Global Crisis Spreads To China Where The Finance Ministry Fails To Sell Half Of Local Government Debt Offered

Tyler Durden's picture

Europe is now openly burning once again (Italy-Bund spreads just hit a new record), the US is 9 days away from being bankrupt, and completing the trifecta is China, which just failed to sell half of the proposed 50 billion in CNY of local government debt at an auction, courtesy of the SHIBOR supernova which oddly only Zero Hedge has been covering. From Bloomberg: "China’s finance ministry failed to sell all of the three-year debt offered at an auction on behalf of local governments as a cash crunch curbed demand. The ministry sold 23.9 billion yuan ($3.7 billion) of bonds at a yield of 3.93 percent on behalf of 11 provinces and municipalities, falling short of its 25 billion yuan target, said a trader at a finance company required to bid at the auction. The Shanghai interbank offered rate, or Shibor, for three-month yuan loans, was fixed at 6.24 percent today, near a record high of 6.46 percent reached on June 28. “While the interbank borrowing cost is so high, investors won’t spend money on local government debt,” said Huang Yanhong, a bond analyst at Bank of Nanjing Co. in Nanjing. “Demand is low also because the debt’s secondary-market trading isn’t active. After you buy it, you can only hold it till maturity." Who would have possibly thought that 7 week money costing 7% and more could have implications and stuff...

Not helping things is last week's interest rate hike: "Demand for debt is also cooling after the central bank raised its benchmark one-year lending and deposit rates last week for the third time this year to help stem gains in consumer prices. Inflation accelerated to a three-year high of 6.4 percent in June, from 5.5 percent in May, the statistics bureau said on July 9. Last week, the finance ministry failed to sell all of the bonds offered at an auction of 182-day bills. The ministry also sold less debt than planned at a June 17 auction of one-year notes, and sales of 182-day bills and one-year bonds on May 13." Bottom line: while you were sleeping, the financial crisis just went global.


The central government will sell 200 billion yuan of bonds on behalf of local authorities this year. Today’s auction was the first involving this type of debt in 2011 and 25.4 billion yuan of five-year notes were sold at a yield of 3.84 percent.

The finance ministry in January published a list of 59 underwriters required to bid at its debt sales, including Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp., China Citic Bank Corp., Postal Savings Bank of China, Industrial Bank Co., Guotai Junan Securities Co. and BOC International (China) Ltd.

Good luck with that "mandatory" issuance. Unlike in the US, China's "Primary Dealer" equivalents apparently have no idea that their primary job is to keep the ponzi illusion going. Surely our 20 or so status quo perpetuators can teach their Chinese colleagues a thing or two about keeping your head stuck in the sand.

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Yen Cross's picture

 I just had an "Epiphany" Did any/one/.. catch the Clowns on CNBS running for cover?


  Valuations? China? ASS SUCKING? In a prolapsed way?



Yen Cross's picture

 I am Admiral Kirk < Scotty give er all shes got...

Sudden Debt's picture

Scotty: But Captain! I'm 72 YEARS OLD!!



I GAVE IT EVERYTHING I COULD! We're running on air as we speak captain!


D.O.D.'s picture

hahahahahaha... BTFD bitxez...

wandstrasse's picture

can Charles Ponzi be awarded the economics Nobel prize posthumous? This has been overdue anyway.

shortus cynicus's picture

How often should we repeat this: there is no "Nobel prize in economics".

There is only "Swedish Central Bank prize in economics in memory of Alfred Nobel", in short called properly "Swedish Central Bank prize".

"Nobel prize in economics" is a totally false statement, exactly like statement that Federal Reserve Note is US dollar. And it doesn't change anything if 99.99% of society doesn't know that.


Thorlyx's picture

Actually, it's called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Wheras Central Bank ist not a correct translation of Riksbank. It's more like Bank of the Dominion of Sweden.

Just sayin....

TooBearish's picture

Everything happening rite now quiet bullish Gold - probably down 20 bucks today.....thx Blythe.

StychoKiller's picture

Au UP $10USD -- guess again!

Peter Pan's picture

All of the major ideological systems have now mutated or been contaminated to the point of bankruptcy. Individuals, businesses, governments and politicians need to replace notions of capitalism, communism and socialism, with the concepts of honesty, hard work and prioritization of projects and consumption.

It's almost surreal seeing the Chinese thumb their nose at municipal bonds. China possesses gargantuan foreign exchange reserves but it clearly is losing control over its people as they begin to exert their right to refuse the government's own paper.


Fiat in all its forms is being rejected everywhere as the acceptability of gold is broadening.

YHC-FTSE's picture

Disaffection with local governments? I wouldn't be surprised. But I think most Chinese have been going long silver and gold instead for quite awhile. 

YHC-FTSE's picture

This is interesting. I'm long on China and own certificated shares of some select companies in the HKSE, but such is the barrage of conflicting reports out of China-watchers, it is really difficult to make much sense. This is hard data, and even if it is contrary to my own interests, I'm grateful for it. 


The issue of NPLs (Non-performing loans to local governments) on the ledger of the 4 large commercial Chinese banks is probably underated, but the figures from analysts are wildly different to be reliable. As a single entity, the PRC cashflow is the key and I don't think they have reached anywhere near the danger point where they are spending far more than they are earning. And considering the spending is going into education and infrastructure, even with some spectacularly useless building projects, the long term outlook for China has not (yet) diminished. The "If you build it they will come" theory may not have worked in some areas, but they have in all the others and I think we're all waiting on the Chinese to start getting individually wealthy so we can sell our wares to them, this time as finished products, instead of raw.

chump666's picture

libor + shibor looking stretched, the other ptoblem insurance spreads also blowing out.  happening all at once. looking very much like a global liquidity crunch.  alcoa goes bad 200+ tank on the dow. maybe a flash crash

Alea Iacta Est's picture

Burn, Baby Burn! DISCO INFERNO!*

*(Official Theme Song of the Global Banking Cartel)

Paralympic Equity's picture

It is not the first time this year they can't sell the paper. But it is more due to real rates being negative, and bank liquidity drained by RRR hikes...


Still it is not good, but shit is contained, as usual...

Sudden Debt's picture

I thought that prospectus was the menu of the day...

Next time they shouldn't put pictures of a dog on those and use pictures more related to finance! A PIG FOR EXAMPLE!


Overflow-admin's picture

What local debt? The one accounting for 75% of the total (chinese gov. debt)?


Shit                                                                                        Fan

                           Shit                                                             Fan

                                                          Shit                              Fan

                                                                                   Shit? x Fan?

bill1102inf's picture

Buy Italian, Greek, French, German and Chinese bonds. Sell gold and silver.

Peter K's picture

Bankrupt is when you can't pay your debt service. The US has $200b of income monthly from various tax collection sources, and app. $20 to $30b interest expense on their debt service. Doesn't sound like a bankruptcy candidate to me. But if it keeps on raising it's debt ceiling and spending wrecklessly, then it just might get there. Make that, it will get there.