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"It's Going To End Ugly Unless The PBoC Changes Its Attitude To Liquidity"
The big trouble in massive China that we discussed here is weighing heavily on the liquidity in the debt-fueled nation. As The FT reports, several banks have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt. "China is much more funding dependent than in the past," warns one analyst, as issuers are dealing with a string of problems stemming from the drying up of interbank market liquidity and fierce competition from wealth management and trust products for investors’ funds. "Government and policy banks have suffered the most. Now pressure is coming to corporates," one trader pointed out, adding, ominously, "it's going to end pretty ugly unless PBOC changes its attitude to liquidity;" which, of course, is exactly the situation the 3rd Plenum outline is looking to change.
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“Chinese 10-year Treasury bond yields are at a six-year high and are up about 100 basis points versus a year ago,” said one senior bond banker in Beijing. “CDB’s yields have widened by a bit more than 100 basis points and other corporate bonds are seeing yields rise by 150-200 basis points.”
The head of fixed income sales and trading at a European bank in Shanghai said the policy banks pre-disclose their issuance plans, so it is easy to see when they delay. “But for most corporations, they just quietly delay their issues and no one knows that except for the underwriter.”
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China is much more funding dependent than in the past – total social financing is set to hit a new record of Rmb18tn-Rmb19tn this year up from the Rmb15.8tn record set last year,” he said.
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However, a big problem for Chinese issuers right now is the tougher competition from alternative fixed income investments, such as wealth management and trust products, which offer yields of 8 or 9 per cent and are guaranteed by the issuing banks.
Banks are also doing more interbank business because the current tight supply of liquidity means it creates much higher returns than bonds.
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Chinese issuers are papering over the difficulties with more offshore issuance, raising a record $51.6bn outside China so far this year, according to Dealogic, a record figure and more than double the $24.5bn raised in the same period last year.
So there it is - if you can't fund domestically (since the domestic flows are being diverted into higher yielding crazy wealth products by the banks) then you borrow offshore (just like Indian, Indonesian, and Venezuelan firms) because there's plenty of yield-hungry free-money just choking the pipes of rationality around the world...
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So...what you are obviously saying is...sell gold...right?
Yeah...they want the Chinese to do it though. Because all they have is worthless bits of paper backed with nothing and losing purchasing power by the second. BtC is however available for them to migrate to.
Because I seem to be one of the nerdiest of the ZH nerds...I put together the BRICS holdings of US Treasurys from '06 up through Sept '13 (according to TIC)
'06 - $413 B
'08 - $778 B
'12 - $1.692 T
'13 - $1.761 T
Do these look like countries trying to "get out of the dollar"...can break down by country if anybody cares but suffice to say they all increased massively and (aside from Russia which is a little under it's '12 record high) are all @ record holdings
06-08 up 88%
08-12 up 217%
12-13 up 4%
gosh, I don't see any change in foreigners desire to hold Bernanke's hot potato.
Would suggest the primary difference in '12-'13 from '08-'11 are significantly smaller deficits ($1.7 T vs. $700 B) and continued QE by the Fed leaving little additional debt for "foreigners" to pick up. If there was any sell off in their positions, I would agree with you but no sign of a sell off (as of yet).
You're looking at the wrong pie (US debt stock instead of overseas official F/X reserves) and ignoring flow (as well as the marked delta in duration exposure).
Moreover, it's somewhat a moot point since whatever sovereign notes any 90-day-plus F/X reserves are denominated in, they can be swapped (loaned) for free cash flow without affecting registration/balance sheet of the "official" owner.
Been a while back - but someone did comparison showing duration of debt held by China - they were shifting into short term stuff -
Makes it easier to get out without the need to even hit the sell button.
You can't just compare amounts of debt they hold - you also need to look at when it matures.
Thank you for bringing this piece of evidence to my attention;
Not hard when everyone is printing at the same time attached to the same BANK. The direct causal effect was the obliteration by stealing from Peter to pay for Paul, The real world effects can be seen in the remnants of the Spanish, Irish, Portuguese, Egyptian, Greek, Cyprus, Italian, South America, Africa, South East Asia, North America, Asia, Russia, India, etc. economies.
To the point the people there don't give a rats ass what self serving TRIPE is offered. Even 'hard' numbers on stolen money generated with lies, murder and misery.
Again thanks...couple more names for the list to 'check'. Christmas is coming...ho ho ho...put those folks on the coal list.
So....Does this mean Ann Margaret won't be coming?
No, no..., she's coming as soon as she dries off.
The Chinese (A centrally-planned, state-owned and run single-party society) are better at manipulation and "creating" financial "products" of mass destruction? < shocker >
Who sold them the debt?
i am still trying to understand how they are going to go NIRP over here, AND raise reserve requirements? how will the ever so generous TBTF's speculate in leveraged markets then!?!
