2019-11-13

Rehypothecating Excavators

Rorschach test of your China view.

Is China in a building boom or is construction equipment being sold on credit or is it being bought on credit and rehypothecated for bank loans?

Caixin: Sales of Chinese-Made Excavators Hit Record Even as Economic Growth Slows
Sales of excavators by Chinese manufacturers have hit a record high this year as the central government ramps up efforts to bolster the country’s slowing economic growth by boosting infrastructure spending.

From January to October, 25 manufacturers in China sold 196,222 of the dirt-moving machines, which are essential for large construction projects, according to data (link in Chinese) released Friday by the China Construction Machinery Association (CCMA), an industry group. It was an increase of 14.4% year-on-year, although well below 52.5% growth (link in Chinese) for the same period in 2018. About 89% of the excavators, or 174,680, were sold in the domestic market.
I could be wrong about which way the Chinese economy goes, particularly in the short-term, but this is not good news for the health of the Chinese economy. In the best case scenario, it's a stop gap measure that helps the economy until a real recovery or positive black swan comes to bail out the global economy. There are no other good scenarios.

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