The Solar company Chaori is of 160 Billion and two steel giants of combined worth close to 240 Billion have defaulted last month.,
The Defaults are still continuing at the local level.
This is bound to happen when China chose to invest in infrastructure in 2008 to continue the economic booms.
In 2008 when the Western economies are in slump, Chinese economy which is recording more than 10 % GDP growth because of manufacturing has to slow down because there is steep decline in exports.
CCP instead choose to induce capital into Chinese economy and stimulated it, there by altering the GDP growth from Manufacturing based one to Infrastructure based GDP growth.
In the past 5 years Chinese officials set some aggressive targets and built infrastructure in a large scale. The problem is these infrastructure has not returned considerably and so the bubble in economy increased as the cycle continued with Shadow Banking and state funded Banking.
During the past 5 years Chinese bankers induced capital into infrastructure aggressively at smaller interest rates. For the officials at local level building more infra means increasing the GDP stats, even though this method of calculation is a flawed one.
There are many problems associated with infra and housing projects that are executed in China, Majority of people cannot afford these flats and it is estimated that 15% of the newly built flats are owned by the rich. By the time Chinese people can afford these flats .i.e by the end of this decade(estimates but I highly doubt, since Chinese per capita is manipulated one) Chinese will become old.
Now at this moment CCP has no option but to control the liquidity and steady the economy. Reason why many are predicting 2014 is a tough year and in the coming two or three years there will be a crisis in China.(China at the moment is where the west is in 2006 .i.e 2 years from economic depression).
China has 3.5 Trillion dollars in reserve and most of Chinese save 1/3 of their income earned so China can face the crisis, but the growth rates it has achieved in the last decade is not possible.
The latest policy of CCP is aimed at urbanization of 100 million residents. They are concentrating on Domestic growth and consumption, this also includes services sector.
But Chinese are becoming older and because of one child policy China is loosing its cheap labor edge, if the urbanization is continued China will become a good market for West, India and ASEAN nations since Chinese will have good percapita income and they need to consume.
India should improve the economy in a more balanced way so that growth rates will be sustained for a long term than China.
Over the last three weeks China has seen a deluge of companies defaulting on bonds. Property prices are collapsing all over the country with CCP officials dumping property for pennies on the dollar. Chinese banks have written off $9.8 billion in NPLs off their balance sheets in the last month and it looks set to explode as property prices fall (property is the key collateral for Chinese bank loans). Many of China's key industries are in serious trouble from shipbuilding, mining, heavy equipment to steel and construction. PBOC has only bailed out SOEs to date so China's private sector is in serious trouble. Ronsheng is the first major company set to default, keep an eye out as if it doesn't get bailed out, no one is safe.
