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China's Credit Pipeline Slams Shut: Companies Scramble For The Last Drops Of Liquidity
One of our favorite charts summarizing perfectly the Chinese credit bubble, better than any other, is the following which compares bank asset (i.e., loan) creation in China vs the US.
It goes without saying that while the blue line has troubles of its own (namely finding the proper rate of liquidity lubrication to keep over $600 trillion in derivatives from collapsing into an epic gross=net garbage heap), it is the red one, that of China, where $1 trillion in credit was created in the fourth quarter alone, that is clearly unsustainable for the simple reasons that i) China will quickly run out of encumbrable assets and ii) the bad, non-performing loan accumulation has hit an exponential phase, which incidentally is why Beijing is scrambling to slow down the "flow" from the current unprecedented pace of $3.5 trillion per year.
It is also because of this wanton and mindblowing capital misallocation (the de novo created debt goes not into profitable, cash flow generating ventures, but into fixed asset investments which create zero and potentially negative cash flow, due to China's already epic overinvestment resulting in ghost cities, and building that fall down weeks after their erection) that China has finally decided to provide lenders with the other much needed component of the return equation: risk. This, in the form of debt defaults, something unheard of in China for two decades.
Which brings us to today, when we find that China's credit formation, until now proceeding at a breakneck speed, has suddenly ground to a halt. Reuters explains:
Some of China's struggling firms are finally getting the reception that regulators have been hoping for - a cold shoulder from banks in the form of smaller and costlier loans.
Reuters has contacted over 80 companies with elevated debt ratios or problems with overcapacity. Interviews with 15 that agreed to discuss their funding showed that more discriminate lending, long a missing ingredient of China's economic transformation, has become a reality.
Up against a cooling Chinese economy and signs that authorities will not step in every time a loan goes bad, banks are becoming more hard-nosed and selective about whom they lend to.
...
For household goods maker Elec-Tech International Co Ltd (002005.SZ), less credit is the new reality. Its bank cut its borrowing limit by 500 million yuan ($80.79 million) to no more than 2.5 billion yuan this year, said Zhang, an official at Elec-Tech's securities department.
"Last year, the bank gave us a discount on our interest rates. This year, we probably won't get any discount," Zhang who declined to give his full name said. "It feels like banks are not lending and their checks are becoming more rigorous."
...
There are signs that even state-owned firms, in the past fawned over by lenders for their government connections, have to contend with higher rates, lower lending limits and more onerous checks by banks.
"Interest rates are going up 10 percent for the entire industry," said Wang Lei, a finance department manager at PKU HealthCare Corp. "Obtaining loans is getting difficult and expensive."
Here's why PKU Healthcare will likely be among the first to experience what happens when the liquidity runs out:
PKU HealthCare, which is controlled by Peking University and makes bulk pharmaceuticals, has struggled to remain profitable. Its debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio exceeded 60 at the end of September, four times the average for listed Chinese companies from the sector.
That's the kind of leverage that not even Jefferies would sign a "highly confident letter" it can raise a B2/B- debt deal at 10% or less. It is also a huge problem for Chinese corporates which suddenly realize they have just a tad too much debt on their books.
Some gauges of China's corporate debt are already flashing red. Non-financial firms' debt jumped to 134 percent of China's GDP in 2012 from 103 percent in 2007, according to Standard & Poor's.
It predicted China's corporate debt will reach "stratospheric levels" and become the world's largest, overtaking the United States this year or next.
Fearing a wave of defaults as China's economy cools after decades of rapid growth, regulators in the past two years told banks to cut off financing to sectors plagued by excess capacity such as steel and cement.
Experts say banks were at first slow to respond, but in the past few months, banks have started turning down credit taps.
"We have become more prudent in issuing loans," said a spokesman for Bank of Ningbo. He added that the bank has intensified communication with companies in troubled sectors or borrowers deep in debt.
"Under normal circumstances, we would review company loans every quarter or every six months, but for the sensitive cases, we will step up channel checks and work closely with the companies."
