The Asian Crisis

[Aman A.K.A. Ahamburger]

But, but, the housing market is recovering - according to the manipulated data the Chinese release - and other signs that the debt is coming home to roost.

-China's No. 3 Developer Makes Deals as Default Risks Escalate
-More Bad China Debt News: SOE Defaults on $2.3 Billion
-China Yurun unit default on short-term notes triggers cross default
-Mongolian Mining Loan Nonpayment Triggers Cross-Default on Bonds
-As China opens bad debt market, private equity firms step in

[Aman A.K.A. Ahamburger]

Janet Yellen is worried about global growth—and Wall Street loves it

-ADB’s China growth forecast: Slow and getting slower
-Chinas Drops Trade Target as Global Growth Uncertainty Increases
-Global trade suffers further slump as OECD issues growth plea

The fall in global trade to its lowest level since 2009 is fuelling a debate over whether the slowdown is cyclical or a sign of a permanent shift in the fundamentals that have driven globalisation for decades.

What ails global trade?

WAR!!

How Isis laid out its plans to export chaos to Europe

It's the way of the future.

[Aman A.K.A. Ahamburger]

China's economy is "getting better" they tells ya!

-Wynn Macau 2015 profit tumbles 63%
-China’s bad banks swell as defaults spread
-Now on China's Default Watch: $617 Billion in Regional Debt
-China Rating Outlook Cut to Negative From Stable by S&P

[Aman A.K.A. Ahamburger]

Moral hazard at its finest.

Is China regulator using fund to help prop up stocks?

Debt, on top of debt, on top of debt.

Chinese Authorities Worried by Down-Payment Loans

[OldCoyote]

I don't understand China has to do something real quick,  it is going to effect the entire world market.  

Why does it seem the U.S. market is oblivious the the China problem??

[Aman A.K.A. Ahamburger]

I would speculate that it has to do with the fact that for this historic bull run since '09, a dovish Federal Reserve has been seen as a "positive" for stocks. However, the dovish FED story has been backed up with the one road initiative, which I think a lot of people were overlooking.(We know the war has put a huge wrench in China's plan.)

We can clearly see this in first quarter market action. The market dived because of weak Chinese growth and weak earnings, but because the FED remained dovish the market popped.(In the face of Europe's free trade zone breaking down I should add)

So, the market isn't necessarily ignoring that China's economy is a debt bomb going off, as it is holding onto the notion that the only reason stocks have being running over the last six/seven years is because of the FED.(However, it is ignoring that we are in a global conflict)

It's an interesting recipe that is sure to leave a bad taste in a lot of people's mouths.

[Aman A.K.A. Ahamburger]

Considering the CPC extended the six month ban, and this one is set to expire right about the time earnings start to pour in...

China stocks fall as 3-month ban on selling stocks set to expire

On Thursday, Shenzhen-listed Beijing Baofeng Technology 300431, -4.98% issued a statement detailing the selling plans of one of its major shareholders that had been restricted from selling. The stock ended down 5%.

[Aman A.K.A. Ahamburger]

From a soft landing, to a bumpy one...

Tale of Two Chinas Is Emerging as Economy Slows, Fidelity Says

Societe Generale SA Chief China Economist Wei Yao expects a "bumpy landing" for the economy, while the bank sees "significant risk" of a hard landing and resultant "lost decade" of economic stagnation.

"A soft landing in our view is very unlikely because that entails a very smooth transition, and it’s not going to be smooth," she said. "There are things the Chinese government will not be able to manage very smoothly. The policy makers are trying to slow down the economy without a crisis -- no one has ever really successfully done that."

China’s slowdown "has been coming for some time, it’ll be bumpy but it will be gradual," Rikkerink said.

Bumpy.....riiight... It's Never Been This Hard for Chinese Debtors to Pay Interest

And, what was that again? Oh ya, This War is Going Global(thanks Putin): it's still China's!.....

China Moves Closer to Afghan Security Role

Stay

[Aman A.K.A. Ahamburger]

This time it's different.

China’s giant bonfire of debt needs one spark to become an inferno

Macquarie Research found that 23% of bonds issued were by companies that don’t generate enough operating profit to cover their interest....

....Another report found that 45% of new company debt is raised to pay interest on existing debt. In a developed economy, Ponzi lending of such an enormous scale would lead to widespread bankruptcies, unemployment and massive losses for investors and lenders.

