China has $1.5 trillion in hidden debt: Lawmaker

[p2prada]

After all , only about 50% of Chinese are urban population. Only when 70+% of Chinese were to live in urban area and the immigration to urban area were to shrink,would "land-grantee fee" become unsustainable and shrink.

This is what I meant when I said you have the land. 50% of your pop is rural means that much land. But that does not guarantee buyers for the land.

What I mean is currently everything is going as planned? But this policy does not have a contingency planned. For eg: A new global manufacturing powerhouse competitor like India, Indonesia, Mexico etc or a group of such nations. Or even an earthquake.

Other nations do not have the same type of contingency planned for earthquakes, but the loan amounts are not as big as the Chinese loans that we see. Even if natural calamities are impossible, there is a possibility of a competitor that may chew away some of the economic clout.

Of course, the huge "land-granting fee" indeed increases much the cost of house-price and stimulate real-asset bubbles . and in a long run, "land-granting fee" will shrink when urbanization in China is finished. so, , CHinese government now is considering to collect house-duty and replace "land-granting fee" with house-duty gradually.

Taxing is the way to go. But, if you tax a bit too much, it will chew up on per capita incomes. This does not contribute to growth. You first sell for big amounts and then tax them later on will affect real estate prices big time, not to mention the population will not like it.

 

[badguy2000]

This is what I meant when I said you have the land. 50% of your pop is rural means that much land. But that does not guarantee buyers for the land.

the land is not as abundant as you think,because China is seriously lack of agriculturalland. it is limited by quotas of Beijing for Chinese local government to buy any land.

Because the quotas are usually limited, the developed "urbanized land" auctioned by Chinese local government is also limited.
Furthermore, Chinese laws forbid anyone except Chinese local government to buy "un-urbanized land".

Thus, the supply of "urbanized land" is always less than its demand . that is why the house price in CHina rockets now.

What I mean is currently everything is going as planned? But this policy does not have a contingency planned. For eg: A new global manufacturing powerhouse competitor like India, Indonesia, Mexico etc or a group of such nations. Or even an earthquake.

Other nations do not have the same type of contingency planned for earthquakes, but the loan amounts are not as big as the Chinese loans that we see. Even if natural calamities are impossible, there is a possibility of a competitor that may chew away some of the economic clout.

although China is basicly a market economy,Beijing has much more right to control resource-distrubition than any other center government.
and I do think that it is indeed one superiority of Chinese system.

Taxing is the way to go. But, if you tax a bit too much, it will chew up on per capita incomes. This does not contribute to growth. You first sell for big amounts and then tax them later on will affect real estate prices big time, not to mention the population will not like it.

the discussion of house-duty is still on in CHina.
the mainstream think that house duty is not only used to replace "land-granting fee',but also is one way to adjust wealth distrubition.
so, it might mean that the richer one guy is ,the more house duty he might pay.

 

[Armand2REP]

oh....hehe,you seem to quite confident that you know about such loans better than me....,although it is my daily job to deal with it.....hehe

It is my job to study it, you can't share so you might as well know next to nothing for all we care. If you went to school in Tianhe I know your degree is not comparable to mine.

Forex has nothing to do with the available real income of governments... you are even clueless to the basic economy term.

Real income of governments are not going to be able to engineer a massive bailout of its banks. It has to use reserves or print more money to dilute the debt. The inflationary pressures of printing more than China is already doing is not an option. That leaves reserves of SWF and FOREX. Its Sovereign Wealth Fund is only a drop in the bucket to cover it so FOREX will have to be used. You cant pay it with future income yet to be obtained. So much for your econ knowledge. Too easy...

 

[p2prada]

Thus, the supply of "urbanized land" is always less than its demand . that is why the house price in CHina rockets now.

I understand the situation better now. However this statement is not guaranteed.

During recession, way too many businesses shut down for them to be interested in more land. The fact is buying a developed land may take a month or 2. But developing land from scratch takes years. It's a long term plan. If something goes wrong in between, then the land granting fee is not enough to cover the losses, especially if the land is not sold at all.

Also China obviously has parts of the country which will see higher demand than other parts. For eg the area around Shanghai will be more important than, say, Xinjiang. So, local govt around Shanghai will recuperate the loss due to eventual demand in the future. But the probability of the local govt at Xinjiang defaulting is higher.

