Chinese Auditor Warns "Out Of Control" Chinese Debt Could Spark Bigger Crisis Than US Housing Crash

Tyler Durden's picture




 

"This could be even bigger than the US housing crisis," warns senior Chinese auditor Chang Ke, as his accounting firm has all but stopped signing off on bond sales by local governments (as we warned most recently here). As the FT reports, Zhang's firm "audited some local government bond issues and found them very dangerous," as they don't have strong debt-servicing abilities. "It is already out of control," he continues, "the only thing you can do is issue new debt to repay the old," he said. "But there will be some day down the line when this can’t go on." With more than 2,800 counties having discovered the investment-vehicle-bond (a way to avoid the prohibition or directly raising debt), Zhang notes that this "frightening" evolution has led to a situation where he puts little faith in the government guarantee, advising that "when the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do."

Via The FT,

A senior Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash.

 

Zhang Ke said his accounting firm, ShineWing, had all but stopped signing off on bond sales by local governments as a result of his concerns.

 

“We audited some local government bond issues and found them very dangerous, so we pulled out,” said Mr Zhang, who is also vice-chairman of China’s accounting association. “Most don’t have strong debt servicing abilities. Things could become very serious.”

 

...

 

“It is already out of control,” Mr Zhang said. “A crisis is possible. But since the debt is being rolled over and is long-term, the timing of its explosion is uncertain.”

 

...

 

Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.

 

Investment companies owned by local governments sold Rmb283bn of bonds in the first quarter of 2013, more than double the total for the same period last year. Such an increase would normally be expected to boost the economy, but China’s growth unexpectedly slowed to 7.7 per cent in the first quarter of 2013.

 

...

 

“The only thing you can do is issue new debt to repay the old,” he said. “But there will be some day down the line when this can’t go on.”

 

Mr Zhang added that he grew alarmed when smaller towns and counties discovered that investment vehicle bonds were an easy way to raise financing. “This evolution was quite frightening,” he said. “China has more than 2,800 counties. If every county issued debt, it could lead to a crisis. It could be even bigger than the US housing crisis.”

 

...

 

But Mr Zhang puts little faith in official guarantees, ...: “When the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do.”

 

...

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Wed, 04/17/2013 - 20:44 | 3464248 AlphaDawg
AlphaDawg's picture

shit hole

Wed, 04/17/2013 - 20:45 | 3464251 FinalCollapse
FinalCollapse's picture

Send them Krugman with $1T platinum coin.

Wed, 04/17/2013 - 20:55 | 3464294 Pure Evil
Pure Evil's picture

Som Ting Wong

Wed, 04/17/2013 - 21:51 | 3464492 TheFourthStooge-ing
TheFourthStooge-ing's picture

Ah, very much the wrongness will corresponded on some thing, and somehow that is very something.

Calling for a worse alternative works wonderfully. Can never hide the current reality, though.

"when the time comes, it won’t be the government that assumes responsibility. It will be the accounting firms and the banks that do."

This sort of outcomes tells somehow very much of incongruity with US houses crashed. US accounting firms, banks, Too Big Too Failings investment financial stuff stand far above when it comes to Ponzi, kicking the can, shifting the blame and so other things. With avoiding penalties of severity these guys managed evasion on even the unlethalest stuff aplombously.

Does not align with stated consequences on Chineses banks and stuff. Leaves trail of non sequiturous droppings.

Wed, 04/17/2013 - 21:57 | 3464533 ACP
ACP's picture
"Today, a Senior Chinese auditor with accounting firm ShineWing, was found floating face down among several dozen dead dogs, chickens and pigs in the Yangtze river..."

 

Wed, 04/17/2013 - 22:20 | 3464625 nmewn
nmewn's picture

The crustyness of inconsequential people matterings.

Wed, 04/17/2013 - 23:48 | 3464984 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

favorite soup at lunchtime Cream of Sum Yung Gai

Thu, 04/18/2013 - 06:54 | 3465504 TwoShortPlanks
TwoShortPlanks's picture

Party on Wayne!

Wed, 04/17/2013 - 20:58 | 3464302 AlaricBalth
AlaricBalth's picture

China Daily, 17 April 2013 : A suicide was reported today by Beijing authorities. Mr. Zhang Ke of the ShineWing accounting firm was found dead floating in the Yongding River with two self inflicted bullet wounds to the back of the head...

Wed, 04/17/2013 - 21:07 | 3464330 toys for tits
toys for tits's picture

Bill his family for the bullet.

Wed, 04/17/2013 - 21:09 | 3464339 Burt Gummer
Burt Gummer's picture

"A suicided was reported today by Beijing authorities."

 

Fixed.

 

http://www.youtube.com/watch?v=ZS2Z19yTuPI

Wed, 04/17/2013 - 21:53 | 3464504 Buck Johnson
Buck Johnson's picture

No kidding, it's about to implode in China.  It will be bad.

Thu, 04/18/2013 - 09:47 | 3466103 e-recep
e-recep's picture

there are so many things floating on chinese rivers these days.