Another manager at a regional Chinese bank said it was overhauling its lending in cities identified as high-risk, such as Urdos and Wenzhou. Located in Inner Mongolia, Urdos is infamous for its clusters of empty apartment blocks that pessimists say is an emblem of China's housing bubble. Wenzhou, is China's entrepreneurial hotbed that recently lost its shine after local property boom went bust.
So with increasingly more uber-levered companies suddenly blacklisted by the banks, what do they do? Why go to the shadow banking system for last ditch liquidity of course, where it will cost them orders of magnitude more to stay viable for a few more weeks or months.
Ss companies bend the rules, risks shift outside the banking system into the universe of networks of seemingly unrelated firms connected by murky financial deals. For example, trade loans subsidized by the government to help selected sectors are quietly re-directed by companies to other unrelated businesses, firms say. New financing methods also emerge as easy credit dries up.
The latest plan hatched by a cash-strapped aluminum end-user involves having banks buy the metal and re-selling it to firms who pay out monthly loan plus interest.
How do you spell re-re-rehypothecation again... while selling the collateral.... again? Remember this: it really does explain all one needs to know about China.
"The local government has intervened, fearing social unrest. A local buyer of a unit in the office building committed suicide as he/she could not obtain the title to the property due to the title dispute between the trust and the developer."
Anyway, continuing:
Others such as Xiamen C&D Inc, an import and export firm, are directly cashing in on firms' thirst for funds. Xiamen C&D, which borrows at less than 6 percent per year is offering loans of several hundred thousand yuan to smaller firms at 7-8 percent, said Lin Mao, the secretary of Xiamen's board of directors.
For larger companies, typical loans amount to 20-30 million yuan, and are 90 percent insured by Chinese insurers, he said.
Banks grow more aware of the risks. But rather than pull the plug on teetering firms, some bankers say they prefer a slow exit to keep them afloat for as long as possible to claw back their loans.
Unfortunately, for most the can kicking is now over. Which brings us to the second part of this story - China's housing bubble, and specifically how its foundations - China's own property developer firms - just imploded as a result of all the above. Also from Reuters:
China's property developers are turning to commercial mortgage-backed securities and looking at other alternative financing as creditors grow more discriminating in the face of rising concerns about the country's real estate and debt markets.
Bond buyers are shying away from second-tier developers because property sales have cooled as the economy slows. The expected bankruptcy of a local developer and the country's first domestic bond default this month have heightened scrutiny of borrowers.
The property companies have a renewed sense of urgency to raise capital after U.S. Federal Reserve Chairman Janet Yellen indicated the central bank, which sets the tone globally for borrowing costs, may raise interest rates as early as the spring of 2015, sooner than many investors had anticipated. Higher rates mean higher borrowing costs, both for the companies and for their home-buying customers.
Highlighting the search for alternative funding avenues, property fund MWREF Ltd earlier this month issued the first cross-border offering of commercial mortgage-backed securities (CMBS) since 2006. The offer was priced at a yield lower than two dollar bonds issued last week, IFR, a Thomson Reuters publication, said.
"The market will see more of these products," said Kim Eng Securities analyst Philip Tse in Hong Kong. "It's getting harder to borrow with liquidity so tight in the bond market. It's getting harder for smaller companies to issue high-yield bonds."
The notes, issued through a MWREF subsidiary, Dynasty Property Investment, were ultimately backed by rental income from nine MWREF shopping malls in China and were structured to give offshore investors higher creditor status than is normally the case with foreign investors. MWREF is managed by Australian investment bank Macquarie Group Ltd, which declined to comment.
Beijing Capital was the first Hong Kong-listed developer to issue dollar senior perpetual capital securities last year, an equity-like security that does not dilute existing shareholders.
"As market liquidity is changing constantly, we have to keep adapting and exploring different funding channels," said Bryan Feng, the head of investor relations.
Chinese regulators last week allowed developers Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. to offer a private placement of shares, opening up a fund raising avenue that had been closed for nearly four years.
