Are Chinese Banks Hiding "The Mother of All Debt Bombs"?

[LETHALFORCE]

Are Chinese Banks Hiding "The Mother of All Debt Bombs"? - The Diplomat

China's massive bank financed stimulus was intended to keep the economy moving. It may instead lead to economic disaster.

Financial collapses may have different immediate triggers, but they all originate from the same cause: an explosion of credit. This iron law of financial calamity should make us very worried about the consequences of easy credit in China in recent years. From the beginning of 2009 to the end of June this year, Chinese banks have issued roughly 35 trillion yuan ($5.4 trillion) in new loans, equal to 73 percent of China's GDP in 2011. About two-thirds of these loans were made in 2009 and 2010, as part of Beijing's stimulus package. Unlike deficit-financed stimulus packages in the West, China's colossal stimulus package of 2009 was funded mainly by bank credit (at least 60 percent, to be exact), not government borrowing.

Flooding the economy with trillions of yuan in new loans did accomplish the principal objective of the Chinese government — maintaining high economic growth in the midst of a global recession. While Beijing earned plaudits around the world for its decisiveness and economic success, excessive loose credit was fueling a property bubble, funding the profligacy of state-owned enterprises, and underwriting ill-conceived infrastructure investments by local governments. The result was predictable: years of painstaking efforts to strengthen the Chinese banking system were undone by a spate of careless lending as new bad loans began to build up inside the financial sector.

When the Chinese Central Bank (the People's Bank of China) and banking regulators sounded the alarm in late 2010, it was already too late. By that time, local governments had taken advantage of loose credit to amass a mountain of debt, most of it squandered on prestige projects or economically wasteful investments. The National Audit Office of China acknowledged in June 2011 that local government debt totaled 10.7 trillion yuan (U.S. $1.7 trillion) at the end of 2010. However, Professor Victor Shih of Northwestern University has estimated that the real amount of local government debt was between 15.4 and 20.1 trillion yuan, or between 40 and 50% of China's GDP. Of this amount, he further estimated, the local government financing vehicles (LGFVs), which are financial entities established by local governments to invest in infrastructure and other projects, owed between 9.7 and 14.4 trillion yuan at the end of 2010.

Anybody with some knowledge of the state of health of LGFVs would shudder at these numbers. If anything, Chinese LGFVs are known mainly for their unique ability to sink perfectly good money into bottomless holes in the ground. So taking on such a huge mountain of debt can mean only one thing — a future wave of default when the projects into which LGFVs have piled funds fail to yield viable returns to service the debt. If 10 percent of these loans turn bad, a very conservative estimate, we are talking about total bad loans in the range of 1 to 1.4 trillion yuan. If the share of dud loans should reach 20 percent, a far more likely scenario, Chinese banks would have to write down 2 to 2.8 trillion yuan, a move sure to destroy their balance sheets.

 

[SADAKHUSH]

I have read few articles on this very topic in the "The Economist" magazine and as well as heard the commentary by financial experts on our TV channel BNN (Business News Network) in few days time once I get them than they will be posted. They ( Chinese Government) thinks their cover ups can not be found but it gets exposed sooner than later.

 

[Tianshan]

lol after 2008 everyone was saying "oh property bubble", or "oh hard landing!!"

now they are saying the same things, with two differences.

one, it is now 2012, and two now they are now in the tone of "maybe".

 

[rockdog]

Early in 2006, people from the old IDF (India Defence Forum) and forums.bharat-rakshak.com predicted the China's banking system were going to collapsed in 2 years, since the heavy bad debt and property bubble, and at that time China's GDP was around 3 times than India's, and people believed that India would catch up China in next 2-8 yrs, we all know the answer by 2012....

Now we know that's the typical mindset of some Indian friends, btw by 2012 the most profitable banks in the world:

China's banks are world's most profitable - Business News - Business - The Independent
"The three most profitable banks in the world are now Chinese, illustrating how far financial power has shifted from Europe and America since the credit crunch."

 

[Ray]

No matter how many LOLs are posted, it appears that the situation is grim.

