China’s Credit Crunch

Pivotfarm's picture

We hear, read and listen day in and day out that it’s the Dollar that’s dead, that’s it’s the USA that will be knocked off the top of the roost and come hurtling to the ground with its neck being throttled by 1.364 billion Chinese hoards. We learn that it’s the USA that is the corrupt one and that the Federal Reserve can’t solve the financial woes of the country. The banks don’t have the money and no end of Quantitative Easing will solve the problem. But, it’s the Middle Kingdom that looks as if it’s in for a rough ride now as the credit crunch gets ready to punch the Chinese guys right in the eyeballs.

The People’s Bank of China has announced that it’s going to be delaying transfers of cash funds in both Dollars and also Yuan. Hey! I thought the Yuan was meant to be the up-and-coming world reserve currency that knew no problems and felt no crisis? It was only the Dollar that suffered, wasn’t it? The People’s Bank has invoked the need to update systems and do some maintenance. Apparently, it’s nothing to worry about and is just the ‘normal system maintenance’ that always takes place at this time of the Chinese Lunar-New Year celebrations. Transfers will be delayed right after January 30th until February 2nd for domestic transfers and it will continue until February 7th and the end of the holiday for foreign currency transfers. 
Right, so there is no problem and the maintenance in the systems are going to take that long to deal with? Let’s hope they don’t get a glitch in there somehow and the entire Chinese banking system goes up in a cloud of mushrooms. There are always delays at the New Year period in China, but, the ones that have taken place in previous years haven’t had the backdrop of the previous problems with liquidity in China. That’s the whole difference in this story and that should be making the rest of us just slightly worried. The Chinese might be stealing the industrial rug from under our feet, but a world without the Chinese finances (at least what they tell us they have) would be a whole different spring roll ahead of us.

Admittedly, as many are willing to express, there is now the race that is on to be the first that predicts the fall of China. But, no need to race, that crystal-ball prediction was forecasted years ago before China even got out of its Communist pants after its long march. 
But, today the financial sector in China is having liquidity problems that are getting worse. January 20th saw the interbank rates increase as much as 10%, when the PBOC stepped in. That was an increase from 3% the previous week. It is now at more stable (although still high) levels of 4.65%.

The POBC has urged banks in China to deal better with liquidity in particular at this time of year and to rely less on short-term funding.
But, the holiday-period is a frightening time for the banks as their liquidity drops and therefore trust between the banks gets worse as cash is depleted. The system maintenance comes at a wonderful time. The Chinese are taking a leaf out of the books of the best spin-doctors around and telling the world exactly what isn’t true, but what will be good to hear. Telling us all ‘hey, we’re up it without a paddle’ just isn’t going to instil confidence in the market is it? Welcome to the world of marketing in China.

Lies, lies and wool over your eyes. Until the penny drops, that is.

Originally posted: China’s Credit Crunch

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epicurious's picture

Some things are not believable even when seen with our own eyes.  It's because it does not fit into a paradigm we are familiar with.  Traveling through Wuxi a while back I saw a large excavator infront of a large elegant blue glassed fronted industrial building.  The excavator was clawing away at the bright glass fronted building destroying something which clearly had only just been built within the last year.

AdvancingTime's picture

Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. To make things worse many of the investment decisions were driven by politics. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere.

Currently a 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms in the offing as companies struggle to repay loans taken to build factories that sit idle because of weak demand. More on the dire situation in China in the postbelow,

Carl Popper's picture

We still see the "china take over world...die running dog die!" posters here but they are not as thick as they used to be.

If there is capital misallocation, a demographic issue, and corruption and massive leverage issues in the USA (and there are) then they are orders of magnitude higher in China.

A pegged non convertible currency appears stable, but when they blow they blow hard.

Increasing repression and focusing on foreign threats and appeals to nationalism can solve a lot of problems temporarily.

They have no friends in the world. Their neighbors all want to cozy up with the USA and every country has a "poisoned by China" story starting with killer toothpaste in Panama.

The multinationals move their factories to Vietnam and Laos and Africa if the chinese get uppity. The USA will transition to a maker society in 50 years and china will look like detroit with huge sunk misallocated capital in useless inefficient "factories" (a word our great grandkids wont understand)

Central planning doesnt work. It is a capital sink. It looks good for short periods of time.

Buck Johnson's picture

They are running scared because money is trying to get out but there are so many bad loans on the books that they can't allow the money to go.  They are having a run on the banks and they are scared.

Carl Popper's picture

A freely convertible currency solves that problem. There is a clearing price so that those wishing to take out capital are balanced by those wishing to bring in capital.

The clearing price of the RMB destroys their industrial economy. The Chinese are trapped between a rock and a hard place.

LMAOLORI's picture



Yup I read that people are picking up property for a song right now but they are afraid it will collapse even further.


Trying to deleverage China without blowing up the system

11b40's picture

It's easy to go to a few of the major cities & market/industrial areas and be impressed with the development in China.  There is a lot to like, until you get out into the vast countryside and realize just how poor and primitive they are.  It is a huge country with giant problems that are only made manageable with constantly accelerating growth -growth that brings even more problems and more corruption.  When they stumble, it is going to get ugly fast, and they are not one big happy family, either.  They have their own Muslim problems, and problems in Tibet as well as other regions.  

It is only due to the foolishness & greed of the Western multi-nationals and our own corrupt politicos that they have flourished to the extent they have.  It would be relatively easy to kill their economy with a few "fair trade" adjustments.  Not that I advocate taking that route, yet, but it is an option.  

America's only real threat comes from within.

Carl Popper's picture

Countries are always peering outward and never see the rot within that has collapsed every civilization I can think of. A German barbarian with 5,000 men could not have taken rome until rome had rotted from within.

Tall Tom's picture

Rehashing the Forbes bullshit about the Holiday that is a normally scheduled holliday?


I bought it hook, line and sinker when I first read the Forbes article. I thank God that Tyler set me straight.


NEVER TRUST THE MAIN STREAM MEDIA. (And I thought that I was over that??? Old Habits are hard to overcome.)


But what I find curious is that first there was a CNN Hacked Webpage that declared that China was divesting if her US Treasuries.

Now there is a Forbes article which suggested a scene where China would divest of US Treasuries.

Is the Main Stream Media, and those owning it, attempting to desensitize us by crying "Wolf!!!" as the main event actually happens SO THAT WE IGNORE THE WARNING AND DO NOT ACT?


Were these two events which happened within a week planned with a nefarious intent? I am not suggesting that they were but I just have no confidence in the Powers that Be and it seems too coincidental.


Just because you are paranoid does not mean that they are not acting to harm you. Perhaps paranoia is a rational response to having been lied to so often by far too many. Perhaps it is irrational and delusional to trust those whom have been the author of the lies.


Is that a possibility?

TheReplacement's picture

Could be TPTB, the Syrian Cyber Sleuths, Anonymous, Ruskies, Chinese, some teenager in his mom's basement...  Thanks to Snowden everyone knows that virtually every server in the world has a backdoor thanks to thinking-ahead-stasi at the NSA. 

Certainly if it was a threat to TPTB they would turn their trusted NSA bloodhounds loose.  Perhaps they have.  Who knows?

LMAOLORI's picture




Chinese Banks are in bad shape and they have a huge shadow banking industry that's also not doing well which I think is why I fell for it.  My first thought was oh crap I posted that link but really thinking about it ZH debunked it so all in all as long as the truth comes out I think that's a good thing. I posted a comment one day with a link back to Zerhedge and this guy told me that doing that made me look stupid. Who's stupid now lol since the Tyler's busted the Forbes story.  Anything's possible so I just try to keep my eye's open.



willwork4food's picture

If you pay the cute bar girl for sex you have a virtual intimate relationship. If you pay for it online you have a "totally virtual relationship".

You're welcome.

mobydick's picture

And how are those gold leasing SOB's doing in China? Gold price to go down, not up. Maybe go Macau and put all on red. That no good maybe put bullet in my head. I hope you do, you greedy mother fuckers.

disabledvet's picture

"A Bitcoin Too Far" i'm afraid.

Wow. What a great idea. "Skip plastic pennies entirely" and go "totally virtual."

Is that an actual "word"? "Totally virtual"?

acetinker's picture

No. It's two actual words.