This hasn’t happened yet because Chinese debt has been expanding at an ever-faster rate. China’s total debt levels grew to about 300% of GDP last year from about 250% of GDP in 2014 and set a new record for a single month in January, growing at roughly 5% of the size of the economy. Problems have been covered over as the Chinese banking regulator is forcing banks to lend to companies that can’t pay their interest and would otherwise default.....

.......relatively high proportion of debt borrowed for short periods. Chinese wealth management products are typically sold by banks as an alternative to term deposits that pay much higher interest rates. Borrowers are almost always promised their money back within six months. The underlying investments are typically loans to companies that banks are unwilling to lend to. These borrowers have little prospect of repaying the debt at maturity unless someone else is willing to provide more debt.

Another source of short-term funding is peer-to-peer platforms. However, 28% of these are thought to be fraudulent. In the institutional funding market, there’s commercial paper, which is composed of corporate debts of 270 days or less. Outstanding Chinese commercial paper was $1.61 trillion at the end of 2015, far larger than the U.S. equivalent at $1.05 trillion.

As shown by the financial crisis in 2008, short-term debt is an accelerant to fires in credit systems. Within a week of the collapse of Lehman Brothers, 26% of U.S. commercial paper disappeared. Investors were no longer willing to lend without asking questions and borrowers were sent scurrying for other sources of capital. A run on short-term funding sources quickly spreads the fire from one bankrupt borrower to many other borrowers.

........the increasing number and size of defaults. The February collapse of the $7.6 billion Ezuabo online lending platform is thought to have ensnared up to 900,000 Chinese “investors”. It was followed by the $3.9 billion collapse of Zhongjin Capital Management earlier this month. This week, the state-owned China Railway Materials Co Ltd. has halted trading on $2.6 billion of debt, including commercial paper, as it investigates options for restructuring its debt.

At some point the increasing size and frequency of defaults will cause investors to lose confidence in debt investments....

[Aman A.K.A. Ahamburger]

China Faces Make-or-Break Moment, Says Forecaster of Japan Slide

China’s decades of rapid development under tight Communist Party control may be coming to an end, according to Roy Smith, the New York University academic who as a banker in 1990 anticipated Japan’s decline.

"China has now arrived at an existential moment after nearly 40 years of extraordinary economic progress," said Smith, who also warned about budding Japan-like financial strains ahead of the Chinese stock rout in 2015

China's Bubble 'Like Trying To Diffuse A Bomb'

According to a recently released book written by finance scholar Ning Zhu, unless China’s central government is able to quickly confront the multi-faceted and intertwined challenges facing the country’s economy, the outcome will be catastrophic.

“I think the current model is going to lead to a disaster, to a catastrophe, I think that is well grounded,” Professor Zhu said.

Japan exports fall 6.8%, in 6-month losing streak

Exports to China fell 7.1% in March,

Unfortunately for China - as much as they want to believe it is - their destiny is not in their hands.. Stay

India seeks China’s help to unravel IS plot to expand in country

[Aman A.K.A. Ahamburger]

Again, not a huge fan of, George Soros. However, a crazy coincidence here; this thread was started three years ago, and three years before the Asian crisis of 1997, Soros said this to the House Banking Committee: "There are so many [derivatives], and some of them are so esoteric, that the risks involved may not be properly understood even by the most sophisticated investors, and I’m supposed to be one of them. Some of these instruments appear to be specifically designed to enable institutional investors to take gambles which they would otherwise not be permitted to take.."

We know that since the start of the year, Soros has been in China's cross hair, and now...

Soros Says China's Debt-Fueled Growth Echoes U.S. in 2007-08

Billionaire investor George Soros said China’s debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession.

China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on Wednesday. The broadest measure of new credit in the world’s second-biggest economy was 2.34 trillion yuan ($362 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey and signaling the government is prioritizing growth over reining in debt.

What’s happening in China "eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth," Soros said. "Most of money that banks are supplying is needed to keep bad debts and loss-making enterprises alive."

[Aman A.K.A. Ahamburger]

Over 90% of China Bond Funds Dropped Last Week Amid Default Woe

And boy, that housing market must really be recovering; I mean the Chinese government says it is, so it must be.

China cement giant's Q1 profit plunges 99%

[Aman A.K.A. Ahamburger]

Wow!

