3 Bearish Factors That Could Set China on Fire

There is a very important and close connection between China and the Great Gold Crash of 2013. Six years ago, China overtook South Africa to become the world's largest gold producer.

As the globe's largest gold producer, China created 109.6 tons of gold in the first four months of 2013, up 6.3 tons or 6.13% year on year. Instead of cutting gold production, like others are doing, China's output is rising. And therein lays the rub: Chinese gold producers are pretending like gold is still in a raging bull market.

Le Yukun, head of metals and mining research at BOC International China in Shanghai, told Bloomberg on 6/24, "We haven't heard of any Chinese miners opting to lower production because of the gold rout." Apparently, China didn't get the memo about gold's bear market. Or maybe they did, but they're deeply buried deep in a mine, they haven't had a chance to check gold's chart.  

Crony Capitalism

In a wonderful Bloomberg piece "Why Did Chinese ATMs Stop Working?" by Adam Minter, he points out another big problem for China; crony capitalism.

"The lack of credibility that China's state-owned banks have with the Chinese public has everything to do with their interconnectedness with the Communist Party and what is often perceived to be their self-serving agenda and self-acknowledged corruption. That's a point that was made, in a brief Monday dialogue on Sina Weibo, started by Wang Mudi, a well-known financial news talking head and producer. "The banks made so much money and yet they have a 'cash shortage,'" he tweeted. "What's the most likely reason?"

Although Chinese business leaders and officials may try to blame slowing exports, Europe's sovereign debt crisis, or other events on their diminishing fortunes, they have become their own worst enemies.

For investors who seek clarity and transparency, China is not your kind of place.

ETFs that aim for inverse or opposite performance to Chinese stocks are the -2x ProShares UltraShort China (FXP) and the -3x Direxion Shares Daily Bear Shares (YANG).

For direct insights on the role of ETFs in client portfolios from multiple experts—including Rick Ferri, Ron Delegge, Skip Schweiss and more—we invite you to register for AdvisorOne's premiere advisorcentric Virtual ETF Summit, which starts July 23 (and get multiple hours of CFP Board CE).