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More On China's Trillions In Unrepayable Project Loans
Last Friday we reported that the most important (and most underreported) story of the week was Bloomberg's disclosure that Chinese banks may struggle to recoup about 23 percent of the 7.7
trillion yuan ($1.1 trillion) they’ve lent to finance local government
infrastructure projects, and that only 27 percent of the loans to the financing vehicles can be repaid in full by cash generated by the projects they funded. As this is a topic that deserves much more attention, we present the views of Goldman's Ning Ma on this critical issue, which when combined with Fitch's recent disclosure that the CDO market is ramping up in full force halfway across the world, and that China has 66 million vacant homes, should all come together in a nice and tidy confluent package of a combustible real estate-cum-credit explosion. Of course, this being Goldman, guess which way the spin is pointed: "We continue to believe systemic risks associated with such loans are limited. Key to watch: The results of restructuring and NPL recognition in 2H10 (mainly from unrecognized social projects and misused loans, but likely far less than 23% NPL ratios), and credit cost allocation among banks and local gov’ts." In other words, ignore the biased conclusion, but certainly focus on this most recent unravelling of the Chinese bubble.
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gfs
Chinese "Failure to recoup" is loosely translated into american as "Bailout" or "Stimulus"
+1. LOL
they still think like communists: just take the money and build some useless thing to sit idle - no such thing as a loan; "money" taken does not have to be paid back, comerade.
Apparently they see that as a better investment than in Treasuries. I'm not sure that I blame them. :)
Good point, if i were an Elite I'd rather be in the USA where I know all the money I spend on lobbying aka bribing politicians and local government will pay off, just look at the statistics: peanuts for fortunes. Americans stay bought as they have integrity, bloody Commies though would be untrustworthy, would probably be back wanting more. Frickin Commies wasting money on ghost cities and bridges to no where, America has Cash for Clunkers and Wall St bailouts, much better use of tax payer money. Enough, I'm gonna go polish my M-60, you pussies have a problem with that?
Lets face it... China can afford to take the loss, and they won't need to hide it on their books. However, the significant part of the story is the slack in their economy, and the prospect for future demand.
Totally agree. The Chinese government is asset-rich, but cash-poor possibly in the near term. The government owns 100% (!) of lands and major businesses in China. They can easily raise money by selling some assets. Look at the recent sales of the Agriculture Bank of China. People here in the West just don't understand the structure there and are over-concerned. The bubble will surely deflated in the future. Some people or some banks will get hurt. But the resulted infrastructure will benefit the society for many years to come. Take the recently built Shanghai-Nanjing High Speed Railway as an example. It was reported that customers are reluctantly switching from the express trains to high speed trains. In next few years, the line may be operated in loss. But eventually the regional development will catch up and the benefits will show up. Near-term loss is not a big deal. From the society point of view, it is much better to place workers to build something which will result in near-term cash-flow problem but long-term benefits than to let workers sit in home watching TV and receiving unemployment checks.
+∞
Good Point
Chicom's gonna use their printing press to further enlarge their monetary base as they always have since their reform started in1978. IMHO Chicom's deliberately leaked this story out to dampen the cries for higher yuan.
here comes the clue:
http://www.bloomberg.com/news/2010-07-27/china-regulators-officials-aim-to-ease-local-finance-vehicle-loan-concern.html
China Moves to Ease Concerns That Local Governments Are at Risk of DefaultLooks like lots of possible set-ups from that article:
a) secured assets, so the bank may end up owning the projects
b) potential that they will start instituting higher taxes to pay for the failures (socialize the losses, US style)
c) just write off the debt as if it does not exist
I think this falls into the catagory of the story why China does not automate their farms: "What will all of the farmers do, then?". If they stop building, then what will all of the builders do? Would they go on welfare (extended unemployment) like in the US?
China doesn't have real estate property tax yet. But their national sales VAT is at 17%, plus s few % points for local sales tax. Generally you pay around 25% hidden tax on retail sales. Do you really think they can kick start some serious domestic consumption rate at that kind of high sales tax rate?
25% - that's not much different than the hidden cost of our tax system - and then we pile on local sales tax too. How are we doing?
But at least we get some social safety nets and in China you get nothing.
Nothing from the government you mean.
I have no information on Chinese social safety nets, or the lack thereof.
We can save the topic of the efficacy of our social safety nets for a more appropriate thread.
http://en.wikipedia.org/wiki/Social_issues_in_the_People's_Republic_of_China#Social_safety_net
Social issues in the People's Republic of China (section Social safety net)
Please don't euphemise.
Say what it really is,... out loud.