In China, It Only Takes 11.9 Units of New Debt to Create 1 Unit of Additional GDP

Yes, you are reading the chart correctly…yuan bank loans increased 12.6tn year over year while GDP increased a mere RMB 1.1tn. That equates to 11.9 units of new credit for each new unit of GDP, as the final chart shows. Importantly, this 11.9:1 ratio also assumes nominal GDP actually increased by RMB 1.1tn and was not in any way overstated. We will leave the readers to draw their own conclusions about the long-term effects of this type of growth strategy.

[verrip1]

Looks roughly like the type of visual I'd expect out a graph of loans (bonds) vs GDP in the US from several years before QE1 to date.  Is China just following what the US, EZ and Abenomic Japan have done via QEs in monetary policy?  That doesn't necessarily make QEs right or wrong, but QEs are something that economists in the world's largest central banks have implemented in big ways.  Of course, only the world's largest central banks could afford to do it, so it's not like it's likely to spread much beyond where it is now in play.  It has certainly provided one of its primary goals, liquidity.  Also, those increased reserves in US banks to minimize TBTF came from somewhere, and QE purchases by the Fed affected that.

The US QEs have been for finite amounts, purchased over time.  The EZ is similarly using defined amounts.  I don't know the plans of Japan or China (who does?).  Point being that future extrapolation of this graph to the right along the slope of the last two years would seem to me to be unrealistic both in the sense of what we know QEs do and in the sense of the ability of China to continue purchases of that magnitude, increasing geometrically, without seriously undermining its own currency.

The great unknown I feel re QEs is the volatility that could result from large doses of derivatives on these gigantic accumulations of fixed income assets.  If either side of the derivatives gets overweighted, the market volatility from a countering event could be overwhelming.  The lesser financial regulatory scheme over investing and banking in China probably makes them more susceptible to risky individual actions than in US/EZ/Japan.

[Aman A.K.A. Ahamburger]

I was being facetious with the shocking emoticon.

What the chart shows, mixed with China's attitude of "our economic system is superior to the west," is that the call that was made years ago around here about China today being Japan circa 1980/1990- present was correct. If you get the chance you should read - if you haven't already - Devil Take the Hindmost: a History of Financial Speculation. It was published in 2000. The Chapters on Japan could easily be wrote about China...

The big reason Japan was able to hobble along was that Japan had a growing EZ, and the 90's in the US were a decent time for growth. Japan also had China growing. What Japan didn't face was a breakdown of global trade. Which is where the derivatives that you mentioned become a huge issue.

[Aman A.K.A. Ahamburger]

Liquidity trap and consequences...

-China’s great wall of money just sprang another leak
-Something's really wrong with jobs in China
-China's Political Turmoil Worsening, Affecting The Economy
-As China’s Investment in Africa Falls, Turkey Looks to Capitalize
-China's $1 Trillion Bond Leverage Unwinds as Pimco Senses Panic

And where have we seen this.. Stay

Something Stinks in China's Housing Market

China’s shadow lending system may be trying its hand at sub-prime banking. And if China’s housing market goes, it will be exactly what George Soros has been warning about since January when he announced he was shorting the local currency, the renmimbi.

The China Banking Regulatory Commission said over the weekend that Shanghai banks can no longer cooperating with six mortgage brokers for at least one month for violating lending policies. Branches of seven commercial banks admitted on Monday that they will suspend mortgage lending for clients brokered by those six firms for two months in an attempt to clamp down on “gray-market” home loans, the Shanghai office of the Commission said.

[Aman A.K.A. Ahamburger]

Pushing on a string, China is. Stay

China’s migrant workers are the ones suffering in a slowing economy

Millions of Chinese workers go unpaid amid economic slowdown

According to the most recent annual report from China's National Bureau of Statistics, more than 2.7 million migrant workers — around 1% of the total — weren't paid on time last year, the highest number in five years.

In the same period, China saw more than 2,700 strikes and protests, more than double the number the year before, according to China Labor Bulletin (CLB), a Hong Kong-based rights monitor.

-AIG aims to sell down $1.2B stake in China insurer PICC
-Chinese Investors Reeling After Wealth Management Firm's Collapse

[Aman A.K.A. Ahamburger]

It's always different this time.

China financial regulator clamps down on shadow banking

During the past three years, banks in China have used complex accounting techniques to move loans off the balance sheets and into a category of investments that requires less provisions than loans.

It has also reduced the rate of defaults that appear on bank balance sheets because the assets no longer have the characteristics of loans.

