Before COVID, the Chinese economy has been on a growth rate seemingly forever as the economy grew 10% plus a year. Anything less was a bad year, and that is one of the reasons there are ghost cities in the China. (cities built for 100,000 people but only 5,000 live in them). China also some of the best infrastructure in the world in terms of high speed rail, roads which cross the country, and connections to ports through various countries which China helped build and finance. The building of infrastructure around the world has meant Chinese demand was a prime determination of the price of raw materials.

In North America we expect the data released by the government to be accurate, although political parties will spin the details anyway they wish, but the data is accurate. We do not know 100% what the
Chinese data is, but if the 4 of China’s 5 largest state-owned banks said they have increased their provisions against bad debt to brace for future losses, one can reasonably say the Chinese economy is slowing down.

With China, there are many reasons, some have to do with trade with the US; some have to do with some plants have left China, not to locate to the US but to other South Asian countries; with COVID there was a global shutdown and people and companies stopped or slowed down shopping while we came to terms how to proceed.

In an article in Reuters, the Agricultural Bank of China (Ag Bank), the China Construction Bank (CCB), Bank of Communications (BoComm), Bank of China Ltd. (BoC) and Industrial and Commercial Bank of China (ICBC) all reported increased loan losses.

The ICBC is the world’s largest commercial lender by assets; the CCB is the second largest lender by assets.

Net interest margins ranged from BofC at 1.82% to ICBC at 1.98% and AgBank at 2.14%.

Non-performing loans were generally increased by 1.5%

Chinese commercial banks overall posted a 9.4% drop in first half net profit to 1 trillion yuan or ($190.8 billion) according to the China Banking and Insurance Regulatory Commission.

Linking to dividend paying stocks, in the US the big banks have taken billions of dollars in write downs for possible losses, but in China they may not be able to do that as the shareholder is the state and the state does not want to report perfect numbers. At some point all investors have access to the same numbers and what you see or do not see is your view for the future. As an investor you need to be somewhat cynical, but if profits come in which translates into dividends optimism will reign.

There are more questions than answers, till the next time – to raising questions.