Pointing a gun at someone and saying "Give me your money so I can buy votes with it or I'll put you in a cage like an animal - or just kill you if you resist" is not a "social safety net".
It is robbery and theft at it's lowest form.
There are plenty of real "safety nets" available. They're called insurance policies. They are voluntary contracts between two parties that are enforceable under law. There is no threat of violent coercion involved and cannot be reneged by a politician's decree.
see: http://quotes.liberty-tree.ca/quote/lysander_spooner_quote_b8f9
+ 1 cold beer.
Mass murders upcoming from those that were in places of USING that YAUN........
The Reds, do not suffer failures with China's wealth, like the USA does.(payment for FUPS, is swift, and deadly).
LOL
They would have nailed GS & JPM a LONG time ago....LOL
So, according to Goldman they think the credit damage is.... (wait for it)
"well contained"
I can't remember where I heard that before.
you were on that conference call with my financial advisor.
Wait, what, I thought China was booming, I mean, look at all these tall buildings for gods sake.
http://www.youtube.com/watch?v=ektMQGbW3wk
"We continue to believe systemic risks associated with such loans are limited."
lmao....the chicoms will struggle to recoup 23% of loans and only 27% of loans are repayable from cash flows...and "we continue to believe systemic risks....are limited..."
and obama is not an indonesian citizen born in kenya....yep
Wow, I did not know there were Chinese symbols for Goldman Sachs. I wonder what it translate to? (enter your opinion below).
that's easy - SATAN
I was told it means "buy low sell high."
"I drink your bubble tea."
"balls across the nose"
"God's Work"
Long (transliteration) story coming here....
In Japan back when Salomon Brothers (and Japan) were still ongoing concerns, the "katakana" characters for Salomon were pronounced So-lo, even though Japan has characters for a "sa" sound. Being a bit of a pedant, I pointed this out to a Japanese female colleague one day. I told her that it was Salomon, not Solomon, who I said was the King of the Jews. She asked me, "In America?" A bit befuddled, I just answered, "No, that would be Henny Youngman". She nodded in acknowledgement.
Even considering that Japan is a Shinto/Daoist/Buddhist land, it was at that moment I accepted that the US education system was not as bad, in a relative sense, as I had once thought, and that Japan was probably not going to rule the world as so many then-current books (now residing on the "steal me" tables of your average Borders) were claiming.
Edit: Just remembered another incident that left me befuddled.
One day a female colleague said to me, "Chindit-san, you are Jewish, right?"
"Why do you think that", I asked.
She responded, "Because you wear glasses" (this colleague is a graduate of one of Japan's finest universities).
"So Tanaka-san over there is Jewish?", I asked.
"Don't be silly, Chindit-san" was her reply.
And when the crash happened in 1990, a host of newspaper articles and a few books "broke" the news that it was the work of "the Jews at Morgan Stanley". Old Wall Street types, as well as Jewish people who applied to work at MS anytime before about 1980 would appreciate why that is funny.
Guess I've drifted enough off topic.
China will spend all of its foreign reserves to keep their population employed. They are not in a "better" situation than the west is.
In a country of 1.5MM people, 66 million is a rounding error and about 1 months supply. Just say'n...
Better yet...good luck ripping those loan losses from the ever growing black market underground economy there...
It was bad enough they were selling tungsten coated gold to their population...
The corruption in China is Soooo bad.. Everyone I know (including me) that has done business there, knows and talks about it. I can't imagine that one day this would not have an impact on the structural integrity of their economy..
Silly roundeye, corruption is the economy.
What's the corruption ratio of China vs. Illinois?
What's the corruption ratio of Anhui vs. the Federal Reserve?
I don't know if that's a fair comparison. What if we compared corruption in China vs. the US straight across?
Small gratuities are a social lubricant for speedy financial transactions...
This bubble has spread to Vancouver BC by the way, through Chinese investors buying up every property in town. The median home price is 9.3 times the median income.
Great shorting opportunity for those more sophisticated than I. It's tough to tell who will get the brunt when it pops. The banks are better shielded than in the U.S. because the mortgages aren't subprime, generally with 20% or more down.
The developers and construction companies will get hammered. And the home owners. Not sure who else.
For all those thinking China is taking over the world...think again.
Yeah, but...
At least they got bridges to everywhere and fast rail -- all we got was richer rich people.
For the immediate future, China is in the same boat as we are. This is a global event from which there is no escape. Their prosperity has come as a byproduct of globalization, which is a form of economic interdependence. On the bright side they have a gazillion different ethnic groups, separated by different dialects, languages, and religions, AND most of these people hate each other. Everybody was excited about the Century of China when they thought they were going to get a slice of the pie, but now the pie is being eaten up and they are starting to realize they've been had. Why clamp down on Google? The government is scared. They have a whole generation of single child families who aborted their daughters and now those little prices are growing up and realize they don't have a job, they won't ever find a good job, and they are not going to get laid. The government had better BE scared. I would be.
" they won't ever find a good job, and they are not going to get laid."
lmao +1000000000000000
The entire evolutionary history of mankind, indeed of all species, is driven by competition for scarce resources.
Chief amongst these scarce resources, prized above all else, inculcated with a passion greater than any lust for gold, is the mad desire programmed into all hetro males for sweet, young trim.
Wars have been fought & armies launched to satisfy these urges. Every weekend in every neighborhood/city/region in the world, fights break out over desirable females.
This is why bubbles are so important - keeping people actively engaged in work, no matter what it entails, is vastly preferable to managing the minds of hordes of people rather than allow them to focus on what really counts: booty.
Btw, China blows. It is, without a doubt, amongst the primary butt holes on this planet. Only the ME is worse (and perhaps some parts of sub-Saharan Africa). The most beatiful, sunny day in China is like the worst cloudy humid August day in NYC.
The key is to understand migration drivers - the best always leave for sunnier shores. That's why the brightest Chinese always leave for foreign shores like Singapore & Vancouver.
Don't fear China - they aren't the American people's real threat. Our real threat is the occupying force currently commanding the heights of Capitol Hill. Once we get rid of our tormentors, the USA is gonna rock like it hasn't since 1776.
Vancouver is sunny?
At least it's not coal dust blotting out the sun.
The US will continue to try and cause ethnic strife in China just like is being done in South America, Iraq and Iran. The Han Chinese are the dominate ethnic group in China by a huge margin. Any minorities in China who think they are going to accept weapons and money from the US and take on the Han will rue the day. They will be slaughtered. Ask the Uighurs, Tibetans and Mongolians if all the weapons and money the US shipped in to start conflicts saved their azzes.
The same scenerio goes for the Arab and Kurd minorities in Iran. They too will be slaughtered.
Might want to check in with the Hungarians and Czechs too before starting a revolt and hoping for US help.
The Chinese have to move hundreds of millions of people from the countryside into major urban centers so they will be close to work and food distribution. That is the only way to utilize energy with efficiency. They have no other option.
The US has F'd itself by allowing incoherent urban sprawl to spread across the country. There is no way to efficiently transport people in the burbs to work or get food to them.
People do not understand the stupidity of the American way of building cities or the surrounding suburbs. The entire American way of life is dependant on cheap energy. The rest of the world has been planning for energy to be more expensive in the future.
China is among the worst in the entire world in terms of GDP/BTU, half that of the US, 1/4 that of the EU, and 1/8 of Japan.
There is NOTHING whatsoever that is efficient about China and they have NOT planned for a future of energy scarcity.
GDP in isolation means little. The US GDP is 80% based on consumption. We can only do that as long as the dollar stays strong and we can sell our debt. We will see how long that dog hunts with a broke dick populous.
The use of energy per person in China is 1/10th the US. They can improve the life of hundreds of millions of their people and still not use the energy the US does.
Ever been to China? They are definitely planning for the future. Everything is recycled. There is mass transportation everywhere. Food, both animal and vegetable are raised everywhere.
Yes, the US is a country built on waste.
However, when I put it all together my family's energy expenses for a year (heating, electric and automotive; including taxes) comes to about $7k/yr. Depending on the size of the system (I have not sized it exactly yet), it looks as if I can put in "green" electric generating capacity for heating, electric and charging electric cars for under $20k.
I would have to convert from natural gas to electric heat which adds to the bill and there will be maintenance costs.... but when electric cars are common, it looks like a no brainer even at today's efficiency levels given the expected increase in energy costs.
I am going to agree with Anarchist here. The US is too sparsely populated. Once the world gets in a growth pattern the US will not be able to compete in energy efficiency, it would require most housing to be demolished and replaced. Malaysia has been pointing itself toward a similar fate, they have horrible efficiency when air conditioning buildings, all of their plumbing leaks and wastes water, and they have been building suburbs and freeways much like the US has. It will be interesting to see what happens after peak oil.
To see an efficient city you need to travel to Europe or Asia. The US is probably the worst example of how to plan for future shortages of energy and food. The US plan is to use it's military to steal what it needs to maintain the status quote. Read any of the PNAC drivel. That moronic plan is doomed to failure.
A trip to Moscow to look at the older areas would enlighten most how an efficient city should be layed out. Sadly many Russians are now copying our bad habits.
The U.S. is only too sparsely populated for those who depend on others for their sustained living needs. Most of us, (IMHO) who live "sparsely" would tell you to put your sustainable urban experiment into your ass.
I agree with you that urban sprawl is inefficient. But it is more a result of peoples dependancy on the city they rely on for their needs, but don't want to live in. It's tough to have your cake and eat it too.
Admittedly I haven't been to an upscale restaurant or seen a good show in years. On the flipside however, in the last week I've canned or frozen about 15 gallons of vegetables. The next few weeks will continue to be busy. Efficiency is somewhat relative to the level of lifestyle you expect.
Hate to tell you but we are not in the 1800's anymore. 350 million people need a lot of food, water and energy. They also need to be able to get to work cheaply. The country cannot produce food like the old days and neither could you if the SHTF. Huge factory farms we have now will be guarded by troops like is done in Africa today. The food is all shipped out of the country to Europe and the Mideast. Your neighbors might become your worst enemy if they run out of food or fuel and know you have some.
Hate to tell you Anarchist, but yes I could produce my food like in the 1800's, and damn near do now. The hard part is holding onto it.
That's my whole point. People who live in large urban environments really have no freaking clue what life in the country is really like. If the SHTF, our extended family will move back to the original homestead. There are three homesteads on a six mile long dirt road. Do you really think the government is going to have the time to round up twelve people at gunpoint and force them to grow vegetables on semi-productive land to ship out to the rest of the country? Maybe, maybe not. That would be the point where one decides whether to die free or die indentured. I would like to think I would go up in a ball of flames, but that's easy to say on a blog forum after a couple of cocktails.
As far as keeping my shit safe from looters and neighbors? Quit reading "Golden Horde" novellas and use some common sense. If shit is that hard to come by, nobody is wasting gas exploring dirt roads to see if MAYBE there's an easy target at the end of this one. Especially when anyone who lives within 50 miles knows there are no easy targets.
When you live in an area that exists an a form of "perma-recession", hard times aren't all that hard. They're normal. I haven't bought ten pounds of meat at a grocery store in ten years. If the closest Safeway or Cub (almost 100 miles) went tits up, the fare at my table wouldn't change a bit. Want some of it? Roll up your sleeves and come ask for it. You'll get put to work, but you'll eat.
Having worked inside BOC for years, I can say that the cultural way to cope with these types of repayment problems is to kick the can down the road just like Nipon. So many of these projects are supported by "letters of confort", or some illegitmate half-baked stand-by LC from some half baked provincal authority. I don't know how many times I have seen USD1MM in capital get burned (literally) so that some idiot brother-in-law of some PLA general can put USD10,000 in their back pocket in secret. It all started with Beijing getting the Olympics and after the historic Biejing neioghborhoods were bulldozed to impress the international crowd, everyone else got in line to get theirs. I just worry about the construction quality of some of these commerical buildings. That said, if you stay on the ground long term you can navigate this new normal-storm.
Heaven in High. The Emperor is far away. [sic] Mao Wang has left the building.
How come we hear so much blah, blah, about how critical consumer confidence is here in the US and nothing about the confidence of the Chinese consumer? I know consumer spending is 70% of our economy, and can't even be half that in China, but what they lack in GDP, they more than make up in experience. These are a people that experienced the worst famine in human history, and it was in living memory. Estimates between 20-50 million starved to death between 1958 and 1960, and the fun didn't exactly end right there either. So a population of people who lived through a period like that are not going to react to recession in a very pronounced way? There must be spare change and crusts of bread going into mattresses all over the country. You never forget going hungry, and when people start to lose their jobs, it brings back those bad memories.
The Chinese elite act just like the ones in Japan. They keep consumer prices very high which limits demand. Prices for consumer goods are 2-4x what they are in the US. The other similarity is keeping birth rates low. The Japanese and Chinese know they need large amounts of savings to survive retirement since their children will be limited help. The Japanese typically get a pension but that will diminish over time. The Chinese elite need to allow their consumers to spend more. That will only happen is with some types of social programs like in the west that allow people to save less.
More LOGS From a different fire............
http://howestreet.com/articles/index.php?article_id=14117
Read Mish, News directly From a Friend IN CHINA.
Seems the news in the US, is similar to China's....
If you want the REAL story, you have to go a REAL source.
Whole useless cities? WOW!
All we got in Colorado were some new guard-rails and big signs saying they were built with money from Obama's stash.
We can't even waste resources as well as the Chinese. That's pathetic. I demand that we start some vastly wasteful projects immediately! It's a matter of national pride.
For every 100 million females in China there are 125 million males. That makes about an aggregate of 100 million males roaming the country side looking for pussy that will never get it. Let's see where this goes.
This is the revenge effect of having only one child per family and if the child is female, drown it.
bpj,
The Gv't of China is well aware of that fact, and are also aware of the Graying of their society.
From what I have heard, they have relaxed these ONE child per family rules, of face ( like the Western World) , having more elderly, than youth.
The Killer of many Civilizations....................ROME for one.
Yet, many people in the US are too stupid to realize that relaxing immigration policy is the key, not tightening immigration policy. Yeah, it's fun and emotionally satisfying to blame all your problems on the dirty Mexicans, but those dirty Mexicans happen to be the key to preventing a birth/death economic suicide.
Americans don't understand China at all. The nation is a wonderful Potemkin Village where appearances are everything and reality is never to be spoken. China's banks are a system of political patronage and the degree of malinvestment is staggering. Of course, they'll do their best to prevent you from discovering that. When China finally collapses, they will prevent you from seeing that too. They will simply change the numbers to make you think all is well. Their consumption of raw materials is likely the only way to tell.
In China 20% of the nation can be booming while 80% is starving. So what is "growth" in China? It is what they tell you it is.
Sounds sort of similar...
Japanese and Korean banks and politicians have been hiding the truth for decades. Same goes for the US.
The faux crash we had was to allow the elite to loot the US taxpayer for billions. The real crash won't happen until the elite have positioned themselves to survive and prosper from the resulting civil unrest.
"....and that China has 66 million vacant homes," - For the first time in my adult life, I have been "Jennifer Granholm-blown away" with that stat.
Anyone who thinks Chinese families strictly adhered to the one child policy is either wilfully ignorant or has not been there. Many families had multiple children, if you could afford it. Some of the wealthy, (read Comparty connected0 had large families, 4 & 5 children.
Going back for third trip in 10 weeks for a 6 week inspection tour of a few potential spouses. The Northern Han chicks are some of the most lovely, fashionable, alluring things you will ever see. I wrote on this site last year about the amazing over building of China and now it is coming to a head. Look out!! Because when this lot let go the Comparty will be forcibly dissolved.
regards
in percentage, how many men have more than one kid in China?
from what I understand, the Chinese have been heavily brainwashed into believing they no longer live in the biggest shit hole in the world, thanks to Chicom's reform and control of information flow. How could they uprise against the regime that has been willingly to roll tanks over their citizens in places, such as Tienanmen Square.
As to the Chinese girls, most of them are the whores that are willingly sell themselves to the highest bidder. I would avoid them like the plague.
Hahaha! Every single nation that learns something from our way of doing things invariably only learns the WRONG lessons. Discussion question: If the American economy is in utterly horrific condition, largely due to failed policy, manipulation of statistics, and a complete disconnect between the govt./corporate idiocracy and the people who they supposedly serve/represent, and China is the largest (or second-largest, after Japan? I can't remember.) holder of US sovereign debt, then how screwed are all of us, really?
here is the true picture:
what they hold is about 14% of our national debt.
http://www.ritholtz.com/blog/wp-content/uploads/2010/07/MNT-US-DEBT-R3.jpg
It's elementry Watson. A loan has to cover the cost of capital in order to be repaid. When she blows it will make the S and L crisis look like a minor footnote. You can command investmesnt, but you cannot command profits.
As neophants to the world of capitalism, China does not quite have that "profit thing" down yet. I personally look at them as kind of a giant Pets.com, on a good run, but ultimately doomed to failure because the business model does not work. If China's economy is based on anything, it is ever-increasing asset prices. Good luck to them with that.
In the place I reside, China is the largest foreign investor, controlling about 99% of all resource extraction and also engaging in all sorts of less environmentally degrading businesses. Businessmen from other nations claim they can hardly compete, because "the Chinese don't think about profits, just control and market share". I've asked dozens of businesspeople from a host of countries, and to a one they guesstimate that not a single Chinese company makes a profit in this market.
What I found most astonishing is that even in a hundred million dollar plus mining venture carried out by a SOE, they do not do a feasibility study. Private companies also skip that little nuisance. They simply assume---often incorrectly---that whatever they sell will be worth more than the cost of production or acquisition, whether that is in nickel mining or real estate speculation.
How long can this game continue? Maybe longer than Jim Chanos can wait, maybe not. Bernanke may believe that the only way the US economy survives is if inflation can be manufactured, but China is even more dependent on ever-rising prices.
Incidentally, foreign reserves are not simply some giant pot of gold which can be accessed if and when needed. Their ability to save a failed model is overestimated. Ask Greece.