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Signs China is about to Pop

cpwill

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In a classic case of procrastination, China has been keeping its massive debt crisis at bay by issuing more debt. However, Fitch's Charlene Chu, a leading expert on China's debt, thinks the country's time is up...

Chu's argument is that usually "stress starts in the periphery and moves to the core." Here are five signs that she's right:

1) Plummeting exports in May
A government crackdown on fake trade invoicing likely caused a sharp drop-off in exports, which rose 1 percent year-over-year in May, compared with 14.7 percent in April.... export growth (and economic growth overall) has been much less than China's headline data suggest.

2) The spike in interbank rates continues
Smaller banks are scrambling to get cash. Interbank rates began spiking in early June, when the export invoice crackdown officially began. The immediate cause was the alleged default on mid-tier Everbright Bank's 6 billion yuan loan from Industrial Bank....

3) A crackdown on unsecured loans is imminent
A scheme similar to fake trade invoicing is brewing in short-term bank notes. In Q1 2013, banks issued 670 billion RMB in short-term bank notes, up 198 percent from the same period in 2012. "Over the last couple of years is that banks will kind of invent assets out of thin air in order to create loans," Anne Stevenson-Yang, founder of Beijing-based J Capital Research, explains....


4) Businesses are lying about profits and drowning in debt
The latest report from Caijing says that 71 firms in Guangdong exaggerated their earnings by more than $1 billion combined. And the problem extends beyond Guangdong. "It is an open secret that aside from state revenue, all the other economic data are jellyfish,... corporate debt could amount to as much as 220 percent of the GDP.

5) Local government financing platforms are desperate for loans
China's businesses and local governments aren't bringing in anywhere near enough cash to keep up with debt payments. As a result, local government-affiliated investment vehicles are willing to borrow at rates of 17.5-20 percent and they're padding their balance sheets with fake collateral,...
Just to put that the interbank loan rates in perspective:

China’s central bank removed 2 billion yuan ($326 million) from the money market today, mostly to punish the country’s banks for their shady lending. As a result, banks held onto more of their cash, which sent the two-week and overnight interbank lending rates up 212 and 206 basis points, respectively. Meanwhile, the one-month rate surpassed 7.6%, territory it hasn’t seen since January 2012. To sum that up: Chinese banks think lending to each other for 24 hours is riskier than Portugal’s chance of default on a 10-year bond....
 
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Fisher

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China has been under pressure about manipulating their currency. Pulling money out of the market may be related to that, It is something the US will have to face dealing with due to all this Quantitative Easing at some point.
 

Jredbaron96

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Have you seen those Ghost cities the Chinese built cpwill?
 

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Can't get the credit to feed the current expansion rate. The formula is a rock hard closed case of a finacial melt down of enormous proportion and it's only a matter of when. We will all feel this one.
 

cpwill

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a sharp slowdown in foreign exchange inflows and seasonal factors have dried up liquidity, the central bank has not helped by draining funds from the market and deliberately stayed away in a bid to force local lenders to rein in credit growth which has reached worrying levels.

According to research from Credit Suisse, China's credit-to-GDP ratio surged to more than 170 percent last year from just over 110 percent in 2008. Ratings agency Fitch Ratings has warned that the scale of credit in the economy was so extreme that it would find it difficult to grow its way out of the excesses.

In addition to not helping local lenders by providing more liquidity, there has been growing talk that China's central bank will allow smaller lenders to default on their loans to other banks...
Chinese money markets have suffered a severe liquidity strain in the past week, due to seasonal factors and a sharp slowdown in foreign exchange inflows, raising concerns about the financial risks facing the world's second largest economy.

But to the surprise of many market participants, the central bank has held back from pumping cash into the market to ease the credit squeeze and analysts said a spike in the rates at which banks lend money to each other was also a concern.

"SHIBOR (Shanghai Interbank Offered Rate) at 25 percent basically means there is no functioning in the interbank market in China," Patrick Chovanec, chief strategist at Silvercrest Asset Management in New York, tweeted.

"It's like money markets seizing up post-Lehman," he added, referring to the bankruptcy of U.S. investment bank Lehman Brothers in 2008....
The People's Bank of China injected 50 billion yuan ($8.17 billion) into the financial system on Thursday after a cash squeeze pushed money-market rates to record highs, Bloomberg News reported, citing an official at a state-owned bank. The money was supplied to a single lender through short-term liquidity operations and more lenders were in talks with the central bank to obtain financing, the report said, citing Hao Hong, chief China strategist at Bank of Communications Co...


:)


 
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head of joaquin

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Let's hope China continues to grow and modernize. A modern China, with over 1B educated people will result in incredible progress and prosperity for the world.

I sense conservatives see this a bad thing, seeking an enemy to oppose, as usual.
 

soot

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Let's hope China continues to grow and modernize. A modern China, with over 1B educated people will result in incredible progress and prosperity for the world.

I sense conservatives see this a bad thing, seeking an enemy to oppose, as usual.
So the rich, pro-business, conservative banksters are bad guys for offshoring American jobs and opportunity, but the rich, pro-business, conservative banksters are bad guys for not supporting the continued offshoring American jobs and opportunity.