These so-called debt receivables have become one of the fastest growing areas of Chinese banks. Debt receivables increased 63 per cent to Rmb14tn ($2.2tn) last year, according to an analysis of 103 Chinese banks by Wigram Capital Advisors, equivalent to 16.5 per cent of the formal loan book.

.......

While smaller banks are most active in shadow banking, the big four state-owned banks also reduced provisions last year on their traditional loan books. By making less provision, the biggest banks were able to maintain largely flat profit growth last year. If they are forced to provision more for once-hidden losses, profit growth could decline faster this year.

Ratios for provisions on losses continued to fall in the first three months of the year, financial statements showed.

The provisioning ratio at China’s biggest bank, Industrial and Commercial Bank of China, fell to 141 per cent of bad debt, below the 150 per cent threshold set out by the regulator, which was recently lowered from 200 per cent. ICBC’s profit growth was nearly flat for the quarter.

Mid-sized Industrial Bank reported some of the highest levels of investment receivables in its first-quarter results. The bank held Rmb2tn in investment receivables as of the end of March, 36 per cent of its total assets and equivalent to the size of Singapore’s gross domestic product last year.

[Aman A.K.A. Ahamburger]

The best time for China corporate bondholders lose their confidence in a Beijing bailout is right when a record 3.7 trillion yuan ($571 billion) of local bond maturities through year-end.

But don't worry. It's all good in the neighborhood and the Chinese authorities are so confident in that fact they will lock you up for saying otherwise.

China warns economic analysts to stop being so pessimistic

Chinese authorities are training their sights on a new set of targets: economists, analysts and business reporters with gloomy views on the country’s economy.

Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements, according to government officials and commentators with knowledge of the matter.

......

In the past, Chinese authorities have targeted mainly political dissidents while commentary about the economy and reporting on business has been left relatively unfettered in China in a tacit acknowledgment that a freer flow of information serves economic vitality.

But Beijing has moved to reassert control of the country’s economic story line after policy stumbles that contributed to selloffs in China’s stock markets and its currency last year fed doubts among investors about the government’s ability to navigate the slowdown.

[Aman A.K.A. Ahamburger]

Considering how much debt it takes to make GDP, this number is also probably conservative.

Loan Epidemic With $1 Trillion of Losses

Chinese banks’ bad loans are at least nine times bigger than official numbers indicate, an “epidemic” that points to potential losses of more than $1 trillion, according to an assessment by brokerage CLSA Ltd.

Nonperforming loans stood at 15 percent to 19 percent of outstanding credit last year, Francis Cheung, the firm’s head of China and Hong Kong strategy, said in Hong Kong on Friday. That compares with the official 1.67 percent.

[Aman A.K.A. Ahamburger]

Two articles, same speech, different information in each.

Communist newspaper warns of ‘L-shaped recovery’

Even China's Party Mouthpiece Is Warning About Debt

China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans.

High leverage is the “original sin” that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed “authoritative person” starting on page one and filling the second page on Monday.


China should put deleveraging ahead of short-term growth and drop the “fantasy” of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said.

[tyfighter3]

LOL, rolling. Looks like that guy we talked about 4 or 5 years ago. It looks like that guy has lost his pole. LOL

[Aman A.K.A. Ahamburger]

LOL As soon as I opened that article that's the first thing I thought of. Thought you might like it.

You know how the old saying goes my friend,fortune favors the prepared mind.

-China's Economy Is Past the Point of No Return
-China party mouthpiece echoes Soros’ debt fears

[Aman A.K.A. Ahamburger]

London Bridges..

Hong Kong Property Market in 'Free Fall': Hayman's Bass

And then...

-China Stocks Cap Longest Weekly Losing Streak in Two Years
-China Decides Debt Can Be Dangerous
-Iron Ore Bust Follows Hard on Heels of China’s Speculative Boom

Stay

[Aman A.K.A. Ahamburger]

Apparently the article referenced in re:#320 could have been wrote by none other than President Xi Jinping.

China's Communist Party goes way of Qing Dynasty as debt hits limit

China's debt is approaching $30 trillion. The fresh credit alone created since 2007 is greater than the outstanding liabilities of the US, Japanese, German, and Indian commercial banking systems combined.

Moody's warned this month that China's state-owned entities (SOEs) have alone racked up debts of 115pc of GDP, and a fifth may require restructuring. The defaults are already spreading up the ladder from local SOE's to the bigger state behemoths, once thought - wrongly - to have a sovereign guarantee.

