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,...
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....
Have you seen those Ghost cities the Chinese built cpwill?
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...
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.
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.
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.
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.
As to the US, we already have a modern economy.
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 correctAre you willing to make a bet?
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.
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.
I would love to bet on this but I'm not sure we can define "pop". So instead, hope I'm right.
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.
Fantastic! A set of competing predictions.
Now we can wait to see who is correctAre you willing to make a bet?
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.
I predict when the FED actually cuts QE that the stock market will pop.
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