Makes all the sense in the world.
 

Wiseone

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The "China's good times are about to end" has been heard a lot, for literally decades now, and it still hasn't happened. Sure its got problems, it has issues, what country doesn't? But that doesn't mean its economy isn't going to keep growing nor will its government fail.
 

grip

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I predict when the FED actually cuts QE that the stock market will pop.
 
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Can't get the credit to feed the current expansion rate. The formula is a rock hard closed case of a finacial melt down of enormous proportion and it's only a matter of when. We will all feel this one.
Uh, no, the Chinese central bank is actually willingly letting this happen for a reason. This isn't even something that they're fighting; if they wanted to, they could keep rates down via monetary policy and allow Chinese banks to continue the flow of loose credit, but they're not. This isn't a bubble or a crisis, this is a pressure by the central bank on Chinese banks to turn off the spigot of easy money and fast debt or keep paying the price.
 

head of joaquin

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So the rich, pro-business, conservative banksters are bad guys for offshoring American jobs and opportunity, but the rich, pro-business, conservative banksters are bad guys for not supporting the continued offshoring American jobs and opportunity.

Makes all the sense in the world.
Modernization is an ugly business, and I'd do it a different way (like insisting on free unions in China or imposing tariffs).

As to the US, we already have a modern economy. See the difference?
 

head of joaquin

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The "China's good times are about to end" has been heard a lot, for literally decades now, and it still hasn't happened. Sure its got problems, it has issues, what country doesn't? But that doesn't mean its economy isn't going to keep growing nor will its government fail.
It's sort of like the "hyperinflation is just around the corner" meme. It's always just around the corner

I expect China's exponential growth in the 90s and 2000s won't return since it's transforming into a consumer society, but it should continue to see steady healthy growth as more and more of its citizens become educated and productive. Indeed, given their emphasis on engineering and science, they will likely be extremely productive. It's a good thing for the world. Heaven only knows what valuable ideas, research, and products will come from China in the next decade.
 

soot

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As to the US, we already have a modern economy.
LOL

You think so?

No, we have the first stages of a postmodern economy.

The "modern" economy you're talking about was the neo-colonial "we buy your natural resources for dirt cheap or just straight-out take them, then make everything here, and then sell it there, and there, and there" economy where unionized American pieceworkers could demand $40 an hour and an indulgent defined benefit pension program and get away with it.

That economy is long gone, and it's not coming back.

It's a shame that you don't see that.

Without an essentially indentured supply chain and captive markets you don't get to the point where uneducated, unskilled labor makes an upper-middle-class wage.
 

cpwill

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Uh, no, the Chinese central bank is actually willingly letting this happen for a reason. This isn't even something that they're fighting; if they wanted to, they could keep rates down via monetary policy and allow Chinese banks to continue the flow of loose credit, but they're not. This isn't a bubble or a crisis, this is a pressure by the central bank on Chinese banks to turn off the spigot of easy money and fast debt or keep paying the price.
:) Fantastic! A set of competing predictions.

Now we can wait to see who is correct :) Are you willing to make a bet?
 

head of joaquin

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:) Fantastic! A set of competing predictions.

Now we can wait to see who is correct :) Are you willing to make a bet?
I'll bet Romney's capital stake in Chinese sweatshops that the Chinese economy will do just fine in the next decade, with steady growth and moderate inflation.
 

specklebang

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We have been able to manage our debt in the sense that the economy continues to function and that nobody will be challenging our currency anytime soon. Why can we get away with it? We are too big to fail.

China is not much different. Nobody can benefit by upsetting their economy. They might be assholes but they have a solid, well established government that does answer to the people and their concerns. Remember a few years ago the Chinese government bought up the worlds pig supply because the people like pork and they didn't want shortages. With that huge population, an unchallengeable military and the forward momentum since the dark ages ended with Mao, they are no less valuable then we are.

So, I don't expect a "pop" that will shake the earth. I think we'll both keep on keeping on. Fortunately for us, they haven't learned how to brand, so we have our role (as do the Japanese) to be the creators for them.

I would love to bet on this but I'm not sure we can define "pop". So instead, hope I'm right.:)
 

specklebang

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So, do we need a modern economy? Look at all the change in the last 100 years and think about all the change of the next 100, I hope you live long enough to see it all. Look at the increase in lifespans.

Robots are going to take a lot of jobs. But no robot will come over to fix your leaky roof. So there will still be "lower social standing" jobs. And yes, there will be welfare for those who just can't hack it. I'm not finding this frightening.

To quote myself (my favorite quote) is it won't be better or worse, it will just be different. (pats self on shoulder)




So the rich, pro-business, conservative banksters are bad guys for offshoring American jobs and opportunity, but the rich, pro-business, conservative banksters are bad guys for not supporting the continued offshoring American jobs and opportunity.

Makes all the sense in the world.
LOL

You think so?

No, we have the first stages of a postmodern economy.

The "modern" economy you're talking about was the neo-colonial "we buy your natural resources for dirt cheap or just straight-out take them, then make everything here, and then sell it there, and there, and there" economy where unionized American pieceworkers could demand $40 an hour and an indulgent defined benefit pension program and get away with it.

That economy is long gone, and it's not coming back.

It's a shame that you don't see that.

Without an essentially indentured supply chain and captive markets you don't get to the point where uneducated, unskilled labor makes an upper-middle-class wage.
 

cpwill

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We have been able to manage our debt in the sense that the economy continues to function and that nobody will be challenging our currency anytime soon.
China and Japan, the largest institutional holders, are both about to face massive incentives to sell off their dollar denominated holdings. "Soon" may have to be defined. Do you mean the next 48 hours? Or the next 5 years.

Why can we get away with it? We are too big to fail.
:lol:



China is not much different. Nobody can benefit by upsetting their economy. They might be assholes but they have a solid, well established government that does answer to the people and their concerns.
...this would be the same Chinese government whose human rights lawyers must flee the country, who still runs "reeducation" gulags, who is in the process of committing cultural genocide in Tibet, who harvests the organs of its' prisoners, and that runs over it's own people with tanks, yes?

I would love to bet on this but I'm not sure we can define "pop". So instead, hope I'm right.:)
Well, I think we can definitely lay out some basic markers. If it becomes commonly accepted that a China Bubble has "popped" in the same sense that it has become commonly accepted that our own housing bubble "popped" back in 2008, for example. If Chinese real estate stops selling because its' real price has dramatically fallen below a nominal price enforced by the government. Or if (indeed) Chinese GDP is dramatically adjusted downward... say >/= 5%. It's worth noting that this would be a greater than 10% change in GDP growth.
 

RDS

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Chinese leaders are handling 1.3 billion population pretty well so far while Obama is still struggling with 320 million. If China pops God save America.
 

specklebang

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These economic issues have nothing to do with government policies regarding "freedom" and "liberty". The Chinese are stricter than we are but they also hav a different history and quadruple the population.

When our real estate bubble "popped", what happened? Not much really. The USG printed up a bunch of money and handed it out. Some they got back, some they didn't. We're still here, aren't we?

If China's GDP goes down, what will that mean to us? What can they demand? That we pay off their bonds (that is if they are due)? Sell the bonds to another country? Inist we print up a bunch of dollar bills and hand them over? It seems meaningless to me. I'm not even sure why they need to sell off anything. They all manipulate their currency now - can't they just do more of that?

I'm not arguing. I'm just discussing this. I am interested in your POV.





China and Japan, the largest institutional holders, are both about to face massive incentives to sell off their dollar denominated holdings. "Soon" may have to be defined. Do you mean the next 48 hours? Or the next 5 years.



:lol:





...this would be the same Chinese government whose human rights lawyers must flee the country, who still runs "reeducation" gulags, who is in the process of committing cultural genocide in Tibet, who harvests the organs of its' prisoners, and that runs over it's own people with tanks, yes?



Well, I think we can definitely lay out some basic markers. If it becomes commonly accepted that a China Bubble has "popped" in the same sense that it has become commonly accepted that our own housing bubble "popped" back in 2008, for example. If Chinese real estate stops selling because its' real price has dramatically fallen below a nominal price enforced by the government. Or if (indeed) Chinese GDP is dramatically adjusted downward... say >/= 5%. It's worth noting that this would be a greater than 10% change in GDP growth.
 

drz-400

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Interest rates are rising in most of the developing world, recent adminstrative measures have been taken by the chinese government to reduce the amount of "over-invoicing" of exports to hong kong, and the Chinese are also likely widen the band around the Yuan and dollar, causing higher FOREX volatility. All three of these are causing the yuan carry trade to unwind. I believe this is the cause behind the liquidity crunch in china. However, since the central bank has not acted, it shows me that china still thinks its growth prospects are very strong and it is not that concerned about this recent dry up of cheap credit from developed countries. My thoughts are that the carry will unwind, china will allow its currency to depriciate, china will enjoy an increase in exports and capital gains on its dollar holdings, and strong growth will continue after this liquidity crunch recedes.
 
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:) Fantastic! A set of competing predictions.

Now we can wait to see who is correct :) Are you willing to make a bet?
I will bet against the doomsday fearmongering about a "financial melt down of enormous proportion" any day of the week. I do so regularly in my brokerage account and I'm laughing all the way to the bank.
 
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These economic issues have nothing to do with government policies regarding "freedom" and "liberty". The Chinese are stricter than we are but they also hav a different history and quadruple the population.

When our real estate bubble "popped", what happened? Not much really. The USG printed up a bunch of money and handed it out. Some they got back, some they didn't. We're still here, aren't we?

If China's GDP goes down, what will that mean to us? What can they demand? That we pay off their bonds (that is if they are due)? Sell the bonds to another country? Inist we print up a bunch of dollar bills and hand them over? It seems meaningless to me. I'm not even sure why they need to sell off anything. They all manipulate their currency now - can't they just do more of that?

I'm not arguing. I'm just discussing this. I am interested in your POV.
The US Government already pays off bonds as they become due. The idea that China can "call in" its US debt is silly, precisely because the debt is paid as it is due.
 

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