With some 1,000 of the 3,600 P2P sites operating in China deemed "problematic", it's not a matter of if we see another Ezubo, but rather a matter of when.
"The harm is obvious. It's going to damage financial reforms, cause social unrest and destabilize the regime to some extent."
Issuing more credit will only make the 2016 crash worse. Trying to stop the current crash with more credit and lower interest rates is like sending the cavalry on suicide charges against entrenched machine guns, artillery and tanks. The coming financial slaughter will be as senseless, wasteful and ineffective as any suicide attack in the Great War.
Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.
China's mid-tier banks are piling up exposure to the riskiest subset of borrowers at a time when economic fundamentals are deteriorating on a near daily basis. Meanwhile, this exposure is being carried on a line item that allows the banks to avoid provisioning for the losses that will almost certainly materialize in the not-so-distant future. At one bank, this one line item is larger than the entire Philippine banking system.
Escape velocity has failed...
There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula - even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations. In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.
Eight months ago, Bank of America chief economist Ethan Harris triumphantly declared victory over the "perma-bears." Today, the "perma-bears" get the last laugh.
"I don't think China's economic slowdown is that severe to threaten the global economy."
"China has managed debt restructurings superbly."
The upcoming winter storm hyperbole factor just went up a notch, this time courtesy the Weather Undereground's Bob Henson, who has decided that merely "historic" is too cut and dry, and has instead dubbed the imminent climatic phenomenon not only "potentially epic" but a "winter blockbuster" to boot.
There may be shallow lulls in the asset markets, nothing ever only falls down in a straight line in the real world, but the debt will and must come down and be deleveraged. The process will in all likelihood lead to warfare, and to refugee movements the likes of which the world has never seen just because of the sheer humbers of people added in the past 50 years. When your children reach your age, they will not live in a world that you ever thought was possible. But they will still have to live in it, and deal with it. They will no longer have the facade you’ve been staring at for so long now, to lull them into a complacent sleep. And the Kardashians will no longer be looking so attractive either.
While prices in China's Tier 1 cities are soaring, let's put the country's vacant housing problem in context: China has some 13 million homes vacant - enough to house the families of several small countries . Actually, it's worse: Zhu Min, deputy managing director at the International Monetary Fund, recently admitted that China’s real estate bubble now manifests itself in 10. 7 billion square feet (1 billion square meters) of unused housing! Min added that many housing stock go unused, and the market may see a significant price correction in the future, wiping out vast household wealth.
In the latest Chinese domestic financing report released by the PBOC last night, there were two divergent themes: on one hand bank loans grew far less than the expected 700Bn yuan; on the other hand total social financing soared to 1.82 trillion yuan, smashing forecasts of a 1.15 trillion increase, and the highest since June. As noted last night, this may have been the catalyst that spooked the markets, because as Bloomberg confirms, "the data shows companies are turning to alternative sources for credit given banks’ reluctance to lend."
It was an ominous beginning to what is poised to be a most tumultuous year. Market participants are quickly coming to appreciate that China does in fact matter. Few understand why. Most – from billionaires to fund managers to retail investors – will “Do Nothing.” This has worked just fine in the past – repeatedly. Not understanding and not doing anything will be detriments going forward.
"... what we are going to see next is a credit cycle, and in a credit cycle you see some losses, but if China's banking system loses 10%, you are going to see them lose $3.5 trillion."
"Given our views on credit contraction in Asia, and in China in particular, let's say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there's one thing that is going to happen: China is going to have to dramatically devalue its currency."