Wed, 04/17/2013 - 21:03 | 3464320 nmewn
nmewn's picture

But but but...the financial black hole (that is China) was going to save the world!!! ;-)

Wed, 04/17/2013 - 21:33 | 3464419 Winston Churchill
Winston Churchill's picture

The Chinese 'put back' provision in the servicing agreement will be enforced with T-80 tank's.

Let me guess,US banks set up this scheme, US banks will end up owning it.

If you think this is a Chinese problem, you are wrong.

Isn't globalization great ?

Wed, 04/17/2013 - 21:55 | 3464515 nmewn
nmewn's picture

The T80 will run out of gas before it gets to the battlefield...lol.

It works like this, if I had an unbelievable amount of debt issuance and I needed to stash it someplace where auditing interest payments & principle could be whatever the two parties agreed on...where would I stick it?

Add to that, excess labor capacity (on the Chinese side) it seems like a win-win "contractually"), for without those idle hands making widgets, they might find other things to do with their hands, that the chi-com dragons would prefer not happen to them ;-)

Wed, 04/17/2013 - 21:08 | 3464331 Banksters
Banksters's picture

Internal memo from Barak Obama:

 

GET ME A WHITE MALE TERRORIST NOW!

Wed, 04/17/2013 - 21:18 | 3464369 Pure Evil
Pure Evil's picture

Jared Loughner should be available as soon as his trial is over.

Wed, 04/17/2013 - 22:02 | 3464549 nmewn
nmewn's picture

I'm still trying to figger out why Gabby Gifford's ole man hasn't been charged with attempting to make a strawman gun purchase.

Ohhh, thats right...it was a PC/media gun driven purchase, so that made it ok...still, the line does read something like, are you buying this firearm to transfer to another?

I'm sure it was all approved by the Universal Background checking Holder & David Gregory ;-)

Thu, 04/18/2013 - 06:10 | 3465449 AnAnonymous
AnAnonymous's picture

Internal memo from Barak Obama:

GET ME A WHITE MALE TERRORIST NOW!
___________________________

Not even. Barack Hussein Obama managed to kill sons and daughter of America with his plan to re-industrialize America.
He got what he wanted: kill us and a media noisey bomb.

Signed: an American.

Thu, 04/18/2013 - 06:43 | 3465486 TheFourthStooge-ing
TheFourthStooge-ing's picture

Surprising piece of news. Please expand.

Wed, 04/17/2013 - 21:17 | 3464362 kliguy38
kliguy38's picture

Mr Zhang added that he grew alarmed when smaller towns and counties discovered that investment vehicle bonds were an easy way to raise financing. “This evolution was quite frightening,” he said. “China has more than 2,800 counties. If every county issued debt, it could lead to a crisis. It could be even bigger than the US housing crisis.”

 I wonder who taught them this trick.....BWAAAAAAAA.... great job Lloyd

...

Wed, 04/17/2013 - 20:43 | 3464249 venturen
venturen's picture

Send them Geithner he doesn't have a job.

Wed, 04/17/2013 - 20:44 | 3464253 pragmatic hobo
pragmatic hobo's picture

well ... can only mean one thing ... QE for China.

Wed, 04/17/2013 - 20:48 | 3464274 Bunga Bunga
Bunga Bunga's picture

ghost towns to da moon

Wed, 04/17/2013 - 21:37 | 3464437 disabledvet
disabledvet's picture

do they have a "Chinese Fed"? i was under the impression that the Government just printed the money and gave it to people over there. "the real important people get a lot" of course.

Thu, 04/18/2013 - 04:29 | 3465384 qmhedging
qmhedging's picture

C Fed = PBOC

 

Wed, 04/17/2013 - 22:31 | 3464681 Radical Marijuana
Radical Marijuana's picture

http://www.zerohedge.com/news/2013-02-08/china-accounts-nearly-half-worl...

"China Accounts For Nearly Half Of World's New Money Supply"
Wed, 04/17/2013 - 20:45 | 3464258 Martial
Martial's picture

"But there will be some day down the line when this can’t go on."

Tomorrow works just fine for me.

Wed, 04/17/2013 - 20:46 | 3464260 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Ruh-roh.  whoda thunk it

Wed, 04/17/2013 - 20:47 | 3464268 newengland
newengland's picture

I like the Chinese very much. The Politburo, not so much.

Get in position: buy physical gold and silver. 

Wed, 04/17/2013 - 20:49 | 3464271 fonzannoon
fonzannoon's picture

When it becomes serious you have to tell the truth.

First Europe tries to cause a bank run, now china tries to spark a housing crash. Gold comes crashing down out of nowhere....

Wed, 04/17/2013 - 20:49 | 3464272 ebworthen
ebworthen's picture

Oh no!  China housing crash!

No more buy U.S. Treasuries!

Will they buy Japanese and Italian bonds, or just force more children and old ladies to work for $1.00 an hour?

God save those poor people over there, but if they don't revolt against their overlords, what can you do? 

