The difference is, the Chinese real estate market is not highly leveraged as it is in the developed world. Current regulation keeps minimum down payments at 30%, while minimum down payments for second homes (potential for speculation) is 60%. In a country where income growth has increased by 14% since the early 1990's, do you really think 9% year-over-year real estate growth since 2000 is out of line?
.....Non-performing bank loans (%): Bank nonperforming loans to total gross loans (%) | Data | Table
Dude, they bumped up to those numbers in
2011. And why?
…. China's cabinet raised the minimum down payment required on second-home purchases to 60% from 50% to further cool the property market amid wide expectation for further tightening measures to curb still high property prices, a statement posted Wednesday on the government's website said.…
Because even the
PRC thinks it has a massive property bubble. Then they started
slapping heavy taxes on couples from purchasing more than one home, too… only resulting in people getting divorced in order to continue to speculate.
But even then, it’s not exactly as if everyone is actually paying these downpayments. China has a massive shadow banking industry designed precisely to get around restrictive state regulations, and a Guanxi loan comes with no downpayment, just a promise on the back end. Not coincidentally, shadow bank balance sheets have exploded at about the same time that China began taking steps to try to curb the excesses. It is now
twice the size it was in 2010, and valued at approximately
69% of GDP.
So how do you get the money that you loan off the books? Wealth Management Vehicles (Products, Funds, etc). Check out the
following:
… One message read: “China Merchants Bank will issue a high interest financing product starting from June 28th to 30th. The product will be 90 days with a 5.5% interest rate. Please call us now.”
A day later came another. “Warm reminder: The interest rate of yesterday’s product has been raised to 6%. (Product duration is 90 days). There is limited access to this product. First come first served.” …
Now, 5.5-6% interest in 90 days tells me that one of two things is occurring, either China is a period of rapid inflation, or this is a ponzi scheme. Because it’s not good investments – they may not even be based on investments.
The vast majority do not disclose their holdings, and of those who do, the value of the underlying assets (usually ….
property development) are wildly inflated. So, it’s a Ponzi Scheme. That’s not just wild-eyed cpwill saying it,
it’s the chairman of the Bank of China saying it. And it’s not just small operations offering these things – it’s some of China’s largest banks, and they are using them to fund debt to some of China’s largest institutions, as well as the regular retail investor. The debt burdens carried by Chinese local governments and SOEs have ballooned, as each local official sought to boost his growth numbers by taking in money from off-book sources to build infrastructure. The China Railway Corp. uses these things to help it roll over a debt of
$422 Billion (2.66 trillion yuan). The products are generally short-term and constantly rolling over, meaning that long term projects in China are no longer really funded by anything except a series of short-term debt instruments, making the whole system incredibly vulnerable to liquidity crunches.
Non Performing Bank Loan Rates? Yeah, for official banks following official regulatory guidelines. Maybe.
Even the China Banking Regulatory Commission expresses doubt about that. But for the shadowbanking side of the ledger?
They are loaning money to bad creditors in order to keep them paying back the old loans. Well, some of them still are. Because as of
now:
… The stock markets in China calmed down last week. But institutions are hinting that cash is still hard to come by.
How hard to come by?
Let’s just say it’s not good.
On Friday, Citibank customers in China received this notice: “Due to the system upgrade of People’s Bank of China Bank of China, the domestic RMB transfer via Citibank (China) Online and Citi Mobile from June 28th 2013, 20:00pm to June 30th 2013, 21:00pm will be unavailable.”
“System upgrade”? Last Sunday, customers of the Industrial and Commercial Bank of China, China’s largest bank, were not able to withdraw cash at its ATMs in cities across China or use its online banking platforms. ICBC ICBC, as the behemoth is known, blamed “system upgrades” for what official media now calls a “massive banking system paralysis.”..
The rash of upgrades and glitches plaguing the Chinese banking system in the past week coincides with the country’s worsening liquidity crisis, which has hit large banks as well as smaller ones…. Domestic media have carried a story that the bank actually issued a letter to potential depositors admitting it had to find “nearly 100 billion RMB” to meet regulatory requirements.
Find? You had to
find over $16
billion? That you are
admitting to?
Some banks temporarily suspended lending in order to preserve cash, according to Caixin, the Chinese business magazine.
So some of them are trying to be the first ones’ out (or maybe simply can’t pay out anymore) – but there is a boomerang effect. If you don’t lend money to the borrower who owes the bank down the street, when he can’t pay them back, they won’t loan money to the guy who owes
you.
So how do you make up for those losses, currently taking place off of official balance sheets?
Other banks are raising cash by offering a new slate of wealth management products. Nearly every major Chinese bank sold a short-term wealth management product that had to be completed by the end of June, according to a telephone survey. China Merchants Bank did not respond to requests for an interview….
Ah.
Their
big foreign investors are realizing what is going on.
Goldman Sachs figured it out a few months back along with
HSBC and a few others. We are reaching the end of this ponzi scheme.
. 