To put matters in context, leverage rose by roughly 50 percentage points of GDP in Japan before the Nikkei bubble burst in 1990, or in Korea before the East Asia crisis in 1998, or in the US before the subprime debacle. This gauge is an almost  mechanical indicator of a future credit crisis. 

As we all know, China is in a class of its own. Debt has risen by 120 to 140 percentage points. The scale of excess industrial capacity - and China's power and life and death over commodity markets -  mean that any serious policy pivot by the Communist Party would set off an international earthquake.  

[Aman A.K.A. Ahamburger]

And what they have shown is that they want to try and fudge there way through, not take their medicine, because we all know Chinese economics is far superior.

Massive Bailout’ Needed in Debt-Saddled China, Analyst Chu Says

Charlene Chu, a banking analyst who made her name warning of the risks from China’s credit binge, said a bailout in the trillions of dollars is needed to tackle the bad-debt burden dragging down the nation’s economy....

.....She also argued that lenders’ off-balance-sheet portfolios of wealth-management products are the biggest immediate threat to the nation’s financial system, with similarities to Western bank exposures in 2008 that helped to trigger a global meltdown.......

.....Interviewed in Hong Kong last week, she estimated as much as 22 percent of all China’s outstanding credit may be nonperforming by the end of this year, compared with an official bad-loan number for banks in March of 1.75 percent.

[Aman A.K.A. Ahamburger]

The echos of the last crisis continue to get louder..

China Default Chain Reaction Threatens Products Worth 35% of GDP

WMPs, which traditionally funneled money from Chinese individuals into assets from corporate bonds to stocks and derivatives, are now increasingly investing in each other. Such holdings may have swelled to as much as 2.6 trillion yuan ($396 billion) last year, based on estimates from Autonomous Research this month.....

bad investments by one WMP could infect others, causing a loss of confidence in products that play an important role in bank funding. It also suggests WMPs are struggling to find enough good assets to meet their return targets. In the event of widespread losses, cross-ownership will create more uncertainty over who’s vulnerable -- a key source of panic in 2008 when soured U.S. mortgage securities triggered a global financial crisis.

Those concerns have become more pressing this year after at least 10 Chinese companies defaulted on onshore bonds, the Shanghai Composite Index sank 20 percent and China’s economy showed few signs of recovery from the weakest expansion in a quarter century.....

.....Interbank holdings of WMPs swelled to 3 trillion yuan as of December from 496 billion yuan a year earlier, according to figures released by the clearing agency last month. As much as 85 percent of those products may have been bought by other WMPs, according to Autonomous Research, which based its estimate on lenders’ public disclosures and data on interbank transactions. The firm speculates that in some cases the products are being “churned” to generate fees for banks.

“We’re starting to see layers of liabilities built upon the same underlying assets, much like we did with subprime asset-backed securities, collateralized debt obligations, and CDOs-squared in the U.S.,” Charlene Chu, a partner at Autonomous who rose to prominence in her former role at Fitch Ratings by warning of the risks of bad debt in China, said in an interview on May 17.

[Aman A.K.A. Ahamburger]

Re: post #312.... we know the number is even higher this year.. talk about a second shoe.

Chart shows China’s debt bubble bigger than subprime bubble

Some words for the picture.. Chinese Builders’ Credit Profiles Worsening, Ratings Firms Warn

And the surrounding economies... China's Slowdown Hits Nearby Economies Hardest

Stay

[Aman A.K.A. Ahamburger]

China Toxic Debt Solution Has One Big Problem

But if the first deals in this 50 billion yuan ($7.6 billion) program are any guide, the whole exercise may end up just shuffling bad debt between banks, doing little to improve the health of China’s financial system as a whole.

Bank of China Ltd. sold at least half of its 301 million yuan debut offering of NPL-backed securities to other Chinese lenders on May 26, according to people familiar with the matter, who asked not to be identified because they aren’t authorized to speak publicly. Ninety-five percent of the deal’s riskiest tranche was purchased by a state-owned asset manager, a sign of tepid demand among private institutions. That same day, China Merchants Bank Co. sold at least 60 percent of a 233 million yuan NPL offering to other banks, people familiar said.

China's Hidden Unemployment Rate

[Aman A.K.A. Ahamburger]

I get such a kick out of the fact that the CPC truly believes China ia a superior society that will avoid the unavailable. Truly fits Einstein's definition of insanity.

China's Debt Load Is (Much) Higher Than Previously Thought, Goldman Says