Tag Archives: People’s Bank of China

China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper! by Brett Redmayne-Titley

Posted on January 18, 2020 | 1 comment

Nobody knows just how much of China’s economic miracle was bought with a credit card. We may soon find out. From Brett Redmayne-Titley at watchingromeburn.uk:

In emulating the American economic raison d’etre,China has attempted to develop its unique capitalist model while ignoring that it too will soon suffer the same fate for the same reason: Unsustainable debt.  When examining the recent realities of Chinese banking and finance over the past year it seems the steam that president Xi Jinping touts as powering the engine of his purported economic miracle of a master-planned economy is only a mirage, now almost completely evaporated before his eyes.

Like the many other similarly foolish western nations, China seeks only one path out of this fiscal death spiral, one that will likely spell doom and/or revolution in many countries soon: More debt.

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Posted in Banking, Business, Collapse, Debt, Economy, Government, Trade

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China is in Trouble, by Ronald-Peter Stöferle and Mark J. Valek

Posted on June 10, 2018 | 1 comment

Like most of the rest of the world, China has a problem with debt. From Ronald-Peter Stöferle and Mark J. Valek at mises.org:

Before we discuss the economic situation of China, a few words about China’s strongman, Xi Jinping. The “new Chinese emperor” has engineered a meteoric rise. He started off as simple rural laborer but is now the most powerful Chinese president since Deng Xiaoping. Such a career path requires strength, tact, and probably a dash of unscrupulousness.

While the rulers of China have been able all along to hedge their plans over longer periods than their Western counterparts have, the new legal situation has extended this planning horizon even further.1 In comparison with those of Western economies, China’s countermeasures against the crisis in 2008 were significantly more drastic. While in the US the balance sheet total of the banking system increased by USD 4,000bn in the years after the global financial crisis, the balance sheet of the Chinese banking system expanded by USD 20,000bn in the same period. For reference: This is four times the Japanese GDP.

increm-China-1.png

The following chart shows the expansion of the bank balance sheet total as compared to economic output. Did the Chinese authorities assume excessive risks in fighting the crisis?

increm-China-2.png

Neither the fact that China’s bank balance sheets amount to more than 600% of GDP nor the fact that they have doubled in terms of percentage of GDP in the past several years suggests a healthy development. Our friends from Condor Capital expect NPL ratios51F to rise in China, which could translate into credit losses of USD 2,700 to 3,500bn for China’s banks, and this is under the assumption of no contagion (!). By comparison, the losses of the global banking system since the financial crisis have been almost moderate at USD 1,500bn

The most recent crisis does teach us, however, that the Chinese are prepared to take drastic measures if necessary. China fought the financial crisis by flooding the credit markets: 35% credit growth in one year on the basis of a classic Keynesian spending program is no small matter.

increm-China-3.png

Chinese money not only inflates a property bubble domestically but also around the globe (e.g. in Sydney and Vancouver). Further support for the global property markets is in question, given the measures China has recently launched. Due to financial problems, Chinese groups such as Anbang and HNA will have to swap the role of buyer for that of seller.

To continue reading: China is in Trouble

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Posted in Collapse, Currencies, Debt, Economy, Government

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Is It Time To Start Worrying About China’s Debt Default Avalanche? by Tyler Durden

Posted on June 6, 2018 | Leave a comment

The short answer is yes. From Tyler Durden at zerohedge.com:

With Bank of America reporting that US corporate leverage just hit a fresh all time high…

and with both Moody‘s and various restructuring bankers warning that the bond party is almost over, there is a distinct smell of corporate crisis in the air.

But what if the first domino to fall in the coming corporate debt crisis is not in the US, but in China?

After all, as part of China’s aggressive deleveraging campaign, there has already been a spike of corporate bankruptcies as banks shed more of their massive note holdings and de-risk their balance sheets. According to Logan Wright, Hong Kong-based director at research firm Rhodium Group LLC, there have already been least 14 corporate bond defaults in China in 2018; a separate analysis by Economic Information Daily, as of May 25, there had already been no less than 20 corporate defaults, involving more than 17 billion yuan, a shockingly high number for a country which until recently had never seen a single corporate bankruptcy, and a number which is set to increase as Chinese banks pull pull back from lending to other firms that use the funds to buy bonds, exacerbating the pressure on the market.

“You have seen banks redeeming funds placed with non-bank financial institutions that have reduced the pool of funds available for corporate bond investment overall,” Wright told Bloomberg, adding that additional bond defaults are especially likely among those property developers and local-government financing vehicles which have relied on shadow banking sources of funds.

As we discussed last year, as part of Beijing’s crackdown on China’s $10 trillion shadow banking sector, strains have spread from high-yield trust products to corporate bonds as the lack of shadow funding has choked off refinancing for weaker borrowers. Separately, Banks’ lending to other financial firms, a common route for funds and securities brokers to add leverage for corporate bond investments, declined for three straight months, or a total of 1.7 trillion yuan ($265 billion), since January according to Bloomberg calculations.

To continue reading: Is It Time To Start Worrying About China’s Debt Default Avalanche?

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Posted in Business, Currencies, Debt, Economics, Economy, Financial markets, Geopolitics, Government

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The Global Debt Addiction: China’s Out of Control Debt, by Alex Deluce

Posted on May 1, 2018 | 1 comment

China’s financial system is not transparent, but it’s not a stretch to say its debt problems may be more severe than the US’s. From Alex Deluce at goldtelegraph.com:

China has developed a craving for consumer goods, the more luxurious, the better. Along with most other countries, China’s credit boom and spending spree are being followed by out-of-control debt.

While household debt is spiraling, the Chinese government is pushing to double the size of the economy by 2020 (setting this goal in 2010). This ambitious project will almost certainly entail more lending and increased debts. There is a question as to exactly how much more debt China can handle.

China’s debt has been rising steadily, from 141 percent of GDP in 2008 to 256 percent of GDP in 2017. This type of rapidly-increasing debt level has frequently been the precursor of a hard economic fall, and the world is watching China carefully.

While countries such as the U.S. and the U.K. also have large debt-to-GDP ratios, the difference is that both are high-income countries, while China has only reached middle-income status, with only $15,400 in household purchasing power. This is a quarter of the household purchasing power of the US. Getting out of debt on China’s low level of income will be far more difficult than in higher-income nations.

Like many global central banks, the People’s Bank of China(“PBOC”) has been injecting lots of cash into the system to try to provide some stability, which is only a temporary fix for a long-term problem.

Increasing debt without a concurrent economic gain has inevitably led to the economic downfall. Out of 43 countries that experienced an increase of credit-to-GDP of more than 30 percent in five years, 38 of those countries faced a financial disaster. Those statistics do not bode well for China.

To continue reading: The Global Debt Addiction: China’s Out of Control Debt

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Posted in Debt, Economics, Economy, Financial markets, Government

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