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Protests are not uncommon
in China. However, most protests have been in rural areas where
farmers have had their land stolen by bureaucrats and property developers. The last few weeks
have been different. Several
large urban areas have seen
protests against
corruption.
Please consider Wave of Unrest Rocks China
A wave
of violent unrest in urban
areas of China over the past three
weeks is testing the Communist Party's efforts to maintain
control over an increasingly complex
and fractious society, forcing it
to repeatedly deploy its massive security forces to contain public anger over economic and political grievances.
In the latest disturbance,
armed police were struggling to restore order in
a manufacturing town in southern China Monday after deploying tear gas and armored vehicles against hundreds of migrant workers who overturned
police cars, smashed windows
and torched government
buildings there the night before.
The protests, which began Friday night in Zengcheng,
in the southern province of Guangdong, followed serious rioting in another city in
central China last week, plus bomb
attacks on government facilities in two other cities in the past three weeks,
and ethnic unrest in the northern region of Inner Mongolia last month.
Antigovernment protests
have become increasingly common in China in recent years, according to the government's own figures, but they have been mainly confined to rural areas, often where farmers have been thrown off their land by property developers and local officials.
The latest unrest, by contrast, involves violent protests from individuals and large crowds in
China's cities, where public anger is growing over issues including corruption and police abuses.
Protests in China have been occurring
at an increasing rate.
This is in spite of the fact
the Chinese economy has
been growing at 10% a year for a decade.
What happens when China's growth slows to 4%?
Chinese Stock Market
Fraud
While pondering
implications of slowing growth
in China, please consider
The big
fraud in Chinese stocks
by Jim Jubak.
For years,
investors in Chinese companies have used the reputations of outside auditors, institutional investors and global investment
banks as a proxy for reliable
financial reporting. Maybe the disclosed data wasn't always easily understood, transparent
or accurate but if a Big
Four international accounting firm
like Deloitte Touche Tohmatsu signed off on the
audit, a big institutional
investor like JPMorgan Chase (JPM, news) owned
a couple of million shares and an investment bank like Goldman Sachs Group (GS, news) had
underwritten the company's
initial public offering, the financials
had to be OK, right?
Apparently not.
That's what's so depressing, disturbing and disorienting
about the fraud recently uncovered at Longtop Financial Technologies (LFT). The company's books were audited by Deloitte, and Longtop still managed to lie about the $332 million in cash it claimed on its balance sheet.
This was no penny stock that
duped only unsophisticated individual investors. JPMorgan Chase owned almost 2 million shares that were
worth $62 million as of March 31. FMR, which owns the Fidelity mutual fund family, had $261 million invested. Maverick Capital, a hedge fund with $20 billion under management, owned $177
million of Longtop Financial Technologies shares. The lead underwriters
on Longtop's 2007 IPO had
been Goldman Sachs and Deutsche Bank. In 2009,
Morgan Stanley was the lead manager of a sale of
more shares.
Since March, more than two dozen companies
based in China have disclosed
auditor resignations or accounting problems, according to the U.S. Securities and Exchange Commission.
The SEC has launched a task
force charged with examining accounting at overseas companies
listed in the United States.
In other words, Longtop Financial Technologies isn't
a bad apple in a barrel
of otherwise sound fruit.
Instead, it's symptomatic of a big problem that has tainted an entire sector. And because China is too big
an economy and too promising a stock market to simply ignore, investors need to figure out how to deal with
the problem.
Longtop Financial Daily Chart
Longtop stopped trading May 18. Jubak describes the fraud in great detail in the rest of his post.
Expect Mountains
of Fraud
Fraud and credit bubbles go hand-in-hand.
When things are booming, everyone is willing to look away. That's what happened with the US housing bubble as well. Greenspan then Bernanke were both in denial, as was the NAR, real estate flippers, and everyone who stood to profit from the bubble on the long side.
China is currently in the
midst of an enormous property bubble and credit bubble, yet some serious
cases of fraud have already
popped up.
As soon as the Chinese credit bubble implodes, and it will, look for mountains of fraud in the Chinese stock market and the Chinese property market to come to
light. Also expect the Chinese Copper Ponzi Financing Trade Gone Wild will implode.
As long as the stock market, the job market, and housing prices hold up, China may be able to contain social unrest. " When China's credit bubble implodes, things will likely be
anything but "contained".
Mish
GlobalEconomicAnalysis.blogspot.com
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Mish's Global Economic Trend Analysis
Thoughts on the great
inflation/deflation/stagflation debate as well as discussions on gold,
silver, currencies, interest rates, and policy decisions that affect the
global markets.
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