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Chinese Capital Markets Frozen As Bad Loans Soar To Highest Since Crisis

Tyler Durden's picture




 

Chinese capital markets are quietly turmoiling as debt issues are delayed and demand for "Trust" products - the shadow-banking-system's wealth management 'investments' - is tumbling. As Nikkei reports, since January, 9 companies have postponed or canceled issuance plans (around $1 billion) and is most pronounced in privately-owned companies (who lack an implicit government guarantee). This, of course, is exactly what the PBOC wanted (to instill some fear into these high-yield investors - demand - and thus slow the supply of credit to the riskiest over-capacity compenies) but as non-performing loans in China surge to post-crisis highs, fear remains prescient that they will be unable to "contain" the problem once real defaults begin (as opposed to 'delays of payment' that we have seen so far).

 

 

Via Bloomberg,

Chinese banks’ bad loans increased for the ninth straight quarter to the highest level since the 2008 financial crisis, highlighting pressures on asset quality and profit growth as the world’s second-largest economy slows.

 

Non-performing loans rose by 28.5 billion yuan ($4.7 billion) in the last quarter of 2013 to 592.1 billion yuan, the highest since September 2008, the China Banking Regulatory Commission said in a statement on its website yesterday.

 

...

 

Chinese banks are struggling to keep soured loans in check and extend earnings growth as the slowing economy and government efforts to curb shadow financing make it harder for borrowers to repay debt.

 

“China’s economic growth turned downward with the new leadership switching policy focus to reform and risk management from emphasizing stable expansion,” said Wang Yichuan, a Wuhan-based analyst at Changjiang Securities Co. “Naturally the bad loans will increase along with the change. We expect the deterioration to continue for two more years.”

 

...

 

Chinese banks added 89 trillion yuan of assets, mostly through loans, in the past five years, equivalent to the entire U.S. banking industry’s, CBRC data show. By comparison, U.S. commercial banks held $14.6 trillion of assets at the end of September, according to the Federal Deposit Insurance Corp.

 

Investors are increasingly concerned that China’s investment through borrowing since 2008 may trigger a financial crisis

Via Nikkei,

Concerns over potential defaults on high-yield financial products are making Chinese companies put some debt issues on hold due to wary investors, as well as posing a potential new risk to the global economy.

 

Since January, nine companies have postponed or canceled issuance plans for a total of 5.75 billion yuan ($948.24 million) in bonds and commercial paper, equivalent to about 2% of the debt issued over the period.

 

This is most pronounced among privately operated companies, whose lack of government backing has meant less interest from potential investors than hoped.

 

Demand has been dulled by worries over defaults on so-called wealth management products, a feature of China's shadow banking system.

 

Broader credit risks have driven interest rates up, and the gap between corporate debt and more-creditworthy government bonds is widening. Average yields on AA-rated seven-year corporate bonds reached 8.44% in mid-January.

 

So even if companies offer bonds, they will be unable to raise money if they cannot pay these higher rates.

 

...

"There's a possibility that the Chinese government will step in to keep the negative impact from spreading," says Hiromichi Tamura, chief strategist at Nomura Securities, "but if these types of repayment delays continue, they could trigger a global stock market downturn."

 

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Fri, 02/14/2014 - 15:11 | 4437205 gwar5
gwar5's picture

Dominoes

Fri, 02/14/2014 - 15:19 | 4437242 whatsinaname
whatsinaname's picture

Kind of sounds like the Indian real estate markets too. The builders have pretty much been shut out of bank lending lately and are only surviving on private (and mostly underground) money sources. Of course that underground money is no tiny market. Nevertheless the fact that big banks are balking from lending is having an effect.

Fri, 02/14/2014 - 15:48 | 4437336 zaphod
zaphod's picture

And people say that China will become the next reserve currency. China's banking sector is more stuffed with nonsense loans than anywhere else and China will have to print like mad to cover. 

Fri, 02/14/2014 - 16:13 | 4437423 Groundhog Day
Groundhog Day's picture

That is most likely their plan...Print like mad for building infrastructure and simultaneously take as much physical delivery as possible and them release the tsunami.  Once the entire derivatives market blows the entire financial system. everyone starts over however they will have mordern infrastructure and and plenty of gold

Fri, 02/14/2014 - 16:57 | 4437563 JLee2027
JLee2027's picture

There's always a plan. When you can see the debt Tsumani coming it's too late. There will be few financial survivors of the collapse.

Fri, 02/14/2014 - 17:15 | 4437640 Pseudo Anonym
Pseudo Anonym's picture

what plan?  the plan was smart, savvy chinese fund managers and bankers.  turns out the chinese are no smarter than our bankers.  the chinese need tiger mom.   ta ta  ta ta taaah - tiger mom to the rescue:

http://forward.com/articles/192587/tiger-mom-why-not-raise-a-little-mensch/

Fri, 02/14/2014 - 15:48 | 4437340 max2205
max2205's picture

Whats a loan between friends. ..

Fri, 02/14/2014 - 15:12 | 4437211 fonzannoon
fonzannoon's picture

I thought this was going to cause China to unleash a massive stimulus.

Fri, 02/14/2014 - 15:11 | 4437215 gafgroocK
gafgroocK's picture

 

 

They did, they lent it went to US

Fri, 02/14/2014 - 15:28 | 4437266 NoDebt
NoDebt's picture

Nah, insolvent southern European government bonds, judging by their yields.  You see, southern Europe has somehow magically found a way where their own domestic banks that buy their governments' bonds are simultaneosly immune to eye-watering private sector loan default rates.

Pretty cool, huh?

Fri, 02/14/2014 - 17:44 | 4437735 ThroxxOfVron
ThroxxOfVron's picture

The FED has never ever bought a loan or security that went bad either: just ask them...

Fri, 02/14/2014 - 18:29 | 4437859 LawsofPhysics
LawsofPhysics's picture

Correct, if only I could sell them financial "products" of mass destruction.

< sigh >

Fri, 02/14/2014 - 15:18 | 4437247 Groundhog Day
Groundhog Day's picture

This could only mean one thing........SPX 1900 by end f next week.....when will i learn to just BTFATH

Fri, 02/14/2014 - 15:11 | 4437213 Stoploss
Stoploss's picture

Oh shit. They're going to have to buy more...........

 

 

GOLD!!!

Fri, 02/14/2014 - 16:58 | 4437231 LawsofPhysics
LawsofPhysics's picture

Go ahead, give these fuckers the reserve currency and let's have a look at their books...

(hint; don't hold your breath)

Fri, 02/14/2014 - 17:47 | 4437746 ThroxxOfVron
ThroxxOfVron's picture

An 'honest' audit of the PBoC being undertaken/allowed is exactly as likely as an 'honest' audit of The FED.

Cue the tired old Ron Paul sock puppet controlled oppositon carping whenever you get around to it...

Fri, 02/14/2014 - 18:18 | 4437843 LawsofPhysics
LawsofPhysics's picture

Exactly.  Right back where we started...

http://www.youtube.com/watch?v=YtER2E34Ptk

 

Fri, 02/14/2014 - 15:19 | 4437239 SgtShaftoe
SgtShaftoe's picture

I have heard arguments that the taper was stepping away from the coordinated plan that the world economies had agreed to, that basically all the CBs have been cut loose, every CB for themselves.  I wonder if there's any credence to that?

Fri, 02/14/2014 - 15:18 | 4437248 F.A. Hayek
F.A. Hayek's picture

It's the weather's fault - see the other ZH post. It made our internet sales tank last month.

Fri, 02/14/2014 - 15:32 | 4437292 wagthetails
wagthetails's picture

well if bad weather keeps people indoors, i'm sure a think brown smoggy cloud does that same. 

Fri, 02/14/2014 - 15:23 | 4437265 delivered
delivered's picture

Public or private, it doesn't really matter in China as if cash flow is not adequate to repay debt, then defaults will occur. They've been masking this day of reckoning by moving from one high interest credit card (i.e., debt facility) to another, to do anything to maintain some amount of liquidity to keep the doors open. No different than an over extended US citizen tapping every type of credit available until one day, there is no more - period! The only difference between an individual, business, or for that matter, government that uses this strategy is essential "time". Goverments have more time than businesses and businesses have more time than individuals (to beg, borrow, and steal before D-day, or in this case, F-day arrives). 

The only question really that remains is if the PBOC bails-out this sector just like the Fed did in the US back in 2008/2009. Act too soon, and the markets will panic from the perspective that the government sees a problem that is much bigger than anyone realizes. Act too late and the damage will be done with a massive unwinding of the system (that the government is powerless to stop). Don't act at all and let the dominos fall where they may, well this would be the best long-term strategy to take as the system would be allowed to cleanse itself. But as we all know in today's economy, this is just not a strategy that any government or CB will accept or utilize.

So expect more of the same as in the end, the PBOC along with their massive reserves will step in at some point to calm the markets. But to quote a line from the first Jurrasic Park movie when the dinasours had taken control of the park and the founder was attempting to convince the scientists that all would be well when "they had control again", one quickly responded that "The illusion was that you had control in the first place" or something to this effect. The genetic engineering monster they unleashed was too big to control. Same goes for the CB's as the monetary expansion they've unleashed is beyond any CB's ability to control!

Fri, 02/14/2014 - 15:28 | 4437272 Schmuck Raker
Schmuck Raker's picture

"Frozen" seems a bit too strong a word...

"...nine companies have postponed or canceled issuance plans for a total of 5.75 billion yuan ($948.24 million) in bonds and commercial paper, equivalent to about 2% of the debt issued over the period."

...just saying.

Fri, 02/14/2014 - 15:31 | 4437280 walküre
walküre's picture

GOOD AS FUCKING GOLD EQUITY #1

Naturally the bad loans will increase along with the change. We expect the deterioration to continue for two more years.”

Yeah! You're NATURALLY stupid! Bank ass motherfucker! Naturally, my motherfucking ass!

Chinese banks added 89 trillion yuan of assets, mostly through loans

Fuck! Loans are no assets, motherfucker. Loans are gonna bleed you dry, motherfleckers!!!! 

Chinese are motherfucking liars! All of them!

Fri, 02/14/2014 - 15:32 | 4437284 NEOSERF
NEOSERF's picture

Uhhmmm what's the problem?  Government backing says it all...in for a yuan, in for a pound.

Fri, 02/14/2014 - 15:30 | 4437286 Larryonlineforex
Larryonlineforex's picture

Someone mentioned Southern European Government Bonds. Now there's an accident waiting to happen....and I include France in that.

Fri, 02/14/2014 - 15:31 | 4437290 shanearthur
shanearthur's picture

Before becoming a financial news junkie a few years back (and enjoying ZeroHedge), my interactions with financial going-ons was limited to hearing the occasional stock update during talk radio commercials, or perhaps a blogger I liked mentioned something financial. That's it. That's the extent of financial knowledge of, what, 70% of our population! So sad that the financial truth is so different than what so many people believe. "If only we'd have seen the crash coming," they will say. Pity.

Fri, 02/14/2014 - 23:09 | 4438649 joego1
joego1's picture

Me too. I used to design microchips. They all had to work out the gate per the boss. I thought marketing and finance was all a bunch of bull shit. I started to study it because "they" took my money from me AKA 2008. I started learning more and more and clawed my money back. When I was even steven I pulled out of the markets. Then I started reading zerohedge, it was like therapy. I started healing and now I don't have to go to meetings any more. The End.

Fri, 02/14/2014 - 15:32 | 4437294 starman
starman's picture

Would you like your fortune cookie now or after dinner sir?

Fri, 02/14/2014 - 16:06 | 4437398 Rising Sun
Rising Sun's picture

Sirachi Sauce.....mmmmmmmmmm......

Fri, 02/14/2014 - 16:07 | 4437400 Element
Element's picture

Well at least its nothing serious.

Fri, 02/14/2014 - 16:48 | 4437535 PontifexMaximus
PontifexMaximus's picture

Makes the markets move higher, thanks to the chinese, we couldn't care less.

Fri, 02/14/2014 - 17:13 | 4437633 pashley1411
pashley1411's picture

Not for the last time, I can't help but thinking that the Chicoms understand the creative power of wealth destruction better than do the Economic Lobotomites of Harvard.  

Sat, 02/15/2014 - 11:44 | 4439335 WhyWait
WhyWait's picture

China's kleptocracy, many of whom spent years critically studying the capitalist system from the outside with attention to how to manipulate it for the benefit of China, are now capitalists and billionaires, riding a system that is as out of control as any in the history of capitalism. For them there will be no going back when the vast wealth-extraction machine they've built collapses. They will react out of fear for their fortunes and their necks. 

So the current set of leaders and billionaires would seem to be unlikely to have any residual capacity to reinvent themselves and their economy, or to salvage it by escaping from the dollar.  But could a CPC-led government that ousted the billionaires be able to revive the old structures of Communist China and restart the economy?

Or is China doomed to disintegrate into chaos before any reconstruction can begin?

The Chinese people will soon be confronted with an existential question: whose government, whose country is it?  And the members of China's huge mass-based Communist Party will face a choice: take the CPC back from the billionaires and use it to reinvent China? Or walk?

Meanwhile Obama's Pivot to Asia and increased CIA support for separatists and no doubt terrorists in China's minority provinces is positioning an increasingly-desperate Anglo-American Empire for intervention when central control breaks down.

 

Unprecedented. Very dangerous.  And fascinating. 

 

Tue, 02/18/2014 - 20:51 | 4450630 Jull
Jull's picture

Nowadays China has most of the debt obligations from America , though the debt changes from month to month , it constitutes on average 25% of all the obligations the country have.Looks like for America China is a kind of you can always borrow money  with PersonalMoneyservice, but I wonder if China really realizes the possibility and the consequences of the possible dollar defaut.

 

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