The index flew back to it's highest level since Dec 16th as official Chinese data (ie questionable, at best) showed profits at China's largest Industrial Firms rose 17.9% in June from "just" 8.9% in May.
Despite the "stellar performance" of large-cap companies, the main reason the market is flying is because of a general consensus that Beijing may soon allow the banks to bring in more private of foreign strategic investors. Industrial and Commmercial Bank kicked the ball off by announcing a plan to raise $12.9Bn through the sale of preferred shares.
It's hard to reconcile this "good" news with the fact of the Baltic Dry Index (bulk shipping of raw materials) dropping back to 3-year lows in early July. Who then, is China selling to? Even the WSJ notes that major steel foundries like Tianjin have turned off their smelters – indicating a tremendous pullback in construction activity.
A big question is what happens to bad debts when the treadmill comes to a halt? Despite rhetoric about opening up the financial system to market pressures, there is clearly reluctance in Beijing to let lenders suffer losses. On Wednesday, for example, construction company Huatong Road & Bridge Co. somehow found the funds to make a bond payment that it had earlier warned it would miss.
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