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The True Chinese Credit Bubble: 240% Of GDP And Soaring

Tyler Durden's picture




 

 

Several months ago we pointed out something not fully grasped by the broader public: the Chinese corporate debt bubble is the largest of any developed and developing country, and at 151% of GDP (and rising rapidly) is the biggest in the world. What is better known is that corporate debt is just one part of the total debt picture, which also includes consumer loans, government debt and other "shadow debt" credit in the case of China. So how does China's true debt picture as a percentage of debt look? As the chart below from Goldman shows, in 2013 the total credit outstanding in China is expected to rise to a whopping 240% of GDP, and continue rising from there at an ever faster pace.

What is even more concerning is that in order to maintain its breakneck economic "growth" of ~8% per year, China has to continue injecting massive amounts of debt, the so called "credit impulse" or "flow" which according to assorted views, is what is the true driver of an economy, and where GDP growth is merely a reflection of how much credit is entering (or leaving) the system.

The chart below shows that total Chinese social financing flow just hit a record for the month of March.

Completing the picture is the estimated economic response to a surge in credit. As the last chart shows, in China the biggest benefit to a surge in flow is felt in the quarter immediately following the credit injection, as one would expect, with the effect tapering off and even going negative in future quarters, thus requiring even more debt creation to offset the adverse impacts of prior such injections.

What should become obvious is that in order to maintain its unprecedented (if declining) growth rate, China has to inject ever greater amounts of credit into its economy, amounts which will push its total credit pile ever higher into the stratosphere, until one day it pulls a Europe and finds itself in a situation where there are no further encumberable assets (for secured loans), and where ever-deteriorating cash flows are no longer sufficient to satisfy the interest payments on unsecured debt, leading to what the Chinese government has been desperate to avoid: mass corporate defaults.

At that point it will be up to the PBOC to do what the Fed, the ECB, the BOE and the BOJ have been doing: remove any pretense of money creation via the commercial bank complex (even if these are merely glorified government-controlled entities), and proceed to outright monetization of de novo created assets, thus flooding the system with as much money as is needed to preserve the illusion of growth. Naturally, with the Chinese stock market having proven itself to be a horrible inflation trap (and as a result the bulk of new levered money creation goes into real estate), the inflation explosion that would result would be epic.

At that point the chart of the price of gold (in any currency) due to on the ground demand for capital preservation will make the Bitcoin chart pre-bubble pop, seem outright flat.

 

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Thu, 04/11/2013 - 15:57 | 3437877 Ethics Gradient
Ethics Gradient's picture

Gold, Bitchez?

Thu, 04/11/2013 - 16:40 | 3438068 Stuck on Zero
Stuck on Zero's picture

No need. Uncle Ben will buy their Rice Bonds.

 

Thu, 04/11/2013 - 15:59 | 3437887 whisperin
whisperin's picture

Yowza!! No wonder they are trying to get all that gold before the yuan goes poof!!

Thu, 04/11/2013 - 16:01 | 3437896 adr
adr's picture

THE ANSWER TO TOO MUCH CREDIT IS EVEN MOAR CREDIT!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Krugman says so.

and Bernanke

and Obama

and ....

 

Can I get a fuck Keynesianism?

Thu, 04/11/2013 - 16:11 | 3437941 McMolotov
McMolotov's picture

It's beyond Keynesianism at this point. It's now Unicornianism.

Thu, 04/11/2013 - 20:37 | 3438986 akak
akak's picture

The eternal blobbing-up duplicitous nature of Communist 'chinese' parangongs of 'chinese' Unicornianism is very much something, conflatulating this with that in the mattering thing.

Thu, 04/11/2013 - 21:04 | 3439088 malikai
malikai's picture

Damnit. Reading that gave me twitches.

Thu, 04/11/2013 - 23:17 | 3439439 darteaus
darteaus's picture

Killing a Unicorn actually keeps the economy moving.

Thu, 04/11/2013 - 16:01 | 3437897 bnbdnb
bnbdnb's picture

World would no like at all with China credit bust.

Thu, 04/11/2013 - 16:01 | 3437899 Praetorian Guard
Praetorian Guard's picture

Speaking of the US. Celente is having a fucking meltdown!!!!!!!!!!!!!!!!!!!!!!!!

 

http://www.youtube.com/watch?feature=player_detailpage&v=s6FnQB-GC7c

Thu, 04/11/2013 - 16:08 | 3437931 azzhatter
azzhatter's picture

unhappy man

Thu, 04/11/2013 - 16:25 | 3438006 rlouis
rlouis's picture

Thanks, Gerald, nice to hear some reality based riteous moral indignation.

Thu, 04/11/2013 - 18:23 | 3438542 ImReady
ImReady's picture

Fat Booooyy!!

Thu, 04/11/2013 - 17:36 | 3438310 screw face
screw face's picture

Hey did you see, he has a frick'en red bottom, Woooh Jah

+1

Thu, 04/11/2013 - 16:03 | 3437901 LawsofPhysics
LawsofPhysics's picture

Of course the chinese people owe this debt to themselves and not a private bank called the Federal Reserve.  Big fucking difference.

Thu, 04/11/2013 - 16:17 | 3437973 Schmuck Raker
Schmuck Raker's picture

Sure LoP, but neither debt will be repaid, so....same-same, right?

Thu, 04/11/2013 - 16:21 | 3437992 centerline
centerline's picture

I would think the newly developed middle class and rich in China are scared shitless - knowing they very well could get pounded right back into the villages they came from.

Thu, 04/11/2013 - 16:24 | 3438007 LawsofPhysics
LawsofPhysics's picture

define "repaid".  I'd argue many are already "paying" for this idiocracy in both countries.  But yes, technically there isn't enough collateral or GDP on earth (at least with the current valuation of several assets - but "mark to fantasy" accounting is another problem altogether).

Thu, 04/11/2013 - 16:43 | 3438083 centerline
centerline's picture

The ultimate payment is going to be lives.  I know that you know that too.  Just saying.  That is awfully serious collateral.

No way out really.  A long or a short unwind just shifts the demographic of who is getting screwed the worst.

Thu, 04/11/2013 - 17:31 | 3438275 Schmuck Raker
Schmuck Raker's picture

"The ultimate payment is going to be lives."

Too right, just ask Greeks who can't afford medicines.

Thu, 04/11/2013 - 16:04 | 3437905 Bam_Man
Bam_Man's picture

What could possibly go wrong?

And if anything does, the PBOC will "fix" it by printing electronic money.

Thu, 04/11/2013 - 16:10 | 3437935 rlouis
rlouis's picture

How in the heck do you eat an imaginary iPad?

Thu, 04/11/2013 - 16:11 | 3437940 stocktivity
stocktivity's picture

Yeah, yeah , yeah...blah blah blah...meanwhile another all time record on the dow and s&p.  Until Benny stops the printing, It's all Bullshit!!!

Thu, 04/11/2013 - 16:11 | 3437943 Ban KKiller
Ban KKiller's picture

The only country more corrupt then the USA, is China? Banks in both countries are overstating their alleged assets, particulary real estate. Instead of charging off bad real estate debt both countries "roll over" massive amounts of defaulted loans in an attempt to keep the lies going. The problem looming for both countries is, who can they sell their total shit to now? Oh yeah, Spain, Portugal, etc. Har-har. The Chinese know this is a  problem and are getting out of dollars as a trade. See how they trade directly with Austrailia now, with out dollars? Oh...and are they still buying all the gold they can and exporting NONE? Yep. 

Thu, 04/11/2013 - 23:15 | 3439435 darteaus
darteaus's picture

If I lived for 3 generations in a Commie country, and suddenly it was OK to get rich, I'd be grabbing with both hands because having money can just as suddenly become a crime for another 3 generations.

Thu, 04/11/2013 - 16:11 | 3437948 robertocarlos
robertocarlos's picture

It's fully backed by gold, or live-stock.

Thu, 04/11/2013 - 16:20 | 3437984 LFMayor
LFMayor's picture

Uh, so solly.  All them fuckin hogs done died and then got deep sixed in the Huangpu river.

Thu, 04/11/2013 - 16:13 | 3437952 Crabshacker
Crabshacker's picture

Don't know if this is relavent, but awhile back I posted how the Chinese suddenly stopped buying Dungeness crab as a lux....Just read a memo from A major fisheries processor that states that the Chinese .gov has ordered a stop to lux. spending and goes on to say that lux. hotels and restr. have seen a 20-25% decline in rev. on my android maybe I'll post the entire memo this evening if anybody is interested in it...

Thu, 04/11/2013 - 16:19 | 3437982 Schmuck Raker
Schmuck Raker's picture

"if anybody is interested in it..."

Sure we are. Break it out. And thanks in advance.

Thu, 04/11/2013 - 16:40 | 3438065 Crabshacker
Crabshacker's picture

I'll have it up about 6:45 pac. time

Thu, 04/11/2013 - 18:07 | 3438466 Tyler Durden
Tyler Durden's picture

From Pair Trade Opportunity Of The Year: Long European, Short Chinese Caterers:

What happened?

A sharp sequential decline in growth and consumption during Jan-Feb from 4Q12, likely owing to an anti-corruption campaign that is weighing heavily on large sectors, such as catering, as well as liquidity tightening in February after a loose January.

Who would have thought that a business as simple as catering was a proxy for corruption? Of course, that this happens to be the case merely reinforces our conviction in the long leg: if there is one thing Europe will never have a shortage of, it's corruption.

Thu, 04/11/2013 - 22:19 | 3439309 Schmuck Raker
Schmuck Raker's picture

Thanks TD. 'Omniscience' should be your middle name.

Thu, 04/11/2013 - 16:19 | 3437978 geewhiz190
geewhiz190's picture

it is worse over there than any numbers or charts can show.  anyone with money wants to get it out and most want to bring it to the U.S. any way they can and as fast as they can. this isn't an opinion.