 

[no smoking]

It is my job to study it, you can't share so you might as well know next to nothing for all we care. If you went to school in Tianhe I know your degree is not comparable to mine.

Then, you are doing a terrible bad work. So far, I haven't seen anything you posted close to the reality of china. So, how and where are you making your study.

Real income of governments are not going to be able to engineer a massive bailout of its banks. It has to use reserves or print more money to dilute the debt. The inflationary pressures of printing more than China is already doing is not an option. That leaves reserves of SWF and FOREX. Its Sovereign Wealth Fund is only a drop in the bucket to cover it so FOREX will have to be used. You cant pay it with future income yet to be obtained. So much for your econ knowledge. Too easy...

All your understanding is about Russia and Western economic model not chinese one. There is no problem that CCP can repay the loan or raise money to bailout any of its banks. Why? Because it has monoplistic position in most of Chinese key industries, from traffic, communication to share market. It not only make the rules, but also playing as the players.

As to the infrastructure, you can find some examples of bad decision, but what you can't see is that most of these projects become profitable after a couple of years because the development or the government new policy. For example, I used to work in civil aviation of china before I immigrated to Oz. One of popular joke at that time was: we spent 100m rmb plus on building an airport in a tiny city, which only got 2 flights each week after the construction was finished. But 8 years later, this airport became one of the busiest airports in eastern china because this area was developed as a trouriest hot spot.

Another example was my friend's experience: their local gov built a new town but no one wanted to move in. So what they did was make a new policy to move all gov departments and state own companies into this new area. The result is all the people have to follow them, including those working in private business. Furthermre, when those people move out of old town, they bought the land with cheap price and then claim a project of creating a low tax industry zone in there. They made a hugh amount of money by selling these land.

Now, you can see how they pay back these loan.

 

[badguy2000]

I understand the situation better now. However this statement is not guaranteed.

During recession, way too many businesses shut down for them to be interested in more land. The fact is buying a developed land may take a month or 2. But developing land from scratch takes years. It's a long term plan. If something goes wrong in between, then the land granting fee is not enough to cover the losses, especially if the land is not sold at all.

1. generally speaking, it is widely accepted that the price of "urbanized land" will keep rising for over decades..because it will still take decades to finish the urbanization of CHina.

2.According to Chinese laws, Chinese local governments are the sole seller of "urbanized land" in the market.
So, Chinese local governments can easily manipulate the supply of "urbanized land" to avoid loss, if it is needed.

 

[Armand2REP]

Then, you are doing a terrible bad work. So far, I haven't seen anything you posted close to the reality of china. So, how and where are you making your study.

I am making my money studying Chinese industry, making industry reports and contract negotiations. Considering I make 5X the downtown GZ office wage and my work unit is pleased with my results, somebody more important than you values my work.

All your understanding is about Russia and Western economic model not chinese one. There is no problem that CCP can repay the loan or raise money to bailout any of its banks. Why? Because it has monoplistic position in most of Chinese key industries, from traffic, communication to share market. It not only make the rules, but also playing as the players.

My understanding is global, I know all the Western and CIS systems up the arse. I have worked in them the last 10 years. Now I spread my wings into the Orient taking what I have learned studying it all the years before. What I know is paying off. I already said China will not have a problem raising the money to bail out the banks, it will just have to dig into its reserve funds. Good for you they are so large. CCP is the player, it is also on the line with the people which gives less flexibility to deal with issues.

As to the infrastructure, you can find some examples of bad decision, but what you can't see is that most of these projects become profitable after a couple of years because the development or the government new policy. For example, I used to work in civil aviation of china before I immigrated to Oz. One of popular joke at that time was: we spent 100m rmb plus on building an airport in a tiny city, which only got 2 flights each week after the construction was finished. But 8 years later, this airport became one of the busiest airports in eastern china because this area was developed as a trouriest hot spot.

To take 8 years to START to make your money back is a losing investment. You also cannot expect to grow into every bad decision. South China Mall been open the last 6 years, it is still just as empty the day it opened. I travel on these fancy toll roads and easily see they are not making money to cover their costs. Barely enough to cover the toll operators and street sweepers much less maintenance. The infrastructure for Asian Games is not generating money, the venues remain empty except for little local teams nobody watches. You may grow into some of it 8-10 years from now, but you end up with huge debts in the mean time. Much of it will never make money and PBOC is going to have to eat that.

