:) Do you feel any worry in buying chinese products because of recent events?
Thanks!

Not really. Barring government sanctions on China, I don't have a problem purchasing products from China. The industry that I lend to is heavily tied to Chinese labor for manufacture. The labor is cheap, the quality tends to be good (better than most European quality), and the manufacturers are reliable for getting finished product out within the established schedule. I have no problems with purchasing Chinese products.

However, I do not believe that I would invest in Chinese companies, for purely business reasons.

The Chinese government has guaranteed literally billions of dollars in bank loans to companies that are showing either minimal profits or losses. Many, if not most of these companies cannot pay the required monthly payments without government assistance on those loans, and the banks are going to eventually want to be paid back. If the companies cannot make the payments, then the government must pay the banks as per their guarantees.

As a result, the Chinese are in the early stages of an S&L-like crisis the type of which we experienced here in the 1980s. If a few companies fail and go bankrupt, the banks will start panicking and will start calling all the loans. The government will have to cover their guarantees, which will likely bankrupt the government of China, and the Chinese government will end up failing on the guarantees, just because there are SO MANY LOANS that they have guaranteed, and they can't possibly cover all of it at once. The banks will fail and go bankrupt because they will have no other recourse for repayment, and will be unable to cover their deposits. The companies will fail because they will declare bankruptcy because they are unable to pay back the banks. And because deposits can't be covered by the banks, there will be a run on the banks, and the public will suffer huge losses as well.

The result will be a recession/depression similar to the one we saw in the 1980s from our S&L crisis, and will be the result of similar causes... loans made based on poor lending requirements and too much reliance on the government to bail them out. The diffrerence is that where the US government was rich enough to be able to eventually mostly cover the banks' real-estate losses and borrow what they needed for the rest, the Chinese economy is not yet strong enough to bail itself out. So it will actually be worse than our S&L crisis was, and will likely last longer.

In my professional opinion (which I admitt is contrary to that of many experts who are bullish on China) investment in China is too big of a risk. The potential rewards are, admittedly, huge. But the risk is too high, in my opinion. The investors who are bullish on China are banking on the fact that they will be able to recognize the signs of an economic failure before it happens. But I don't think they are correct. I think that the vast majority of investors in China are going to miss the early warning signs (or will note them, but think they still have more time and can grab a little more profit before they pull out) and that the failure will happen too quickly for them to react in time to save themselves. I'm very bearish on China right now.

Now... Taiwan on the other hand is a great place to invest. So is Hong Kong. But not mainland China.

Elliot

What a great insight! Elliot
That's just totally amazing and professional.
I want to spread you a greenie but it doesn't allow me,^^: