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Credit Shock Dead Ahead: China Money Formation Soars To 2-Year High As Delinquent Loans Surge By 29%
A month ago we pointed out that even as the Chinese credit bubble - at a record 240% of GDP on a consolidated basis - is now clearly out of control, the far more disturbing aspect of China's credit-fueled economy is the ever declining boost to economic growth as a result of every incremental dollar created. Indeed, as the economic response to "credit shock" becomes lower and lower, even as the inflationary impact lingers, the PBOC is caught between a stagnating rock and an inflationary hard place. Nonetheless, there are few options and with the shark-like need to continue growing, or at least moving, in order to prevent collapse, China did precisely what we expected it to do: boost credit growth even more despite the obvious tapering economic impact of such money creation. Sure enough, overnight China reported that its M2 growth accelerated in April from 15.7% in March, to 16.1% on a Y/Y basis: the fastest pace of credit creation in two years. Yes, the PBOC may not be creating money, but the Chinese pseudo-sovereign commercial banks, sure are, and at a pace that puts the rest of the world to shame.
From SocGen:
China’s M2 growth accelerated unexpectedly from 15.7% yoy in March to 16.1% yoy in April (Cons. 15.5%; SG 15.2%), the fastest pace in two years. Although a base effect was partly responsible, it is also the case that credit conditions continued to be very accommodative. The bigger than anticipated new bank lending figure – CNY 792.9bn or 26.9% yoy – is one piece of proof. Although the flow of total social financing normalised lower from CNY 2.5tn in March to CNY 1.7tn, the stock growth sped up further to 22.3% yoy from 21.6% yoy.
And there are those who wonder why food prices soared in April despite the obviously contractionary tumble in the PPI...
Furthermore, as we pointed out two days ago when we looked at the glaringly obvious export data manipulation, the idle-money inflationary pressures in China are likely far, far worse than what is reported, and with the SHCOMP unable to absorb excess liquidity due to its shallow nature (unlike the S&P or the Nikkei225), and with the government establishing new and improved housing market curbs with every passing day, all this soaring hot money is about to spill over into the economy, and which point it will not be the USD that Chinese consumers flocks to in order to preserve their wealth (hint: see 2011 when China had its last episode of outright spiking inflation).
But, as usually happens, that's just half of story.
Since in China, unlike the G-0 world, loan creation is still mediated by commercial banks (at least as long as the PBOC continues to sit on the sidelines), and not sourced directly by the monetary authority which can absorb virtually infinite bad loans before faith in the currency is shaken, the problem of bad loans is starting to become quite tangible. As China Daily reports, citing PwC research, the total mount of overdue loans among China's top 10 listed banks exploded by 29% in one year, rising to $79.3 billion at the end of 2012 compared to 2011.
Bad loans are weighing heavily on China's top commercial banks this year, and are likely to hit profitability and asset quality, a report released by PwC claimed on Thursday.
The study revealed that total overdue loans among the country's top 10 listed banks had increased to 486.5 billion yuan ($79.3 billion) by the end of last year, up 29 percent from 2011.
The average overdue loan ratio rose to 1.21 percent from 1.06 percent, "a considerable deterioration", said Jimmy Leung, PwC's banking and capital markets leader for China.
In some regions, the ratio reached 5 to 7 percent, he added.
The ratio of special-mention loans, debts that could potentially turn sour, among the five largest joint stock banks rose to 1.03 percent in 2012 from 2011's 0.93 percent.
Chinese banks follow the international five-category system that classifies loans as "pass", "special-mention", "substandard", "doubtful" and "loss", in line with their inherent risks. The last three groups are regarded as non-performing loans.
And here's another reason why China finds itself in a dead end dilemma with no way out: on one hand it does not want any more housing inflation for obvious bubble reasons. On the other, any collapse in housing prices will crash its banking sector. What to do?
"The economic uncertainties and tightened rules on the real estate market would pose a tougher test for commercial lenders this year," added Raymond Yung, PwC's financial services leader for China.
"If property prices show big declines, bank lending would be in jeopardy....It's time for Chinese banks to strengthen their management of collecting repayments, and writing off more soured loans more positively."