Speaking of which, we face a similar situation in the U.S., though it is plastered over with Red, White, and Blue paper mache.

Wed, 04/17/2013 - 20:53 | 3464286 newengland
newengland's picture

Silly comment, under the current circumstances.

Tianamen Square, as one example.

Wed, 04/17/2013 - 20:58 | 3464305 ebworthen
ebworthen's picture

Which was absolutely crushed.

God bless the educated forward thinking that were in Tianemen Square.

The majority of Chinese citizens are trapped in the 19th century, completely obedient to TPTB.

Their homes and farms are leveled for a Happy Meal toy factory, and they can do nothing about it.  When they fight they are killed and/or beaten and removed from land owned by their families for 500 years or more.

They have no rights, they have no recourse to protect their rights.  At least we can still buy firearms arms and call our government and leaders worthless pieces of shit.

Fill in the blanks, you aren't making much sense here.

Wed, 04/17/2013 - 21:17 | 3464356 nmewn
nmewn's picture

"The majority of Chinese citizens are trapped in the 19th century, completely obedient to TPTB."

Absolutely correct.

Because they don't know or have some inkling of knowing, TPTB cut off access to knowledge of the outside. A guy at work has a "child" over in Shanghai. The first thing that happened was a work around so that free (that is, uncensored/uninhibited) communications could be set up back to the states.

Its slowly crumbling...and the politburo knows it...they're just grabbing all they can before the collapse.

Thats the funny thing about human nature, from the powerful to the powerless...its always self interest, all things being equal ;-)

Wed, 04/17/2013 - 22:07 | 3464570 nmewn
nmewn's picture

Well, at least they haven't gone full retard, their corporate tax rates are low enough for investment ;-)

Thu, 04/18/2013 - 01:32 | 3465193 Spinelli
Spinelli's picture

Sorry to correct you nmewn ;-]

But "absalutely correct" is erronous or at best a HUGE GIANT FUCKING understatement.

I am now living in China and will be for a yr and WOW! I knew what it would be like, but actually speaking to them still left me shell shocked.

The avg chinese person makes the american sheep look like Neo fighting the Matrix!!! They are utterly brainwashed. You cannot have a conversation about politics, economics, history.... or anything.

As a programmer the best analogy I can give is that it's like talking to a program, they repeat EXACTLY what they are programmed to repeat.

Honestly it makes me want to cry....

Thu, 04/18/2013 - 07:06 | 3465515 nmewn
nmewn's picture

Well, the majority may be brainwashed but those pigs floating through Shanghai had to come from somewhere. Human nature being what it is, its my understanding they came from "illegal" pig farms.

That is, pig farmers seeking profit over compliance with state mandated market limits on their production, which drives down costs to consumers.

They may not realize it or call it something else but there is no denying what it is, its capitalism in this example ;-)

Thu, 04/18/2013 - 05:21 | 3465410 Notarocketscientist
Notarocketscientist's picture

Ya well if you turned over the farm to the animals I dare say the situation would be even worse.   Everyone wants to live like a rock star these days but nobody wants to work for it.  Unfortunately that extends right through society and includes govt reps and corporations

So what's the solution? 

Wed, 04/17/2013 - 20:50 | 3464278 Smiley
Smiley's picture

I love it when people get bludgeoned with reality till they are quivering heaps of shit.

Wed, 04/17/2013 - 20:51 | 3464282 reader2010
reader2010's picture

Obviously they feel pissed at JPY devaluation and want to talk down RMB value first.

Wed, 04/17/2013 - 20:52 | 3464285 fonzannoon
fonzannoon's picture

reading this shit can really make you go insane

"U.S. Treasury Secretary Jack Lew warned his partners in the Group of 20 on Wednesday against the perils of "beggar thy neighbor" currency devaluations, picking out China for special mention, while noting that Japan was also on Washington's radar screen."

Wed, 04/17/2013 - 20:56 | 3464292 newengland
newengland's picture

Fed up ;-) 

The race to debase is on.

Wed, 04/17/2013 - 22:33 | 3464690 Radical Marijuana
Radical Marijuana's picture

It is impossible to go insane enough to be able to understand how insane it is!

Wed, 04/17/2013 - 20:57 | 3464300 rp1
rp1's picture

Japan has the new global reserve currency, because they have the most savings.  China can crash or inflate, and they can CHOOSE TO CRASH or suffer HYPERINFLATION.

This is the GREAT GLOBAL RESET.

http://www.cecm.sfu.ca/~rpearcea/dontvoteforgold.pdf

Wed, 04/17/2013 - 21:18 | 3464371 I_Am_
I_Am_'s picture

Hmmm.... spend my savings on gold...... but that boat leak is serious

Wed, 04/17/2013 - 21:24 | 3464386 rp1
rp1's picture

Own gold if you're afraid of hyperinflation in your country.  Every country around the world EXCEPT JAPAN must now CHOOSE TO CRASH or HYPERINFLATE.  And thankfully, they're choosing crash.

Do NOT follow this link or you will be banned from the site!