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Presenting China's First Too Big To Fail "Lack Of Liquidity" Casualty
China’s biggest private shipbuilder, China Rongsheng Heavy Industries Group, last week filed for a profit warning as it expects a loss in the first half of 2013. That was the good news. The bad news is that Rongsheng appealed for government aid last Friday and said it was cutting staff as it was delaying payments to suppliers to deal with tightened cash flows. It also called on its shareholders for financial help and said it was in talks with banks and other financial institutions to renew existing credit lines. In other words a complete liquidity collapse.
Well, maybe not complete: the company also said no suppliers have towed away machinery, and it has seen no "incident of abscondment of salary" pay (whatever that means). Yet. However, the Chinese government now must decide quickly whether this will be the country's first tight liquidity-induced casualty, or will the PBOC's resolve crash and burn with the first Too Big To Fail company emerging in China's new liquidity-tight regime. If it chooses the former, watch out below as many more companies, which also find themselves on the liquidity edge, follow in Rongsheng's footsteps and fold.
The fundamentals are not pretty: Rongsheng had CNY2.1 billion in cash balance versus short-term borrowings of CNY19.3 billion at the end of last year. And, as DB summarizes, being a flagship operator in the industry that employs around 20,000 workers there are also increasing talks of whether the company is too-big-too-fail for the State. Of course it is, but the bigger issue is how the PBOC - intent on showing the world that it means business in fighting the world's biggest housing bubble - will react to a government bailout, which in turn will demonstrate that telegraphed market liquidity is absolutely worthless as any company that hits a liquidity crunch will simply get a government lifeline.
Just like in the US (if mostly for banks and labor-union heavy companies).
From Reuters:
An appeal for government financial support from China's biggest private shipbuilder presents authorities with some stark choices between protecting a big employer and its jobs or letting the firm go under to ease pressure on a sector suffering from overcapacity and sharply falling new orders.
Since Beijing appears intent on telling investors it is serious about changing the investment-led growth model of the world's second-biggest economy and controlling a credit splurge, it may seem like the writing is on the wall for China Rongsheng Heavy Industries Group.
Yet analysts say the government is more likely than not to judge that Rongsheng, which employs around 20,000 workers and has received state patronage, is too big and well connected to fail.
Analysts say Rongsheng is possibly the largest casualty of a sector that has grown over the past decade into the world's biggest shipbuilding industry by construction capacity. Amid a global shipping downturn, new orders for Chinese builders fell by half last year. In Rongsheng's case, it won orders worth $55.6 million last year, compared with a target of $1.8 billion.
Annual reports show that Rongsheng has received state subsidies since 2010, when it listed in Hong Kong.
In the prospectus for its initial public offer, Rongsheng said it received 520 million yuan of subsidies from the Rugao city government in the southern province of Jiangsu, where the company is based.
The state funds paid for research and development of new types of vessels, and were based in part on the "essential role we play in the local economy", Rongsheng said.
"We cannot assure you that we will be able to receive similar government subsidies in the future," it said. "If we do not receive such subsidies, our profit and profit margin may be substantially less than if we were to receive such subsidies."
The company said it got state funds of 830 million yuan in 2010, 1.25 billion yuan in 2011, and 1.3 billion yuan in 2012.
In a Chinese world which is suddenly hit by CNY1 trillion in deleveraging, Rongsheng would merely be the canary in the coalmine.
As China's economy grinds towards its slackest growth in at least 14 years, more firms like Rongsheng are foundering.
Suntech Power Holdings (STP.N), a solar panel maker also based in Jiangsu, is waiting to be bailed out by the government after it was crushed by falling demand and a supply glut, a source with knowledge of the matter said in March. The government wants to find a way to rescue Suntech to avoid an embarrassing collapse that damages its reputation, the source said.
That said, with or without a government bailout of Rongsheng, just like the US green industry, Chinese shipping is in shambles either way:
China's shipbuilding woes are partly of its own making. A global downturn in demand has hammered the sector since 2008, but a national obsession for global dominance in some industries led China to declare in the early 2000s that it wanted to be the world's top shipbuilding nation by 2015.
A state-induced spike in the number of Chinese shipbuilders followed as the country led a three-fold rise in new global shipbuilding capacity in the past decade. As the world's largest shipbuilder, it had 1,647 shipyards in 2012, data from China Association of the National Shipbuilding Industry showed. Over 60 percent of its shipbuilders are based in Rongsheng's province of Jiangsu.
In contrast, China's main rivals South Korea and Japan have only 10 and 15 active shipyards, respectively, French shipping broker BRS says.
Barclays, which until last week had Rongsheng on neutral and thus was as blindsided as everyone else, is suddenly concerned:
A third of the shipyards in China, the world’s biggest shipbuilding
nation, may be shut in about five years, the China Association of
National Shipbuilding Industry said last week. The order book of Chinese
shipbuilders fell 23 percent at the end of May from a year earlier,
according to data from the shipbuilders’ group.
“We expect shipyard failures could become a reality in China if current conditions persist,” Barclays Plc analysts Jon Windham and Esme Pau wrote in a report to clients yesterday. “Those yards not facing such harsh financial difficulties could increase their market and pricing power.” The Hong Kong-based analysts lowered their rating on Rongsheng’s shares to “underweight” from “equalweight.”