New rules were also unveiled last week allowing certain companies to issue preferred shares, including companies that use proceeds to acquire rivals.
"As liquidity tightens and developers see more pressure...they may consider M&A via preferred shares," said Macquarie analyst David Ng.
CMBS, senior perpetuals, preferreds: what is the common theme? This is last ditch capital, far more dilutive of equity, and one which always appears just before the final can kick. As such, it means that the credit game in China is over. And now the only question is how long before the market realizes the jig is up.
Some already have. As we reported last week, "Cash-strapped Chinese are scrambling to sell their luxury homes in Hong Kong, and some are knocking up to a fifth off the price for a quick sale, as a liquidity crunch looms on the mainland."
In other words, those who sense which way the wind is blowing have already entered liquidation mode. Because they know that those who sell first, sell best. Soon everyone else will follow in their shoes, unfortunately they will be selling into a bidless market.
Until then, we will greatly enjoy as finally, after many years of delays, the dominoes start falling.
As of March 15, Chinese developers had issued 15 U.S. dollar bonds raising $7.1 billion so far this year, compared with 23 issues that raised $8.1 billion in the year-earlier period. "That said, quite a number of developers have demonstrated the ability to access alternative markets, such as the offshore syndicated loan markets as another means of raising capital," said Swee Ching Lim, Singapore-based credit analyst with Western Asset Management.
Offshore syndicated loans for Chinese developers have reached $1.17 billion so far in 2014, compared with $9.8 billion for all of last year, Thomson Reuters LPC data shows. Demonstrating the change in investor sentiment, bonds issued by Kaisa Group in January with a yield of 8.58 percent are now yielding 9.5 percent. The company did not immediately respond to a request for comment.
Times Property issued a 5-year bond this month, not callable for 3 years, to yield 12.825 percent. A similar instrument from China Aoyuan Property in January was priced at 11.45 percent. Both Kaisa and Times are in the B-rating "junk" category, which is four notches above a default rating.
Property prices on the whole are still rising, but there are signs of stress in second and third tier cities. Early indications of property sales in March, traditionally a high season, were not promising, although final figures for the month would not be available until April, said Agnes Wong, property analyst with Nomura in Hong Kong. That may mean developers have to cut prices and investor sentiment may worsen.
"This is hurting the cash flows of the smaller players," she said.
The market stresses ultimately could lead to the reshaping of the property development sector, said Kenneth Hoi, chief executive of Powerlong Real Estate Holdings Ltd (1238.HK), a mid-sized commercial developer.
"In the future, only the top 50 will be able to survive," he said during a briefing on the company's earnings on March 13. "Many small ones will exit from the market."
The fun is about to start.
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....from Introduction to Inn Signs / Delderfield, L.O.C. Cat # 73-75952 re: page 99-100, the Eagle Tavern was located near tailors' work shops. The weasel was a small pointed iron used to press pleates and small areas. When the workers ran short of money to spend at the Eagle, they'd pawn or "pop" their weasels until they got paid.
Next !
Deer in the headlights but too much smog.
Not to worry... nothing to see... a magical printer will come along and fix everything and keep the illusion intact.
Expect apocolypse, earth shattering comets, DOW=0 in your grand childrens age. It's the "NOW" generation keeping this shit afloat. Die you motherfucking paper pushers. You know who you are on this site. You STINK of being libertardians while continuing to masturbate in your paper trades, fake wealth, and socialism or corporatism while you push your worthless market opinions on the sheep that can't see through your bullshit.
Fuck, I can't wait for the reset. Here's a real "tell". One idiot here couldn't get his ass out of the way of hurricane Sandy but managed to get back home afterwards without too much trouble and start "trading" again in worthless paper. Hint... people think he's a fucking fount of common and/or economic sense on this site. Only dogs return to eat their own shit.
Would anyone take advice from someone who is i) too stoopid to get out of the way of a hurricane, ii) too stupid to even make alternate arrangements. Paper addiction is worse than crack or heroin.
That is the best part. Locals walking their streets, their now quiet streets. