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
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
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

China Starting To Resemble Bernie Madoff

Economics / China Economy Apr 14, 2017 - 09:57 PM GMT

By: Jeff_Berwick

Economics

Aubible.com just released a new show on Bernie Madoff (Ponzi Supernova, available for free to subscribers) that explains how the world’s biggest financial scam was enabled by banks and hedge funds who were making so much money that they chose to ignore obvious red flags.

Which sounds a lot like today’s China, Inc. Here, for instance, is a sequence of events involving China Huishan Dairy Holdings, an apparently too-big-to-fail chain of dairy farms:


March 21. Huishan Dairy misses payments on some of its loans. The wife of the chairman and largest shareholder (herself an executive in charge of relationships with the company’s bankers) goes missing.

March 23. The local provincial government holds a meeting with the company and its creditor banks to propose a plan to inject liquidity into the company. This is not announced publicly.

March 24. Huishan’s shares plunge 85% in an hour, wiping out more than $4 billion of market value and leading to an indefinite trading halt.

March 28. Huishan admits to missing loan payments and misplacing the Chairman’s wife, but denies reports of faked invoices and misappropriation of funds. The local government, it promises, will buy some of the company’s excess land to bolster its balance sheet and the Chairman will sell some of his shares and invest the proceeds in the company.

Somewhere along the way, the government “ordered financial institutions involved not to downgrade the company’s credit rating or file lawsuits against it.”

As Quartz.com noted at the time:

The Chinese government can’t afford to let Huishan fail. Credit markets already deeply distrust the rust-belt Liaoning province. Authorities there were revealed to be faking economic numbers, including the province’s GDP growth, from 2011 to 2014. The province was the only province that fell into recession last year. Meanwhile local firms Dongbei Special Steel and Dalian Machine Tool went into default last year.

If Huishan does go bust, the fallout could also be disastrous for some Chinese banks. At least one of them has already felt the chill: Jiutai Bank, which is the dairy maker’s second-biggest creditor, saw the biggest one-day drop in its shares this week. According to Caixin, the small bank’s loan to Huishan currently stands at around $266 million, bigger than its estimate of impairment losses on bad loans for the whole of 2016.

The situation is not much easier for the midsize Ping An Bank, which lent nearly $300 million to Yang’s offshore entity Champ Harvest, with a 25% stake in Huishan as collateral.

And now this, from today’s Wall Street Journal:

Chinese Aluminum Giant Faces Credit Crunch

The world’s biggest aluminum producer is in trouble, locked in a feud with its accountant over fraud allegations that have forced it to suspend trading of its shares and seek help from the central government in Beijing.

China Hongqiao Group Ltd., has drawn the attention of the global aluminum market and U.S. trade officials as it soared to the pinnacle of the industry in the past few years, leapfrogging the production of giant competitors like Alcoa in the U.S. and United Co. Rusal in Russia.

Its rise coincided with American allegations that Chinese companies—helped by government subsidies—flooded the world with cheap aluminum, coal and steel, depressed prices and decimated U.S. industries. U.S.-Chinese trade issues were a focus of a two-day summit last week between President Donald Trump and President Xi Jinping of China.

Now China Hongqiao, a Hong Kong-listed company that employs nearly 60,000 people, is facing fraud allegations from two short sellers that the firm says threaten its financial stability.

There’s a pattern here that isn’t confined to just these two companies: Cheap financing either subsidized or provided directly by government enables Chinese companies to expand beyond the limits of the global marketplace, producing a glut which makes the previously-mentioned loans unmanageable.

The companies hide their failure for a while but eventually are exposed, leading local governments to step in with new money and the central government to change the rules to prevent market participants from warning others and/or moving their capital out of the way.

As with Madoff’s Ponzi scheme, the game goes on as long as new money continues to flow in and the major players continue to pretend (or are forced to pretend) that things are okay. It ends when either of those conditions changes.

Such scams don’t tend to peter out over time. Usually – like the above dairy and aluminum companies – they seem fine until one day they’re not.

Anarcho-Capitalist.  Libertarian.  Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks.  Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast.  Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media.

© 2017 Copyright Jeff Berwick - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Jeff Berwick 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