Ummm...in answer to your question...I think they just go ahead and close them then. You know...a market holiday.
well, it's that or this...
http://www.youtube.com/watch?v=skv3wSIL5xI
Cash and carry are the rules now.
Really....so the FED's 'attitude to liquidity' is just fine then, but PBoC is fuckin up? Nonsense....creating liquidity out of thin air is ALL they've got.
Correct...and I think today...it cannot get any more obvious, what with Draghi going all NIRP on everyone's ass today.
Amazing how long the failed status quo has been in there flailing away...and still not a one of them in jail. Really, quite an accomplishment.
And Bernanke, over blackened chicken dinner said it's all good because people can buy cars. We r so fucked.
I believe that most of the US is trying to figure a way to get 200,000 miles out of their cars, not buy new ones.
200,000 miles?
The people have that much money for gasoline?
130,000 on my daily driver.
getting there.
I'm at 168,000 miles on my Chevy Venture!!!! its a real panty dropper!!
The shame!
The Middle Class college grads are getting Monkey Hammered by house prices in China I read. A very small [tiny] number of people can now afford a place there and salaries are not nearly high enuff. I think that may be one reason hundreds of thousands of bright Yutes want to depart the MutterLand for greener pastures with more opportunities like USA, Australia and Canada and attend Uni in these other places.
This is another reason for Gold buying rush in China:
Gold Demand Shift To Asia Amazing
With COMEX Gold inventory going every week down and leverage in the Fractional Gold Reserve System standing at 69 all-time-high now, China's and others Asian countries' appetite for Gold is truly amazing. In order to balance this dramatic divergence we need much higher Gold prices to make the additional Gold supply available. Gold mining companies are cutting the projects pipeline and putting exploration and new development on hold restricting future Gold supply even more. http://sufiy.blogspot.co.uk/2013/11/gold-demand-shift-to-asia-amazing-gl...
The banks are selling products which are guaranteed and which return 8-9%?
A return of 8% interest or 8% of the capital?
Upheavel in China.
No upheavel in China.
I hear a lot of, "China's doing this wrong and that wrong, and boy, are they in trouble, the People too ???
I don't get it and I'm also considering the sources, 1) the FT, 2) one analyst, and 3) "one trader pointed out"
This from a country with the Highest Reserves Surplus of Trilllions in USD terms, and it Increases each QTR, a People with the Highest Savings Rate, Yearly Wage Increase of circa 20%, and rapidly Growing Middle/Upper Class (all The People Increasing Discretionary Spending, very often paying Cash for big ticket items like Autos), and hearing Headlines like China's Rate of Growth SLOWED to 7.5 GDP Growth ... you know, have people forgotten about the effect of Compounding?
A Growth Rate of 7.5% is much more in nominal terms than a 10% Increase 15-20 years ago.
If WE just had the "Problems" that China supposedly has
You are correct if:
1. You can believe the growth stats
2. You actually believe that those US dollar reserves have a long term future.
3. The big Chinese companies don't introduce robots to overcome "crippling" wage rises.
The people who can afford gold will be OK. They'll have safe passage fare. It's those who can't who will bring back the Mao Pajama Party.
Oh well. Good for West Coastal US and Canadian R/E, I guess.
I agree that China will grow out of whatever financial trouble it is in now.
Actually it wouldn't surprise me if China cut a deal with the US wheregy they get to off-load all the US T-Bonds that everone says the US could never pay for, at 50 cents of the dollar but Only for Gold --- so while we see $1,300 POG its actually transacted @ $2,600 But a Secret
We have a History of Secret deals with China, check the July 1971 Secret meeting (now acknowledged with Henry K & China) and one month later Nixon Closed the Gold Window...a surprise, but not for China
As for the "guarantee" clause in the bank asset management products with 8% yield... No, they're not guaranteed. There is no such cause, period. The problem is that the Chinese moms and pops who invested their lives' savings into these fixed-income "products" profoundly misunderstand the very nature of their investments. Coming from the Maoist era when all "banks" were simply branch offices of the imfallible People's Bank of (the All-Glorious Communist) China, they still think everything the banks offered were implicitly guaranteed the same way. They're wrong. The banks are now exactly the same species as the Wall Street animals.
Although it is clearly written in the prospectus of the "product" (essentially packaged usury, usury-backed securities, and usury-backed-securities backed derivatives) that it's in no way guaranteed, said moms and pops don't even know what a prospectus is. The few who bothered to read it would see only illegible, Wallstreetian gibberish. And unsurprisingly the banks KNOW this and take advantage of the unscrupulous retail investors. When things go bad, the buyers will suffer massive bail-in, and all they will get is a t-shirt reading CAVEAT EMPTOR.