That the local Govts have squandered money on scheme that are not remunerative is no secret.

In fact, on Chinese economy, there was an article that I read sometimes back, when the Chinese economy was really soaring, a Chinese (Red Chinese) economist had criticised the local Govts for much of the fiscal problems that were niggling at that time.

ON the 'mindset of Indian Friends' it maybe worth noting that this article, Are Chinese Banks Hiding "The Mother of All Debt Bombs"? is not the view of 'Indian friends' or their mindset, but the mindset of a Chinese friend who responds to the name of Minxin Pei.

It is claimed that he is an expert on governance in the People's Republic of China,

Permit me an LOL. It is very contagious!

 

[Tianshan]

It maybe worth noting that this article, Are Chinese Banks Hiding "The Mother of All Debt Bombs"? is not the view of 'Indian friends' or their mindset, but the mindset of a Chinese friend who responds to the name of Minxin Pei.

lol you think we don't know who minxin pei is? every negative article about china written in western newspapers is either from gordon chang or mixin pei, because it is better to have it coming from a chinese-sounding name.

since they are both sitting in america, it's hard to think that they have some sort of "inside" knowledge that only ccp insiders have, since neither of them have ever worked for the chinese government in any respect.

 

[Ray]

OK, so what you mean to say that they are not worth the paper they write on.

Great!

They are just like Xinhui and Global Times and China Daily?

As credible as those?

Whatever, the man does not look an Indian and instead looks a Chinese. Therefore, I take it that he is a Chinese friend and a Chinese in US mindset and not an Indian friend and an Indian friend mindset!!

You may feel that they are not from the CCP and so have no 'inside' information.

Let us not forget that there are many in China like Wang who scoot to the US consulate for safety. They too were never expected to be US moles. But then facts are stranger than fiction.

 

[satish007]

As long as Chinese still working hard, as long as Chinese can stand pollution and proletarian dictatorship. I do not see China has any problem

 

[Ray]

As long as Chinese still working hard, as long as Chinese can stand pollution and proletarian dictatorship. I do not see China has any problem

But they can be 70% right and 30% wrong.

And in that 30% wrong can be the House of Cards and not Seventh Heaven!

Red Salute to the Immortal Martyrs of the People's War!

 

[nimo_cn]

Betting on the collapse of China is like buying lottery, one of them is gonna win, and even you don't, you have nothing to lose.

 

[nimo_cn]

I only wish DFI still exists when China collapses.

 

[rockdog]

No matter how many LOLs are posted, it appears that the situation is grim.

That the local Govts have squandered money on scheme that are not remunerative is no secret.

In fact, on Chinese economy, there was an article that I read sometimes back, when the Chinese economy was really soaring, a Chinese (Red Chinese) economist had criticised the local Govts for much of the fiscal problems that were niggling at that time.

ON the 'mindset of Indian Friends' it maybe worth noting that this article, Are Chinese Banks Hiding "The Mother of All Debt Bombs"? is not the view of 'Indian friends' or their mindset, but the mindset of a Chinese friend who responds to the name of Minxin Pei.

It is claimed that he is an expert on governance in the People's Republic of China,

Permit me an LOL. It is very contagious!

Permission denied!

Mega LOL back, I heard lots of conversion from Mr Pei, it's from VOA (Voice of A Red China), sorry it's Voice of America...
In fact, he is an employee from American Think-tank:

"Minxin Pei is an expert on governance in the People's Republic of China, U.S.-Asia relations, and democratization in developing nations. He currently serves as the director of the Keck Center for International and Strategic Studies at Claremont McKenna College,[1] and is a former senior associate with the Asia Program at the Carnegie Endowment for International Peace. Pei earned his Bachelor's degree from the Shanghai International Studies University, and a Master's degree and PhD from Harvard University. In addition, he holds an M.F.A. from the University of Pittsburgh"

And he is not the first and won't be last one from US think-tank to predicted "China bubble is going to burst"...

