Bloomberg is reporting China Shuns Paulson’s Free Market Push as Meltdown Burns U.S.

Eighteen months ago, U.S. Treasury Secretary Henry Paulson told an audience at the Shanghai Futures Exchange that China risked trillions of dollars in lost economic potential unless it freed up its capital markets.

“An open, competitive, and liberalized financial market can effectively allocate scarce resources in a manner that promotes stability and prosperity far better than governmental intervention,” Paulson said.

That advice rings hollow in China as Paulson plans a $700 billion rescue for U.S. financial institutions and the Securities and Exchange Commission bans short sales of insurers, banks and securities firms. Regulators in the fastest-growing major economy say they may ditch plans to introduce derivatives, and some company bosses are rethinking U.S. business models.

That road may be different from the one Paulson proposed 18 months ago, according to Arthur Kroeber at economic research company Dragonomics Advisory Services Ltd. in Beijing.

“China’s made it clear it won’t listen to these snake-oil salesmen who come from Wall Street, even if they’re wearing suits issued by the Treasury Department,” he said. “It’s strengthened the hands of all the people who are very skeptical about financial liberalization in China.”

China’s post-Olympics hopes fading fast

MarketWatch is reporting China’s post-Olympics recovery hopes fading fast.

Hopes of a rapid recovery in the health of the Chinese economy after the Olympic Games are fading fast on weakening commodity as well as property prices, Citigroup said in a report released Wednesday.

“All signs are pointing towards an across-the-board slowdown in the Chinese economy. The particular worrying signs are rapid cuts in steel prices, surging steel exports, deceleration in electricity consumption growth and weakening coal prices,” Citigroup Lan Xue wrote in the report.

Lan said an unexpected reduction in steel prices for November announced last week by Baoshan Iron & Steel Co., China’s largest steelmaker, suggested steel companies weren’t expecting any major rebound in economic activities.
Baoshan last week announced a reduction of 800 yuan ($117) a ton, or more than 10% over October, in the prices of hot-rolled and cold-rolled steel coils for November, according to reports.

“Another sign of weakening demand is the recent surge in steel exporters which has been very evident” since the second quarter, Lan added.

DBS Vickers analyst Jasmine Lai wrote that sharp price cuts by property developers and sluggish sales have “increased the risks for a hard-landing in the China property market.”

“About one-third of corporate loans are pledged by real estate. Any plunge in property prices may create uncertainties for the banking system. Hence, the timing and aggressiveness of the introduction of government measures to revive the property market is very important,” she added.

News in China is finally catching up with the Shanghai Index. A hard landing is increasingly likely.

Mike “Mish” Shedlock
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