Bad news from China?

If you needed confirmation that China is not 'uncoupled' from the US economy, as it was once optimistically put, and that there will be knock-on effects from the US economy to China's economy to Australia, this piece by Don Lee from the LA Times would be of interest:

Shaoxing, China -- First, Tao Shoulong burned his company's financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And just like that, China's biggest textile dye operation -- with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million -- was history.

"We're pretty much dead now," said Mao Youming, one of 300 suppliers stiffed last month by Tao's company, Jianglong Group. Lighting a cigarette in a coffee shop here, the 38-year-old spoke calmly about the bleak future of his industrial gas business. Tao owed him $850,000, Mao said, about 60% of his annual revenue. "We cannot pay our workers' salaries. We are about to be bankrupt too."

Government statistics show that 67,000 factories of various sizes were shuttered in China in the first half of the year, said Cao Jianhai, an industrial economics researcher at the Chinese Academy of Social Sciences. By year's end, he said, more than 100,000 plants will have closed.

As more factories in China shut down, stories of bosses running away have become familiar, multiplying the damage of China's worst manufacturing decline in at least a decade.

Even before the global financial crisis, factory owners in China were straining under soaring labor and raw-material costs, an appreciating Chinese currency and tougher legal, tax and environmental requirements. When the credit crunch took hold -- prompting Western businesses to slash orders for Chinese goods and bankers to curtail loans to factories -- many operations were pushed over the edge.

China's engine slows

China's industrial decline is a main factor in the sharp economic slowdown of late. The nation's gross domestic product grew at an annual rate of 9% in the third quarter, the lowest in five years and worse than what analysts had forecast. China's GDP expanded 11.9% last year. Now, economists worry that the one big remaining engine of global growth is rapidly losing steam.

For more read here.

Will Morgan Stanley go under?

Is the Morgan Stanley investment bank the next one threatened with bankruptcy? Bets are being taken on this. And what does this mean for the new wave of guarantees announced by the G7 on Saturday?

From The Guardian:

The collapse in Morgan Stanley's shares late last week has led to a wave of bets being taken on the blue-chip investment bank failing to meet its financial obligations. Investors fear that the bank's debt would return only a fraction of its face value in the event of a bankruptcy filing and are pushing up the cost of insuring its bonds against default.

The annual cost of insuring $10m (£5.8m) Morgan Stanley senior bonds against default rose on Friday to $2.8m, up from a price of $1.9m on Thursday. Such an insurance contract, known as a credit default swap (CDS), can now only be purchased in relation to Morgan Stanley when payment is provided upfront — further indication of the precariousness of the bank's perceived solvency prospects.

The 47% jump in the price of credit protection — mirrored on Friday by a 22% slump in Morgan Stanley's share price — came as the complex unwinding process for CDSs linked to failed US rival Lehman Brothers provided further cause for concern.

The payout price for those financial firms that sold insurance, sometimes called "protection", on Lehman credit was set on Friday night at 91.4 cents in the dollar — much higher than market expectations.

Meanwhile, Morgan Stanley is not the only big-name institution that is on the critical list in the credit derivatives market. There are now 135 companies where protection can only be bought on payment upfront, according to price data firm Markit. This compares with a previous peak of 67 in March, suggesting the number of large corporations on the brink of collapse has more than doubled.