Another example was my friend's experience: their local gov built a new town but no one wanted to move in. So what they did was make a new policy to move all gov departments and state own companies into this new area. The result is all the people have to follow them, including those working in private business. Furthermre, when those people move out of old town, they bought the land with cheap price and then claim a project of creating a low tax industry zone in there. They made a hugh amount of money by selling these land.

And the government lost a huge amount of money relocating companies and departments just to make a new town viable. There is no money made, it is just a transfer of wealth.

Now, you can see how they pay back these loan.

Pay back by transferring money? That is called a ponzy scheme.

 

[p2prada]

1. generally speaking, it is widely accepted that the price of "urbanized land" will keep rising for over decades..because it will still take decades to finish the urbanization of CHina.

2.According to Chinese laws, Chinese local governments are the sole seller of "urbanized land" in the market.
So, Chinese local governments can easily manipulate the supply of "urbanized land" to avoid loss, if it is needed.

Hmm. So businesses will keep buying for another 5 years or maybe even 10 years.
So, until 2020, it seems to be safe for local govts to take loans over land granting fees. Any idea what is the profit being made?

 

[amoy]

Bank Lending Exceeded Annual TargetChina's banks lent lavishly in 2010

(Beijing) -- Chinese banks lent a total of 7.95 trillion yuan in 2010, above the annual target of 7.5 trillion yuan, putting additional pressure on Beijing to control credit growth.

In December 2010, new lending was 480.7 billion yuan, 100.7 billion yuan higher than the same period in 2009. UBS economist Wang Tao had predicted the December figure to be around 300 billion yuan following fast credit growth in September, October and November.





When the financial crisis struck in 2008, the Chinese government adopted a loose monetary policy. In 2009, commercial banks lent a total of 9.6 trillion yuan, up from about 5 trillion yuan in years preceding 2008.

At the end of 2010,M2, the broadest measure of money supply, rose by 19.7 percent, 0.2 percentage point higher than the end of November. The target set at the beginning of 2010 was 17 percent.

Foreign exchange reserves hit US$ 2.84 trillion at the end of 2010, 18.7 percent higher than the end of 2009. In the fourth quarter, foreign exchange reserves grew by US$ 199 billion, the highest quarterly figure since 1997.

In October, November and December, foreign exchange reserves increased by US$ 112.5 billion, US$ 6.9 billion and US$ 79.5 billion, respectively.

Foreign capital inflows have posed a challenge to the State Administration of Foreign Exchange. In a January 5 meeting, SAFE set blocking "hot money" as a priority for its work in 2011.

 

[Armand2REP]

Chinese banks lent more than 8 trillion, hidden channel lending exceeded 2009 records.

 

[p2prada]

Wow. The growth of credit is incredible. Nearly $1.3Trillion in just 1 year. That's bigger than India's economy. Hidden loans not withstanding.

Edit: Even with $300Billion as bad loans, the profit on the good loans will be bigger. If the Chinese Govt is paying back their loans using their income then I see no problems for investors, citizens as well as foreign.

 

[thakur_ritesh]

You get to the ratio by taking China's lending/stimulus and dividing it by the percentages of GDP growth. Par example, in 2009 China lent and spent $2 trillion and had a growth rate of 8.7%. So that is $230 billion for each percent while the value of a Chinese GDP percent is only $50 billion ($5 trillion total) according to CCP statistics. I always like to put in my real calculation of Chinese GDP which is 25% less than CCP due to monster excess capacity. Knock it down to $3.8 trillion which is a more realistic figure and you get $38 billion for each percent or 6:1. Once you add up the 25-30% failed loans that will occur in following years, you easily get to an 8:1 ratio to create real growth. Even if you want to stick with CCP numbers, you are still at 6:1.

the above example sets me thinking is it really that bad a case after all?

let us assume china is a big corporate with an annual t/o of 5.5-6t usd off which they reinvest 2t usd and get a return of 230b usd, the bottom lines when worked out look pretty handsome and its not as if the 2t usd has vanished in thin air, and if the ratio of 6:1 is to be taken then the picture looks all the more better and let us not forget china is considered as a very corrupt country which means off the 2t usd invested a lot of it siphoned off.

secondly what is the rate of interest china is paying on this 2t usd? they are certainly not raising it overseas and investing so which means they dont have an external debt on it though it would add upto the public debt but with in the system the books can be adjusted which ever way the state feels is correct and lastly they have an inflation rate hovering between 2-4% generally so even there they score well and now contrast this to india and i dare say they are just doing fine.