Only they can't, because that process would require the full disclosure of just how bad the true delinquent loan state of the commercial banking sector is. And since this is China, where economic data is always misreported by orders of magnitude, one truly is scared to look beneath the surface, and where such an event can be delayed (not avoided), only as long as new loan creation is soaring and is sufficiently high to offset the conversion of performing loans into NPLs.
Which, perhaps explains, why April new credit soared to the highest in two years. And this in turn, will be curbed too, once inflation - that ultimate arbiter of reality - comes roaring back.
In the meantime, and as always, we take delight in all amusing gold "smashes", "crashes", or whatever else they are called, as we continue to recall just what asset the Chinese bought with both hands and feet in all markets - physical and paper - in 2011, when China's inflation went off the charts. Because it wasn't the USD, and because we know that this time will not be different.
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take possession.....its coming
Another excellent interview with Peter Schiff discussing what happens should/when just a portion of this central bank stimulus be removed (hint: nothing good).
http://www.ftense.com/2013/05/the-third-final-bubble-enjoy-world.html
geez.. somebody has to be funding all of those empty buildings
but.. all I care about is when the iPhone 10 comes out
"semi-sovereign banks" - never forget that China is bed fellows with the BIS owners. US positions weaponry in and around China as N Koreas espouses belligerence. But, who owns the currency of both nations? Same story, different characters. Rinse and repeat...
Did you watch the video?! Schiff said he's been telling people for years that they should be in the market. What a crock of shit. He's a fucking liar and a scumbag.
Then it should be easy for you to provide a link of him saying that they should be out of the market.
We are waiting.
http://www.youtube.com/watch?v=SJpvAZF8V74(here don't buy them @ all)
http://www.youtube.com/watch?v=k-y65-uYTpY (here don't buy them again)
http://www.youtube.com/watch?v=Jcj-N6-KouE (here don't by US stocks)
http://www.youtube.com/watch?v=EpZ9NjfeD4E (2011/12 we will have a crisis, per the scumbag, implying don't buy stocks. Buy gold from HIM instead.)
In every clip he makes a distinction between U.S stocks and foreign stocks.
I am not debating whether he has been right or wrong. He has certainly been wrong up till this point on the U.S stock market. I am debating whether he has been consistent in what he has said. He has been.
I love you, fonz.
Hey he said rates will rise. Look at them today!
But every indication is that it will not be removed within any investable timescale. The old model of money creation is comatose and for as long as that remains the case the new model is all they have. Perhaps Japan will give them a fright? But in the meantime it's a fact that anyone investing their savings since 2010 (early 2011 in the case of gold) on the basis of the doomsday prophets has lost money.
China is the bomb that just won't go off.
Gov debt is irrelevant in China.
What is dangerous are the WMP, wealth management products, PURE 24 KARAT PYRAMID SCHEMES. There are thousands of them.
Uncontrollable. They have the potential of bringing the gov down.
" The fuse has now been lit....."
" The Chinese shadow banking system is preferred by many local businesses, real estate, and manufacturers and has 30 Trillion yuan ( $ 4.8 Trillion ) worth of loans in the market " .
LARRY LANG
http://www.theepochtimes.com/n3/3896-chinas-debt-crisis-looms-economists-say/
Precisely
Until it does and then look out!
There are a lot of bombs that just wont go off...too many to count. I think that they are waiting until every last Zero Hedge commentator give up and slips back into the matrix.
WE WONT GO! WE WONT GO!
This is so depressing. That means noodles and dumplings are going up in price.
Apparently, no one can resist the lure of easy credit these days. Whatever happened to saving money to buy something?
It's too hard to save anything when inflation has far outpaced income.
What are you talking about, they same amount of silver that filled my tank in the 80's can fill the fuel tank now, no inflation with respect to real money, oh wait...
Delayed gratification (aka saving) is so yesterday.
<But it will eventually be so tomorrow as the concept of thrift comes back into vogue.>
Fuck gold, buy perfume!
http://www.marketwatch.com/story/the-4200-bottle-of-perfume-2013-05-10?dist=beforebell
I want gold scented perfume.