Thu, 04/11/2013 - 16:26 | 3438016 ajk24455
ajk24455's picture

So they have another 160% to go to catch up to the U.S.  and almost 200% to catch the U.K.  Sounds like a buying opportunity to me.  Until something breaks at least as David Rosenberg pointed out yesterday.   

Thu, 04/11/2013 - 16:26 | 3438018 Fruitcake
Fruitcake's picture

I have just added Krugman to my list of heroes

Sun, 04/14/2013 - 04:36 | 3446108 Keynesian Mess
Keynesian Mess's picture

Tragic heroes, right? Thankfully, they always die to atone for all of their past moronic mistakes. What was the Nobel committee thinking?

Thu, 04/11/2013 - 16:30 | 3438039 Peter Pan
Peter Pan's picture

It would appear that the Chinese are headed for a Cyprus moment of their own, but I suspect that the government will avoid it all costs because they know that the Chinese peasants are nowhere near as docile as the Cypriots.

Thu, 04/11/2013 - 16:39 | 3438044 johny2
johny2's picture

and who says that money doesn´t grow on the trees? the fiat money we are talking about.

Thu, 04/11/2013 - 16:45 | 3438085 Rustysilver
Rustysilver's picture

More good news from China:

From BBC site:

Analysis of commercially available rice imported into the US has revealed it contains levels of lead far higher than regulations suggest are safe.

Dr Tsanangurayi Tongesayi of Monmouth University in New Jersey, US, and his team have tested a number of imported brands of rice bought from local shops.

Rice from China and Taiwan had the highest lead levels, but Dr Tongesayi stressed that all of the samples significantly exceeded the PTTIs.

"If you look through the scientific literature, especially on India and China, they irrigate their crops with raw sewage effluent and untreated industrial effluent," he explained.

Thu, 04/11/2013 - 17:52 | 3438393 ronaldawg
ronaldawg's picture

Poopy rice!

Thu, 04/11/2013 - 17:59 | 3438421 TwoHoot
TwoHoot's picture

" ... a situation where there are no further encumberable assets (for secured loans) ..."

Cut that up, put it in your favorite pipe and smoke it for a week or two until the ramifications of it produce a glorious vision.

Then we can talk reality.

Thu, 04/11/2013 - 18:37 | 3438567 Crabshacker
Crabshacker's picture

Edit...Ahhh fuck it..

Thu, 04/11/2013 - 22:31 | 3439324 Schmuck Raker
Schmuck Raker's picture

@CrabShack

Regarding your earlier post: at your leisure, if possible, I'm still curious.

[third edit already- why can't these new fangled spell checkers be a little more assertive when they should know I'm buzzed?]

Thu, 04/11/2013 - 18:59 | 3438691 miker
miker's picture

China is fucked.  All their numbers are cooked.  Their environment is horrible.  Their government it more corrupt than ours.  They have way too many people.  It will be interesting to see how they collapse in the coming years. 

Thu, 04/11/2013 - 19:23 | 3438771 darteaus
darteaus's picture

Here's how it works:

1)  Chow Fun starts company.

2)  Chow Fun bribes bank president Hung Chow to get loan.

3)  Chow uses cash bribe government officials, auditors, etc.  Company now looks legit

4)  Chow's company goes public.

5)  Government officials, auditors, etc. all sell stock to suckers (e.g. Winkelvoss Twins).

6)  Chow Fun buys: house in LA (cash); Ferrari (cash); sends kids to school overseas.

7)  Eventually, the jig is up, and Chow dissappears.  Government officials, auditors, etc. don't look for him too hard.

8)  This happens many times & in many places, so China's credit market is a bubble.

Thu, 04/11/2013 - 21:06 | 3439099 knukles
knukles's picture

Ah, they don't bother to search for him because they all look alike.

(Knuks, yo momma told you about this shit...)

Thu, 04/11/2013 - 23:10 | 3439428 darteaus
darteaus's picture

They don't bother to look for him, cause they all took money (so they might get rounded up too), and he might do it again and cut them in on moar!

Sun, 04/14/2013 - 04:39 | 3446109 Keynesian Mess
Keynesian Mess's picture

Chow Fun = Sino Forest!

Thu, 04/11/2013 - 20:28 | 3438960 michelp
michelp's picture

But, but, but;

why should we believe GS numbers?

We never believe anythig else from them.

Thu, 04/11/2013 - 22:33 | 3439352 Schmuck Raker
Schmuck Raker's picture

Gets complicated, dunnit?

Thu, 04/11/2013 - 20:32 | 3438973 WallowaMountainMan
WallowaMountainMan's picture

so, does this mean that the cost of money (interest) outways the benefit of its use as a growth mechanism?

save first buy later = real prosperity?

hmmmm....

Fri, 04/12/2013 - 04:51 | 3439878 orangegeek
orangegeek's picture

Communism has a track record in finance and social performance.

 

Social - we kill our own.

 

Finance - we bankrupt ourselves by building shit no one needs.

 

You can never say to China "go fuck yourself", because they do it on a daily basis and that would be redundant.

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