How the Present Situation Has Come About: Mushroom Banks with Bad Influence: The Sov joner Weeded out the Better The origin of the recent fall of Domestic Bonds in the present situation of the Market reveals some unusual features and a paradox peculiar to the Celes Republic. The situation just now cannot be thoroughly understood without looking back to the state of affairs dating from the period ust before the Great War. Up to 1014 banking developments were very behind-hand in China, and the Chinese banking system—which had broken down at the time of domestic bonds start to go _up. Thereafter the large interest payments and redemption under the! sinking funds of the well managed domestic loans under foreign management come into the market for investment. The supply of the bonds is smaller by the amount redeemed, and the demand is greater by the amount redeemed. plus the interest. The effect is and the good bonds bad government go up the Boxer Trouble with the collapse of the Shansi Banks had scarcely commenced its modern development, Indeed up to 1914 there were only eight foreign banks. With the boom during the latter period of the war and the "post. bellum" tera business took such an expansion that there followed an enormous extension of foreign and foreign-style-Chinese banks. Many of the Inter were established by Chinese officials and their friends for the manipulation and employment of official funds and for the develop-mont of business schemes of their merchant friends.
{Money Diverted to Bonds.
When the slump began in 1921 the amount of legitimate busine fell to such an extent that there was insufficient employment for a Jarge number of "mushroom" banks which had sprung up. The resulting easiness of money and the Inck of employment for capi naturally diverted the utilization of funds into the Domestic Bond market which had hitherto languish.
and had been unpopular with Chinese.
'The formation of Chinese banking consortium at this' time, for loaning money to the Government, had much to do with the interest taken in these bonds. The outbreak of the Chihli-Fengtien War in the Spring of 1922 sent these bonds to about their lowest evel. At this time the bonds be-curie an extremely attractive speculation, as the loan services were being carried on schedule, Interest and redemption gave an exceedingly handsome yield on the investment.
During the last two years the stagnant business conditions have resulted generally in easy money with the exception of periods round China New Year, Easy money always means depression of inclu trial stock and the rise of gi edge securities, The result was a natural tendency for the Domestic Bonds to so up secing that the service was continued quite regularly and the security was in foreign hands.
The Celestial Paradox. enters the "Celestial"
In other countries when, By this time the mushroom growth of banks has created a, ge class of speculators who seeing the firmness of these bonds begin buying and increase the: accumulative effect. Both in Peking and Shanghai, banks and brokers have created' a large speculative market in marginal transactions, As long as the easy money and bad credit of the government continued and China was at peace the bonds had to remain at a pretty. high level. But the speculators had carried these bonds up to the where they only began to yield very little more than the best class of external loans. (e.g. Reorganizations, SUR, et situation which was anomala searcely justifiable. This was for-seen by a number of investors and speculators who even before the recent crisis sold out and invested in other securities giving the same yield" at a lower price level.
Text read from the printed page and cleaned; old type leaves the occasional error.