China's Credit Nightmare Explained In One Chart

Tyler Durden's picture

Everyone knows that after years of kicking the can and resolutely sticking its head in the sand, China is finally on the verge, if hasn't already crossed it, of a major credit event, confirmed by the first ever corporate bond default which took place a week ago. Few, however, know just why China is in this untenable position. If we had to select one data point with which to explain it all, it would be the following: just in the fourth quarter of 2013, Chinese bank assets rose from CNY147 trillion to CNY151.4 trillion, or, in dollar terms, an increase of almost exactly $1 trillion!

By comparison, US bank assets in the same period rose by just over $200 billion, a number which consists almost entirely of the reserves injected by the Fed.

And if we had to show it in one chart, it would be the following comparison of total Chinese and US bank assets: the two lines shown below are on the same axis, and at the end of 2009, the US had just a fraction more assets than China. Since then the US has added $2.3 trillion in bank assets, exclusively thanks to the Fed's reserve creation. As for China... total bank assets more than doubled from $11.5 trillion to a record $25 trillion! This is a number that is nearly double that of the US, and represents a pace of $3.5 trillion per year - or nearly four concurrent QEs - a rate of "financial asset" addition five times greater than in the US!


Another way of showing just the past three years:


What's worse: China is now hooked to a "flow" pace of $3.5 trillion each and every year, just to generate an annual GDP of about 8% and declining with every passing year. Any reductions in the pace of monetary flow will have magnified implications on China's growth, and from there, social, and globa, stability.

But what does this really mean? Simple: in this epic, unprecedented, feverish pace to "grow" the economy and create hot, if worthless, money out of assets, all assets, even "magic" assets (i.e. thin air), the following took place:

CITIC Trust tried to auction the collateral but failed to do so because the developer has sold the collateral and also mortgaged it to a few other lenders.

Until now nobody cared because defaults were prohibited in China and nobody really cared what was underneath the hood. Now, defaults are allowed and, in fact, are encouraged. Which is why suddenly everyone is starting to cast curious glances into the dark shadows where the engine is supposed to be.

They won't like what they find.

Curious for more: read Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water, and Some Stunning Perspective: China Money Creation Blows US And Japan Out Of The Water

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debtor of last resort's picture

In the not too distant future, all there's left is the central banks and a few subsidiaries, all trying to shit in the SDR basket.

joego1's picture

I think about the time that Nixon went to China and made a deal the Chinese leadership thought "ok we play the Yankee game but in the long run we can change the rules back when we please". So over the years they have accumulated a huge amount of knowledge and technology along with investments from many western companies which arguably balance out the loss that they might take on western paper. If the game goes to reset whats to stop China from making everything that's private now public again and flipping the west the big red finger?

Seer's picture

The US has more resources and less people than does China.

The US got China addicted to the automobile culture (and it has little in the way of liquid fuels).  And, folks in the US have been on the slow conditioning for unwind whereas the people in China are still stoked with "growth in to infinity."

pragmatic hobo's picture

chinese government should be getting a clue ... capitalism was a trojan horse ...

Seer's picture


Growth is the real Trojan Horse.

forwardho's picture

Perpetual motion is impossible as long as there is gravity.

I am however selling shares in the Philosophers stone.

AgentScruffy's picture

So, maybe I should hold off on "diversifying" into yuan, as Jim Rogers advocates?

honestann's picture

This is epic, if not somehow exaggerated.


For any honest sentient being, this and similar charts is absolute proof that fiat money and fractional reserve banking are pure, undiluted, unadulterated, predatory destruction.

When some individuals (predators) can literally create unlimited sums of fiat, fake, fraud, fiction, fantasy, fractional-reserve debt that is [mandated as] accepted for real goods, the only possible results are:

#1:  the predators and liars become rich and powerful.

#2:  the producers and honest become poorer and abused.

#3:  the total wealth of nations and the entire world decline.

#4:  the aggregate productive efficiency of man declines.

This is why the "end" is coming.  Most humans can't figure out what the problem is in a clear, concise, coherent, sensible manner, but the evidence is too overwhelming not to recognize.

Because virtually zero humans can identify the fundamental nature of the situation, overwhelming widespread disaster is assured.  And the predators doing business as "government" and "corporations" and "authorities" and NGOs who caused the coming catastrophe have the high-tech means (weapons and media) to assure they live like kings while everyone else lives like animals.

Perhaps the saddest fact is, because even the smartest and most productive humans are thoroughly brainwashed at this point in history, they don't even know what to complain about.  Worse, they've been thoroughly trained to be incapable of honest thought in the realm of human action (and especially interaction), so they will support whatever plans and actions the predators claim are necessary.

Which is why, humans are finished.

A message to anyone who wants to survive the coming disaster, and not suffer much.  Sell everything you own, move to the [extreme] boonies in some non-mainstream part of the world [with reasonably benign weather], and learn to live as cheaply as possible.  Otherwise, just kiss your ass goodbye.

twotraps's picture

Well said. People don't get it. That may be the sinister genius of the whole charade. Not sure if I'm ready to kiss my own ass goodbye....I do own everything and think about trading in paper assets for useful durable goods and land. However...I would offer that the only thing we know for sure is that if its gets dicey....they will change the rules as we saw in '08. So, what plans can we reasonably make?

Your description of the situation is outstanding.

22winmag's picture

Meh, when I hear everyday folks in three piece suits and construction overalls congregating at the pizza shop, gas station, and Walmart ammo counter, and griping about the FED, the CFR, the Nazi-Bush-JFK connection, and the NWO, I know who will be left standing when the dust clears... pissed off Americans.


That's right. Who'd have thunk it?


The American Spring... a genuine spring that's coming soon to a planet near you, backed by the largest army on earth sporting hundreds of millions of exotic firearms, It will be a firestorm and a redemption the likes of which the world has never seen.

Liberty2012's picture


Hopefully, the last sentence turns out to be an exaggeration.

That is the question though. How will it all play out?

I'm glad you're seeing the first part, many different people talking to each other about real things. That's what's been missing for a long time.

We the People create the world we live in with every choice we make.

Truth => Individual => Responsibility => Freedom

The price of anything is the amount of life you exchange for it. - Henry David Thoreau

Life => Time Talents Treasure x Choices Shared

honestann's picture

The sad fact is, the problems cannot be fixed until at least a few percent of human beings become at least MINIMALLY SANE.  And there is zero sign of that today.  Let me mention just one example of what I mean.

Almost all humans believe "government" exists.  The problem with this is, everyone who believes this is flat out insane... in the most fundamental possible way (the inabiliity to distinguish what exists from what does not exist, what is real from what is fiction, what is from what is not).

One can examine this question in either of [at least] two ways:

When a couple dozen humans sit down at a table, spread ink on paper, then sign their names at the bottom (spreading more ink on paper), does anything "pop into existence"?  No.  They simply smeared ink on paper.  That is all that happened... (unless you count some minor reconfiguration of mental-units in their own heads).  Just because you call the yokels who smeared ink on paper 240 years ago your "founding fathers" does NOT mean that people spreading ink on paper creates anything.  It does not.  Otherwise there would be endless other "nations" and "governments" and other nonsense created when endless other groups of a dozen or three humans smear ink on other pieces of paper.

This is obvious.  No matter HOW MANY TIMES the nonsense of "creating government" has been beaten into your head by parents and history teachers and television programs and other morons... the FACT OF REALITY is, nothing is or was created when a dozen or three humans spread ink on paper.  To claim something real was created is to admit insanity of the most fundamental kind.

Or, think about this topic from the other angle.  Is there ANY legitimate basis whatsoever to claim that a dozen or three humans can smear ink on paper... and somehow thereby obligate millions or billions of other human beings then --- and now 240 years later?

I mean, you have to have a case of insanity and delusions of grandeur on an astronomical scale to even pretend that a couple dozen individuals can obligate every other human within hundreds of thousands of miles to unlimited abuse and theft and manipulation... much less go on to claim their children and grandchildren and endless generations to come are also obligated by those jerks smearing ink on paper 240 years ago.

I mean... if you actually believe either of these notions (which at least 99.99999% of humans do)... think about what you are claiming!  Think about how obviously insane these notions are.

Even if you can twist your brain sufficiently to seriously entertain such absurd notions at all, you must face the following fact (and many more).  If those dozen or three individuals can create such an entity ("nation" or "government")... then every other dozen or three individuals can also smear ink on paper and create equally legitimate ones --- all of which are sure to contradict each other!

The FACT is, humans at this point in history are so utterly and thoroughly insane that their fate seems absolutely certain.  As I said above, the vast majority of even the most intelligent, brilliant and even benevolent humans today simply accept endless fictions like these as GIVEN and SELF-EVIDENT.

And yet... just a little thought exposes these notions as so completely absurd that only insane beings could possibly believe.  This is the state of reality... on earth... today.

So, to carry the conversation you were having to the next step.

So what if a bunch of gun-toting people get so pissed off that they decide to die fighting the predators they and their parents and their neighbors handed trillions of dollars to over the past decades to establish the predators in such dominant position?

Hell, what happens even if somehow they manage to WIN ???

Answer:  They will continue to accept endless fictions as fact.  They will continue to accept the notion that a few people, or the vote of a majority, or the vote of their so-called representatives...


As opposed to YOU running your life, and me running mine, and everyone else running their own lives... without ANYONE ruling over them.

Until humans wake up and recognize that so-called "nations" and "governments" and "authorities" ARE FICTIONS... and DO NOT EXIST... the cycle will never end.

ANY widely accepted fiction WILL ALWAYS BE taken over by predators, and turned into a means of predator domination over producers.




The only hope humans have is to GET REAL.

But that means, stop treating fictions as if they are real.  Stop treating non-existents as if they exist.  Stop treating what is not as if it is.

But humans are so utterly and thoroughly insane, confused and brainwashed at this point in history, I cannot even imagine any way for humans to become sane and "get real" that isn't just fantastical fantasy!

Can you?

Yes, I'm fairly smart.  But not as smart as a million or more other individuals on this planet.  So I don't recognize these issues because I'm smart.  That's not what matters.  What matters is the key portion of my username on this site... honest.  What I am that vanishingly few humans are is: honest with myself.  I am ONLY interested in understanding what is, with absolute zero desire for self-deception, no matter how much I might like any fantasy was real.  Because wishing doesn't make fiction or fantasy real.  And I only live in the real world, and only can live in the real world, because the real world is the one and only world.

And the challenge, should the better [productive, benevolent, liberty-loving] humans somehow prevail against all odds?

Become sane.

Abandon all fictions.

The problem is.  I can't see that happening.  I can't imagine that even the very best people on this planet will become sane.  Yes, it is not impossible - humans are certainly capable of being sane.  They just don't know how.  It has been bred and brainwashed out of them.  And humans are habit machines.  Hence the problem.  See Pavlov and his dogs for more understanding.

FredFlintstone's picture

Yes, you are smart. Smarter than me. Thank you for that insight. I hope I remember that in the morning. "Ink smeared on paper"...that will help. My daughter is a 2nd year law student. I can have fun with this (piss her off a little).

honestann's picture

Glad you like it.  It is surreal to understand the state mankind got itself into.  BTW, if your daughter gives you a hard time, ask her why the most fundamental long standing law (as in centuries) calls all organizations (including government) "fictitious entities".  That might slow her assault down a bit.  Either that or she'll call a SWAT team to come arrest you.

The truth is, humans weren't AS insane hundreds of years ago.  And they were even less insane thousands of years ago.  At least in the sense of being more firmly attached to reality (even though they didn't understand reality nearly as well as is possible today).  But their long hard hours of physical work with reality gave them a better intuitive sense of reality, even as they accepted their own nonsense fictions.

But since wide-scale, highly-organized, highly-promoted brainwashing was implemented (public schools, mainstream media, etc), humans have been brainwashed and programmed to be utterly incapable of distinguishing reality from fiction.

Liberty2012's picture


"Perhaps the saddest fact is, because even the smartest and most productive humans are thoroughly brainwashed at this point in history, they don't even know what to complain about."

But you're not :)

Thank you for the great description of the situation.

AdvancingTime's picture

The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy. QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system.

Paul Wilmott from Oxford University estimates the derivatives market at $1.2 quadrillion, to put that in perspective it is about 20 times the size of the world economy. The point of the article below is to call attention to the insanity of derivatives as an instrument or tool to add stability to our financial system. By stacking risk upon risk and transferring it off to another party who may not be able to preform you do not increase stability.

Liberty2012's picture

In other words, it's a way to create chaos.

Few look at risk plainly anymore. Most are too busy chasing all the current "rules" looking for how to play the game of the moment, how to get a temporary advantage over the next guy.

In the end, people who work together will win.