Just like the GM bailout was predicated by Obama's taxpayer funded purchase of union vote, so Rongsheng's "connections" may be the determining factor in its fate:
Analysts say what separates Rongsheng from many other companies are its connections with the government and state banks. Rongsheng's Chief Executive Chen Qiang, for example, enjoys "special government allowances" granted by China's cabinet, the firm's annual reports say.
Rongsheng also said in its IPO prospectus that it has two five-year financing deals with Export-Import Bank of China that end in 2014 and in 2015, and a 10-year agreement with Bank of China (3988.HK) starting from 2009.
Experts say Rongsheng's strong networks suggest the local governments will not let it fail, even if Beijing does not approve of a bailout.
After all, local government coffers will suffer the biggest blow if Rongsheng goes bust. The firm had 168 million yuan of deferred income taxes in 2012.
In other words, lose-lose: bail it out and lose all "reform" credibility; let it die, and start the proverbial domino waterfall which pulls the rug from under the country's rotten shadow banking and insolvent local government funding system.
Keep a close eye on China's real canary in the liquidity-parched coalmine.
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FIAT EMPIRE: Why the Federal Reserve Violates the U.S. Constitution
http://www.youtube.com/watch?v=5K41O2QfpjA
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thanks.
Relax! An elderly gentleman with several X's in his name will invent 10 trillion yuan and all will be fixed. Now get back to making my new iPhone!
The consti what? That ship sailed a long time ago and you know what? Most Americans didn't really give a damn. In fact most Americans think the constitution is what they do after their morning coffee. We gotz to give up our rights to be safe from terrists you know.
The path of least resistance is to print. Come on china show Benny boy how it's done
Hey man being an Aussie fuck i hope they print just to keep the game going a bit longer,even though i realise its only extra time.We're fucked.
Our state department should start accepting these displaced workers as refugees. It has worked so well with the Somalis.
"Ghost ships of China" I guess are the next headline.
The Frying Chinaman.....to bring the Dutchman tale up to date....."...it was a very large twin hulled oil carrier emerging from the fog shrouded coast on the South China seas....but with no crew....strangely the ship was made from copper...
Russell Brand and Boris Johnson appear on Question Time June 2013
http://www.youtube.com/watch?v=NO0AanDR-_0&feature=youtu.be
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from jca post-link
http://www.youtube.com/watch?v=iNUq-JSXvS4
"It's gettin' colder..."
So this is what a Chinese ABCP freeze looks like.
they'vegot some deadwood to clean up is all. will be healthy in the long run.
That's a dangerous statement. Could be made in many circumstances, including our own in 2008. Yet we chose not to clean up the "dead wood".
Do a few bailouts, name a few institutions "systemically important," smother it all with cronyism and you're well on your way to a dead economy. Just like we got now.
They might actually have the balls and self-interest to do it. Consider one scenario:
1. Crash the fiat pimping.
2. Introduce gold-backed currency.
3. Militarize tha male population (industrial job replaced with a military reserve steady salary)
4. Ramp up global resource capture.
You know they already have Russia on board, Brazil and India will latch on to whatever way the wind is blowing, so will Africa (and they have already largely done so).
Some fellow was building a $1.8 million custom house down the road [in the Snooty neighborhood].....he evidently had a 'liquidity crisis' midstream and in the middle of the night subcontractors broke in and ripped out copper piping, faucets, etc...anything they could rip out or carry away they did...like little curmudgeons in the darkness.
Little curmudgeons owed money by a gaping asshole.
Hate to hear about that sort of thing happening to a hard-working American. So since he had a liquidity crisis, I'll assume he's not in banking. Any idea what line of work he was in?
I am sure he owed lots of money or they would not have repossessed their goodies. From the look at his mail box I notcied several bills from Nordstrom's, NM, and Kohls....I don't know what his "line of work" is/was. He didn't mingle with the Hoi Poloi. Must have been very overextended....like millions of other Americans who have taken on too much debt. I haven't seen this type of thing since the 1980's when we also had a pretty big housing crash.
Too much debt at every level--people, municipalites and Fed Gubmint. Scares me to see Yutes signing the dotted line for a 30-year $300k+ mortgage debt, not to mention the massive student loans they may have and a shakey job market.
Pleeeze don't remind me of the 1980's...my RE plunged 30-40% from that RE crisis plus the tax law changes that went against RE. Took me years to recover since RE is uber illiquid and Buyers/RE investors dried up overnight.
print! print! print! print! print! (i did find this story about American Superconductor interesting: http://www.bloomberg.com/news/2012-03-15/china-corporate-espionage-boom-... good luck ever selling a wind turbine in the USA ever again China. obviously there's a lot more where that comes from although following the stories of the multi-billion dollar energy boondoggles to foreign companies by this Administration get's more interesting by the week.) i'm following the Egypt story very closely. the possibilities for opening up urban markets in the Middle East are too big to pass up. I would look for aid in Egypt to increase dramatically and support for these and other revolutions to increase here in the USA as those who have supported this catastrophic policy of "post 9/11" are wound down. http://knowyourmeme.com/memes/events/2013-brazil-bus-taxes-protests
Maybe their customers have a bad feeling about shipping rates and aren't buying. Look at what happened to the Baltic Dry Index last year starting in august: http://www.bloomberg.com/quote/BDIY:IND
Perhaps the plunge will be even greater this year.
This graph only goes back to Sept 2008 - if it went back to March 2008 it would show Cape rates around $240K as China made it's last purchases pre - 2008 Olympics. I made a ton of money on the bulkers in that final run-up. DRYS - $120 then - 1.82 now. EXM - $60 then, .04 now (ditto for TBSI which I don't think even exists anymore). GNK $80 then, 1.68 today... on and on. Watch for more pain in the shipbuilders not only in China but also in Korea.
http://www.dryships.com/pages/report.asp
What the hell are these Commies doing with 1,647 shipyards ? They musta planned on moving their junk to the farthest reaches of Antarctica.
The solution is obvious : print . moar . yuan
I think you just hit upon a great point that explains the reason for China's implosion ahead like Japan's years ago. That is, China like Japan was such an isolated nation before it opened up that it sees the world as a boundless place to sell its goods. China will now learn the painful lesson Japan still endures that the world can buy only so much from them.
Pronounced 'print mor-ron'. Seems like you're talking about Bernanke...
No problem! We got the Special Olympian feat of strength last nite, Alcoa made .07 cents, and this has set the world ablaze in new bullish 'optimism'...but of course not SO optimistic that we're now worried about losing the perpetual 3D printed free lunch! Best of both worlds balancing like an elephant on the head of a pin...we GOT this shit... 4EVA!
And the cry resounded across the land: "Beat! Beat! Beat! Beat!..."
Or is that "Bleat bleat bleat bleat?"
A decade ago, I would've bet they would let it fail, but I wouldn't bet on it now. It's a-thing-that-makes-things, like GM, and they might decide to save it as a "special" exception. It's peanuts anyway, but that will set the precedent for ruin.
What I am looking out for, is a medium sized Chinese bank going belly up because of liquidity and NPLs on their books. A lot of gangrene will have to be debrided before they can carry on trucking in their economic juggernaut.
Last time they had a NPL crisis they moved bad loans to NPL banks (or whatever) that are still around. Why would it be different this time around?
Must have missed that. Which NPL banks are these you mentioned? As far as I know, which admittedly isn't much, both HSBC and CS last year warned of the growing NPLs still on the books in Chinese banks. Mostly bad local govt loans that are affecting their ratings. It is rational to turn off the liquidity tap when bubbles are everywhere, but whether that precipitates a cascade collapse or merely cools (as we're seeing right now) is dependent on the banks that started the bubbles in the first place. My take is that we'll see one collapse before a coherent strategy (another of their 5yr plans) is announced. More printing? Likely. A bid for reserve currency to dilute their risks? Probable in the future. Selective bailouts? Likely. To me, it looks like a mess until one of their banks collapses, then we'll know which way the wind is blowing.
So how will this company survive, even with a capital injection, if it is overmanned and has too few orders? It's not just the size of the accumulated problem, but also the size of the ongoing problem that needs to be dealt with.
3D printers printing up endless free lunch for all! Everyone can survive now, and it doesn't cost anyone a dime ever!
Bennibucks printed in 3D!!!!
Better than the normal bennibucks
Make Yachts for Sec Kerry? Oh, scratch that...she's recovering. ;)
Maybe like the Euro / EU, the Chinese economy is being sabotaged by the central banks, because what better way to terminally stall the global economy, destroy supply lines, create shortages worldwide, and cripple civilization, than to collapse the producers / manufacturers? For fucks sake, they couldn't stop the ravenous consumers... . If you have no product to sell, there can be no buying / consumption, no transport, etc. I'm not just talking about trinkets / merchandise, I'm talking about very quickly this gets to food / clothing / necessities. Not necessarily from Japan / China / Korea, but if those economies / EU are devastated, what can carry on? How can they eat?
Just my take... this is part of the final takedown. When China falls, the rest of the countries could suffer badly, precipitating their own collapse. At least it gives the banks a fall guy... the failed Chinese economy took down the global economy... let's create the NWO so this kind of thing can never happen again.
"It will be simple, coz I'm gonna make it simple, stupid simple, YOU HAVE THE MOOLAH, WE FCKN NEED IT, WHEN ARE YOU GOING TO GIVE IT TO US, WHEN CAN WE PICK UP THE FCKN CHEQUE"
Lol:)
once the west runs out of the PM to sell at these prices, they will pull the plug. The question is only when, and this could be it.
But things were going so well!
http://www.youtube.com/watch?v=ayKOlLhlQsc
Is it time to short SID? Or are there better iron ore producing companies to short?
long been saying that a freecommie based economy run by committee can not compete with the free enterprise system of the u. s. of a. run by a smaller committee.
06-29-13 Macro Analytics - The Coming CHINA Crisis
http://www.youtube.com/watch?v=jDUmohdp0lI