Even Chanel 5 was undermined by globalization. One pound of jasmine blossoms from Grasse cost $30K in 1921. It was soon undermined by cheaper less fragrant jasmine from the likes of India. Couple that with allergic reactions from people & the formulation had to be changed to conform to IFRA guidelines. While staying close to the original scent (1st to use synthetics) it has not been the same since.
The gigunda bottle is nothing more than "See what I've got". A Ferrari with a VW engine.
It's like knowing the train is going to crash into the ravine ahead so open the throtlle even MOAR to hurry it up!
china bankers: make a loan take a bonus
usa bankers: take a bonus, take another bonus
Chinese people buying gold for good reason... Inscrutable, there's a good word.
I think the situation is pretty "scrutable". The shitbag on the porch was on fire. Instead of being embarrassed by stomping it out, the central bankers let the rest of the house catch on fire. Meanwhile Jamie and Lloyd are shitting in another bag and heading to the neighbor's house.
http://www.marketwatch.com/story/dow-15000-try-116200-2013-05-09?siteid=yhoof2
DOW 116,000 lol
we are going to need DOW infinity hats
China is still a centrally planned country....they can do whatever they want...without a vote or a press to hound them...
Welcome to financial repression hell, yellow man.
Chinese have learned from their American counterparts...grab th emoney and run....never pay back...shift the losses to the masses while you pocket the profits.....it's all the Rage.
One very small fact missing from this propaganda. China has 3 Trillion in foreign reserves; the US is 17 Trillion in debt. Who is better positioned to weather the storm?
And what is the value of the toxic debt that China holds? Loans (wink, wink) from government officials to corrupt property developers/speculators? I think they would burn through that $3T pretty quickly if all the non-performing loans taken out to build empty shopping centers came due.
China also has over a Billion mouths to feed.
Think Biblical swarms of Locusts.
Positioned to weather the storm?
"No one gets out of here alive"
Halarious, whatever fraud Americans can come up with, the Chinese can do better. Well if ZIRP was good for everyone ZIRP should be better, right? Fuck you Ben Bernanke. May your head be the first to roll motherfucker.
and CNY is on...........max against USD or close....
GEE WIZ, THEY COULD LET THE YUAN GO much HIGHER.
....waiting for better times ahead?
I wonder what effect stories like this will have on the retards who think that the yuan will become the next global reserve currency?
ask me when they take over Japan with the plazet of the US
Other than the fact they hate the Japanese, why would China want to "take over" Japan, an island with no natural resources whatsoever? What does Japan have to offer a conqueror? Factories? China has too many already. An aging society that can only pay for itself through massive quantitative easing? No thanks, just more mouths to feed.
Correct-a-mundo. It was vise versa when the Japanese launched the Southeast Asia Co-Prosperity Sphere Tour, circa 1930.
Bernanke also skipping the G-7 meeting over this weekend. Is something going on at the Fed?
1 if by day 2 if by night.. Long live the statue of Liberty and her beard. Long live the revolution.
isn't profit in a communist china an oxy-mandarin?
This is why gold is going to sub-$1,000 because when the Chinky margin calls start to flow, they'll sell everything they CAN and that includes the "enormous physical offtake into China" (goldbugs' greatest pumping point). Remember the Japs paying $845mm for Pebble Beach in 1990 and dumping it nine years later for a $341mm loss? That is analagous to the Chinese hoarding of gold since 2007. Like the Japs, the Chinese will offload tonnes and tonnes of gold at the bottom and the Yanks will buy back their shorts.
It will not get to that point. That is where the rubber meets the road. See, if you think the shit has finally hit the fan, you're going to hold in to those tangibles that can be traded anywhere on earth.
Maybe, maybe not.
In any event, my stash stays right here.
So, you think the chinese will sell that gold to the West? Are there other weaknesses to this projection? Are there other weaknesses to my projections? I am sure of nothing, but I am sure tired of watching the fire spread without any panic?
And that's just the "official" #
WAR with Japan should fix things.
China has more bubbles than the my kids bubble machine makes
http://www.youtube.com/watch?v=sT_w2eHd2Do