 

[Armand2REP]

Wow. The growth of credit is incredible. Nearly $1.3Trillion in just 1 year. That's bigger than India's economy. Hidden loans not withstanding.

Edit: Even with $300Billion as bad loans, the profit on the good loans will be bigger. If the Chinese Govt is paying back their loans using their income then I see no problems for investors, citizens as well as foreign.

Their bad loans were $900 billion in 2006 according to an Ernst and Young report. Add 4 years of this excessive lending and it is well past a trillion.

 

[Armand2REP]

the above example sets me thinking is it really that bad a case after all?

let us assume china is a big corporate with an annual t/o of 5.5-6t usd off which they reinvest 2t usd and get a return of 230b usd, the bottom lines when worked out look pretty handsome and its not as if the 2t usd has vanished in thin air, and if the ratio of 6:1 is to be taken then the picture looks all the more better and let us not forget china is considered as a very corrupt country which means off the 2t usd invested a lot of it siphoned off.

secondly what is the rate of interest china is paying on this 2t usd? they are certainly not raising it overseas and investing so which means they dont have an external debt on it though it would add upto the public debt but with in the system the books can be adjusted which ever way the state feels is correct and lastly they have an inflation rate hovering between 2-4% generally so even there they score well and now contrast this to india and i dare say they are just doing fine.

China has no idea what their real GDP is. They use electricity consumption, the volume of rail cargo and the amount of bank loans disbursed to come up with some imaginary figure on the provincial level. When it hits Beijing they revise the reports to fit their forecasts. Based on overcapacity of all Chinese markets, it is more like 4t. In 2000, overcapacity was at 10%, now it has ballooned from 20-30% depending on the industry. They used to be able to slowly grow into it, but since the last banking crisis they are not filling the void as quickly. They have to keep lending to make ends meet. The last banking crisis in China a decade ago revealed $350 billion in NPLs, 80% of which are still floating in the system. Total now is well over a trillion, most of it waiting for the local investment vehicles to go belly up once property prices fall. Selling property is how China is funding this growth and construction boom, they are driving prices so they can keep selling it. Bottom line is China is riding a wave of lending that is paying off artificially inflated valuations. There is plenty of corruption going along with it, 240,000 cases in the last 6 years.

China is making money by selling inflated property. Once it isn't inflated anymore, they are just going to have to pay it back again and all those gains vanish into thin air and it is going to leave the economy stuck in a rut. For how long depends on how fast China can change its economic model because construction will no longer be an option to drive growth and selling property will no longer be effective in raising cash to fund it.

 

[p2prada]

They are going to have to increase domestic consumption to half the American value in the long run. Taxing on your King Noodles soup will pay it off. But, its' going to need massive revision of the economy.

 

[badguy2000]

Chinese banks lent more than 8 trillion, hidden channel lending exceeded 2009 records.

oh, yeah, you seems to be quite confident that you know about Chinese banks better than the boss of PBOC.

 

[Armand2REP]

They are going to have to increase domestic consumption to half the American value in the long run. Taxing on your King Noodles soup will pay it off. But, its' going to need massive revision of the economy.

The inflation is at an official rate of 4-5%, it is more like 8% which is going to hurt domestic consumption. The negative savings rates are like a tax on the people which is what drove down consumption over the last 10 years from 46% to 36% GDP. This higher inflation is just going to make that worse. Only way to combat it is to get social protections and raise interest rates so savings go in the positive. CCP can't afford to do that so it is just going to go down.

 

[Armand2REP]

oh, yeah, you seems to be quite confident that you know about Chinese banks better than the boss of PBOC.

CBRC knows better than you.

Last August...

http://www.telegraph.co.uk/finance/...8/China-tackles-banks-213bn-hidden-loans.html

Last week...

http://imarketnews.com/node/25317

 

[Iamanidiot]

Ritesh,Paaji ,Yusuf and other mods please take a back up and archive this thread.Fantastic thread guys thanks monsieur.Armand would you compare the indian banking sector with the chinese banking sector and give the pro's and cons of both of them

 

[badguy2000]

CBRC knows better than you.

Last August...

http://www.telegraph.co.uk/finance/...8/China-tackles-banks-213bn-hidden-loans.html

Last week...

http://imarketnews.com/node/25317

it is one of my major daily duties to provide related data of the bank to CBRC.