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by Bloomberg News
Banks’ profit growth for first 9 months slumps to 2% from 13%
Latest bank data coincides with Shanshui Cement debt crisis
Chinese banks’ troubled loans swelled to almost 4 trillion yuan ($628 billion) by the end of September, more than the gross domestic product of Sweden, according to figures released by the industry regulator.
Banks’ profit growth slumped to 2 percent in the first nine months from 13 percent a year earlier, according to data released on Thursday night by the China Banking Regulatory Commission.
The numbers come as a debt crisis at China Shanshui Cement Group Ltd. prompts lenders including China Construction Bank Corp. and China Merchants Bank Co. to demand immediate repayments and as weakness in October credit growth shows the risk of a deeper economic slowdown.
by Bloomberg News
For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. That provided a welcome bounce to Western carmakers such as Volkswagen and General Motors and fueled the rapid expansion of locally based manufacturers including BYD and Great Wall Motor. Best of all, those new Chinese buyers weren’t as price-sensitive as those in many mature markets, allowing fat profit margins along with the fast growth.
No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times. The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales, according to estimates by Bloomberg Intelligence. New Chinese factories are forecast to add a further 10 percent in capacity in 2016—despite projections that sales will continue to be challenged.
Earlier this week, MNI suggested that according to discussions with bank personnel in China, data on lending for October was likely to come in exceptionally weak. That would mark a reversal from September when the credit impulse looked particularly strong and the numbers topped estimates handily.
“One source familiar with the data said new loans by the Big Four state-owned commercial banks in October plunged to a level that hasn’t been seen for many years,” MNI reported.
Given that, and given what we know about rising NPLs and a lack of demand for credit as the country copes with a troubling excess capacity problem, none of the above should come as a surprise.
Recessions Are Underway
China drove the recent economic boom, just as it is behind the recent malaise. A turnaround in Chinese demand would certainly change things but the current data does not look promising.
For China’s trade partners, it means recession today. Only Germany and the US look positioned to weather the storm. Expect the next macroeconomic leg down to start in January. Between now and then, data will continue to weaken incrementally. Expect urgent Central Bank intervention in Taiwan, Korea, Brazil, and Australia.