Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

China's Debt Problems Rival the West

Interest-Rates / China Economy Aug 28, 2011 - 02:27 AM GMT

By: Justice_Litle

Interest-Rates

Best Financial Markets Analysis ArticleThough the focus has been on the U.S. and Europe, China too has debt problems to contend with.

"If you look at the accounting, I don't see how anyone could put a penny there."


So says Rajiv Jain, a top money manager with Vontobel Asset Management, of Chinese banks.

Earlier this month, Bloomberg reports, valuation on Chinese banks fell to the lowest levels since October 2008. But Jain, who oversees some of the best-performing mutual funds of 2011, says the shares "aren't cheap enough to buy" because lenders' leverage is too high.

"We have not owned a Chinese bank, and I don't see owning one any time soon... there's no margin of safety for us."

As the West struggles with huge debt loads and the strain of pending crisis, Asia is seen as immune. China, in particular, is portrayed as the rich dragon sitting on a mountain of savings.

But China has big debt problems of its own. They start, but do not end, with the banks.

Part of the China miracle is Beijing's famed ability to "get things done." This comes from a system of command and control, in which authorities tell the SOEs (state-owned enterprises) what to do -- and tell the banks how much to lend.

In order to keep China booming through the global downturn, Beijing ordered the banks to lend heavily. And lend they did, racking up all kinds of potential bad debts. That is what happens when money is pushed out the door, with a measuring emphasis on quantity, rather than quality, of loans.

Just what kind of numbers are we talking about here?

"Chinese banks expanded credit at a record pace in 2009 and 2010," Bloomberg notes, "making more than 17.5 trillion yuan ($2.7 trillion) of new loans as the government moved to offset a collapse in exports..."

That is no small sum, $2.7 trillion, even for the mighty China. The ratings agency Moody's has predicted that non-performing loans, or NPLs, could rise as high as 18% of the total in a "stress" scenario.

At 18% of $2.7 trillion, that is $486 billion worth of bad loans -- or more if Moody's estimate is conservative. In the classic tradition of Ponzi finance, many local government borrowers don't have the cash flow to service their debts. Standard & Poor's sees "as much as 30 percent" of local lending going bad.

"We feel that the non-performing loans are going to be shockingly high," says Jain.

And the debt hits just keep on coming. "Beijing's state-owned infrastructure companies face a record amount of bonds maturing next year," Bloomberg reports, "as China's capital city pays the bills for the $70 billion 2008 Olympic Games."

But does all this really matter, one might ask, when China has such huge capital reserves? Can't Beijing just write a check to cover all that bad debt?

It isn't quite that easy. For the mandarins who guide and direct China's top-down economy, an iron fist is not the same thing as local control. While orders can be issued from the top, there is often little hand in what kind of results flow through to the bottom.

Even if the banks themselves can be shored up with capital injections, the bad businesses surviving on Ponzi finance must eventually be allowed to fail. They cannot be propped up indefinitely -- such an effort would drain even China's savings.

And all of the above makes Chinese citizens angry, which in turn stirs potential for unrest. There is a growing awareness in China of shoddy financial decisions and their consequences. When the government throws money down a rat hole in the form of bad investments, China's citizens increasingly see it as their own savings being wasted. (And they are right.)

Says Arthur Kroeber of GaveKal Dragonomics in Beijing: "The Chinese government hasn't bothered to create real financial markets, where you have the infrastructure that rewards good behavior and punishes bad behavior."

One could argue Western markets haven't mastered that either -- the punishing bad behavior part. Yet the broader point is that China's financial situation is not necessarily that much better than America's (or Europe's). Much of the debt is simply hidden away, tucked cozily into "off the books" arrangements with local government entities.

Some even argue that, were China's hidden-debt-to-GDP ratio properly calculated, it would reveal the dragon to be not only in the same boat as Uncle Sam, but worse off than Greece!

We don't know China's true debt-to-GDP ratio, of course, and the dragon isn't telling. (The official number is potentially four or five times too low.) We also don't know how long the non-performing loans (NPLs) can keep getting extended or rolled over, creating a Madoff-like appearance of stability as stakes rise with each round.

There is reason to be wary: Along with China's proliferation of ghost cities, empty highways and dust-ridden shopping malls, there is a multitrillion-dollar mountain of hidden debt to contend with... big enough to create an avalanche of problems that could rival those in the West.

Publisher's Note: China's growth was a lie, a global scam to rip off the world. The whole thing is about to collapse around them -- and it's going to take your retirement with it. Unless you act immediately. Get all the details here.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, investment commentary and exclusive special promotions.

Source :http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-082611.html

By Justice Litle
http://www.taipanpublishinggroup.com/

Justice Litle is the Editorial Director of Taipan Publishing Group, Editor of Justice Litle’s Macro Trader and Managing Editor to the free investing and trading e-letter Taipan Daily. Justice began his career by pursuing a Ph.D. in literature and philosophy at Oxford University in England, and continued his education at Pulacki University in Olomouc, Czech Republic, and Macquarie University in Sydney, Australia.

Aside from his career in the financial industry, Justice enjoys playing chess and poker; he enjoys scuba diving, snowboarding, hiking and traveling. The Cliffs of Moher in Ireland and Fox Glacier in New Zealand are two of his favorite places in the world, especially for hiking. What he loves most about traveling is the scenery and the friendly locals.

Copyright © 2011, Taipan Publishing Group

Justice_Litle Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules