than the real issues at hand, Obama's economy.  15,000 last month left the job market, more people on foodstamps ever, $865,000,000,000 for shovel ready jobs that werent really shovel ready, yuk, yuk.  $86,000,000,000 a month being created out of thin air to keep interest low(so rich liberal folks are borrowing and investing) while the rest of us are watching our FOOD and FUEL costs double.  People are starting to wake up, it might not be too late yet, but by the end of this year, America will be back on the "righ"t path or forever lost in the Liberal Twilight Zone.
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So there is supposed to be a future for China's economy?  Last I checked their economy was based on slave labor and junk products.
Mar 14, 2014 1:36PM
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Why does the US even need a government? Our country, our economy and our financial system is totally owned, operated and manipulated anyway the rest of the world feels like doing it. Death from within is no longer just a prediction, it is now well on its way to becoming a reality. China and Russia know exactly what they are doing and how, when and where to do it - unfortunately the US is either totally clueless or it just doesn't give a damn. The land of the free is slowly joining the lands of the oppressed. The term Cold War is a joke - it is nothing more than a range war. This range war is now coming to a head and the sheep herders are winning - the flock keeps growing and soon there will be only one shepherd and one bellwether.
Mar 14, 2014 3:47PM
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IT isn't China nor is it Ukraine:


Wall Street and the writer of this article wants the reader to think the DOW is falling due to some outside interference while the fact of the matter is "The DOW is Over Valued" and our Government

should have never bailed them out in the first place.. When our Government gets out of the way Wall Street will level off and reach whatever true value it holds..


As For China........WE WON


We have been in a "Cold War" with China for the past 70 years. We have allowed the Chinese Government to introduce the "American Way Of Living" through "Slack Trade Agreements" and have given the Chinese people a taste of Capitalism  and a since of freedom..  Through these efforts the Chinese people have been leaving their farms as fast as we did in the 50's and are now living in the cities with jobs and a taste of "The American Dream". 


NO.. it's not perfect but it was the best strategy our Government could come up with. No One Went To War,  but the streets in China have signs of American influence everywhere you look.  American companies are now doing business in China and the Chinese people KNOW that the American produces are far superior to their own and prefer to buy them when they can..


It's not a perfect marriage but it's better then a World War and I know we had to make sacrifices, but the outcome was worth it.  WE WON..


"The Chinese People Will Never Be The Same Again" once one has tasted freedom <even the smallest of amount> it's hard to get that taste out of your mouth.. It will eat at you, it makes you want more and in order to get more freedom the Chinese people will have to address their issues with their Government themselves, Not with intervention from America be means of War but by the people of China themselves.

We lost jobs and I'm sorry for that but we didn't lose lives and China is in the middle of a civil war and will continue to be until some since of freedom is felt and with freedom come "Democracy" and then a "Fair Trade Agreement " that we can all live with.. BUT NO ONE WANTS WAR..

Next is Russia..

 



Mar 14, 2014 2:33PM
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All it takes for the dominos to fall, is one that starts to teeter.
Mar 14, 2014 2:21PM
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You mean China isn't our ally? Damn, who would've guessed. Sure is shocking to me....
Mar 14, 2014 2:17PM
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Come April to July of this year is when we'll see China's debt problem evolve.  China has to recapitalize during those times.  I just don't know how it effects US; what it does to our stock markets or bond market.  I think it depends on what China does.  The severity of the bankruptcies to come. 

My guess is it's going to be rather large and China seems like they're going to allow much of it to liquidate.  But at some point they may have problems within their own bonds and currency.  That's when they may sell US Treasury bonds and other assets such as gold. 

So its really mixed.  I don't like the bond market, stock markets, or commodities. 

Mar 14, 2014 4:40PM
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We held off the scumbags and manipulators late in the last hour...So we wouldn't go 50 down.

Everyone did their part...

Good job guys and gals..

Not a bad week, should do better the next 5 sessions.

Happy St. Paddy's Day..

Mar 15, 2014 9:40AM
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The dirty little secret is the FED through our International Banks has pumped these emerging markets with huge amounts of cash.  The corporate elites sold them the priming the pump idea.  If we develop these markets we will be super rich was the mantra.  And now reality.  The little whiz boys don't really care because it sure wasn't their money on the line.  The FEDs were so desperate to avoid the inevitable they couldn't help themselves.  A last ditch effort and now reality.
Mar 14, 2014 5:15PM
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Don't worry. Be happy. Let the people, alarmist, that dream up these articles worry. None of this has anything to do with you.
Mar 14, 2014 2:44PM
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 Do not do anything just hold your breath and get this man-child out of office. This incompetent moron must be allowed to fly around the country and be indulged with his yes men. Obozo the homosexual deviant socialist clown has not the morals or intellect for such matters. Please everyone clap your hands pretend we have a recovery and repeat yes we can hope for change.
Mar 14, 2014 12:06PM
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Gee, it will be fun to watch China twist the US around in the wind after we screwed them over with our securitized debt for the last 5 years. Why do the US capitalists think China or Russia give a damn about our economy or ideals? China and Russia should dump their USD and US debt and buy gold.
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