---------------------------

Plus, there are no doubt some criticism on Chinese government's debt issue, but it's more like discussion on academic level. If you comparing the debt level, let me give you some samples of perfect "The Mother of All Debt Bombs":

If Japan can have 200% debt to GDP: why not Europe, or America?

http://www.royalgazette.com/article/20120505/BUSINESS08/705059999
---------------------------

One more thing, i am running a software company and i am leading a team working to a local government's financial system development, i would clearly see a typical "big city" 's debt situation and the process of Loaning, Debt, Paying processes (According to NDA, i can't tell the details). All i can say is: that's are problems, and there are debt risks, but it applies to all the economic entity, if you comparing to other nations, no matter developed nations or developing nations, the situation are controllable.

The Chinese government still have 2nd strongest government revenue (almost same as India's GDP), and has biggest forex reserve...

During 2006, i have seen many Indian members from old IDF and bharat-rakshak, were waiting the collapse of China's economy just by some articles from Ecomonist.com said "China's banking system is technically bankruptcy" or even started to celebrating. But 6 yrs passed, China's GDP increased from 3 times to almost 6 times over India, that's a real "LOL" stuff.

So generally, we need to be cautious about the debt thing, but it would be not the chance for some Indian friends' hiding mindset, we all know what kind of mindset it is... ^_^

 

[no smoking]

OK, so what you mean to say that they are not worth the paper they write on.

Great!

No, they are worth of reading since it will remind every Chinese that how many people are praying for the chinese collapse out there!

They are just like Xinhui and Global Times and China Daily?

As credible as those?

No, they are as credible as Xinhua or Global: one brags everything and one curses anything!
Or, they are even worse: at least we find out what CCP is thinking in Xinhua and China Daily, while these papers are just wild guess from some crying baies out of the house!

Whatever, the man does not look an Indian and instead looks a Chinese. Therefore, I take it that he is a Chinese friend and a Chinese in US mindset and not an Indian friend and an Indian friend mindset!!

Being a chinese or having a chinese face doesn't make him an economic expert of China!

You may feel that they are not from the CCP and so have no 'inside' information.

Let us not forget that there are many in China like Wang who scoot to the US consulate for safety. They too were never expected to be US moles. But then facts are stranger than fiction.

I doubt how much Mr Wang knows about economy!
Even they have some information, how good they can analysis these information is another question. Based on their record, I won't spend a second on their work!

 

[LETHALFORCE]

http://www.marketoracle.co.uk/Article36981.html

China Banking Ponzi Crisis, China Will Grow Old Before it Grows Rich

The Ponzi schemes and off-balance sheet loans in China's banking system are in the forefront of today's news. Reuters reports Bank of China executive warns of shadow banking risks

A senior Chinese banking executive has warned against the proliferation of off-book wealth management products, comparing some to a Ponzi scheme in a rare official acknowledgement of the risks they pose to the Chinese banking system.




China must "tackle" shadow banking, particularly the short term investment vehicles known as wealth management products, Xiao Gang, the chairman of the board of Bank of China, one of the top four state-owned banks, wrote in an op-ed in the English-language China Daily on Friday.

He warned of a mismatch between short-term products and the longer underlying projects they fund, adding that in some cases the products are not tied to any specific project and that in others new products may be issued to pay off maturing products and avoid a liquidity squeeze.

 

[LETHALFORCE]

Bank of China executive warns of shadow banking risks | Reuters

Bank of China executive warns of shadow banking risks

(Reuters) - A senior Chinese banking executive has warned against the proliferation of off-book wealth management products, comparing some to a Ponzi scheme in a rare official acknowledgement of the risks they pose to the Chinese banking system.

China must "tackle" shadow banking, particularly the short term investment vehicles known as wealth management products, Xiao Gang, the chairman of the board of Bank of China (601988.SS), one of the top four state-owned banks, wrote in an op-ed in the English-language China Daily on Friday.

"Unsurprisingly, although Chinese banks' non-performing loans are at a low level of 0.9 percent, the potential risks are worse than the official data suggest," Xiao wrote, adding that a problem could come as indebted borrowers face cash flow problems or enter default, straining the banking system.

"The music may stop when investors lose confidence and reduce their buying or withdraw from WMPs," he said, referring to wealth management products.

He warned of a mismatch between short-term products and the longer underlying projects they fund, adding that in some cases the products are not tied to any specific project and that in others new products may be issued to pay off maturing products and avoid a liquidity squeeze.

"To some extent, this is fundamentally a Ponzi scheme."

Xiao's op-ed is in line with similar warnings issued by outsiders, particularly the Fitch Ratings agency whose China banking analyst Charlene Chu has long warned of a maturity mis-match and the threat to the Chinese banking system of products with various terms and interest rates.

But it is rare for a senior Chinese official to acknowledge the extent of the problem.

"It is uncommon to find wealth management products that fail to clearly specify the underlying securitized assets," an official from the China Banking Regulatory Commission, which oversees financial products, told Reuters in August in response to a query on the underlying assets.

NEW FUNDING TOOL

Wealth management projects, which are technically off-book, have grown to account for about a fifth of all new financing in China. They fund projects, such as property development or infrastructure, that have trouble tapping normal loan channels.

Their growth has been spurred by credit curbs meant to rein in speculative property investment and by investors' desire for higher yields than traditional bank deposits, which often offer negative real interest rates. More than 20,000 of such products are in circulation, up from just a few hundred five years ago.

Although the products are technically more risky than deposits, most investors believe they are backed by the banks' implicit guarantee and they are marketed aggressively in bank branches nationwide. Xiao acknowledged this perception posed a risk for banks' bottom line.

"The rollover of a large share of WMPs could weigh heavily on formal banks' reputations, because many investors firmly believe that banks won't close down and they can always get their money back," Xiao said.

In June, People's Bank of China vice governor Liu Shiyu said many banks are not transparent enough about the risks wealth management products carry.

"China's shadow banking system is complex, with a close yet opaque relationship to the regular banking system and the real economy," Xiao concluded by saying.

"It must be tackled with care and sufficient flexibility, but it must be tackled nonetheless."

 

[Ray]

Thanks my Chinese friends.

So, those Chinese posters flying false flags and claiming to know of everything of China and contesting critique posts of others, are equal frauds as Pei, right?

Nothing in China can collapse. Statistics can be fudged. Pei is a heretic!

We must never forget China has surfaced from greater catastrophes than this - "Great Leap Forward", the Cultural Revolution , and even the Three Years of Natural Disasters and the Great Sparrow Campaign.

And of course the 100 Flowers Campaign, where it was cleverly designed to find out the enemies of Mao and the People! And half a million were purged in the Anti Rightist Movement.

The Peasant and Worker of China will continue to stomp along no matter what crisis come their way under the benign and wise guidance of the Communist Party.

 

[rockdog]

Thanks my Chinese friends.

So, those Chinese posters flying false flags and claiming to know of everything of China and contesting critique posts of others, are equal frauds as Pei, right?

Nothing in China can collapse. Statistics can be fudged. Pei is a heretic!

We must never forget China has surfaced from greater catastrophes than this - "Great Leap Forward", the Cultural Revolution , and even the Three Years of Natural Disasters and the Great Sparrow Campaign.

And of course the 100 Flowers Campaign, where it was cleverly designed to find out the enemies of Mao and the People! And half a million were purged in the Anti Rightist Movement.

The Peasant and Worker of China will continue to stomp along no matter what crisis come their way under the benign and wise guidance of the Communist Party.

Now we know who is most skillful on off topic, if you can't debate on the topic, shitting communist or some past cases would be the only thing u can do (even i just don't like commie at all), it appears most of your posts at last.

I really feel a big waste of my time on debating with you, since i didn't receive any value-able feedback.

Should i mention your nation's Famine, 1962 war, poor life standard index, defecation superpower, in each discussion and dose it make any sense?

 

[G90]

China collapses again

 

[LETHALFORCE]

The whole chinese growth story has been one long lie.

 

[ice berg]

Couldnt agree more. In reality Chinas economy is alot smaller than India and will never been able to catch up.

Once more, you exposed her lies.