“Black Hawk Down:” China – On the Ground Report

By Derek On December 2, 2011 Under Post

A friend of mine, who wishes to remain anonymous due to the hot pursuit of several ex-wives, mistresses and unpaid bar tabs, sends me this report today from Dongguan in Guangdong province. “BHD” is a businessman and a canny observer of the human condition. He spends half his time in China burying himself in “cultural activities” and the other half raising honey bees in Switzerland. His comment on Chinese banks calling in loans is alarming. Here are his observations of the last few days:

 1.        The travel agent I randomly found on a Shanghai streetcorner to purchase my ticket to Guangzhou told me business was terrible and that she hadn’t sold a ticket for 2 days (however my plane was basically full).

2.        Taxis can be found with incredible ease in Shanghai, almost shockingly so… similar toTokyo after the bubble burst.

3.        My friend runs an LED trading company in Guangzhou (exporter), his vendors are calling him on a daily basis to see if there are any orders. Desperate for business.

4.        Retailers in Shanghai were empty to an extent that I have not seen, mainly mid-market places…no comment on luxury.

5.        Everyone talks of a slowdown, and after reading the business section of the Guangzhou Daily for the last week, I am surprised that they seem to have a better awareness of the situation than the WSJ…

6.        Mama-san at local “entertainment” venue said that local businessmen talk about how bad the situation is, but has not affected her “recession proof” business much. 

7.        The number of big electronics retailers in Dongguan is staggering and they are basically completely empty most of the time, but this is normal as the Chinese all seem to shop at the same time. Wonder how long they can continue to expand since there must be a saturation point soon.

 8.        Newspaper constantly has news regarding property prices, and developers dropping prices, seems to be consensus that they will pick up next year (don’t know why). Although media are always bullish property since it drives their advertising to a great extent.

9.        My other friend who has a garment business; a Taiwanese with 30 plus years history in outdoor wear (and coincidentally Ben’s customer) has been telling me that local banks have been calling in loans aggressively. He also said many Taiwanese had been forced back to Taiwan for financing, but due to the rising demand it is not so forthcoming recently. He will be very conservative and pull cash out of his own pocket (he is quite well off, I assume).  A couple of weeks ago I asked him what effect a RRR cut would have on banks (before yesterday’s announcement), he said none. He thinks the banks need to raise the cash regardless, because they realize those loans could go bad quickly if the macro-environment continues to deteriorate. They have enough bad loans as is. So now they call in money from good businesses like his. He thinks there will be an opportunity for people with cash to takeover the weak fish in the third quarter of 2012, so he is preparing for this.



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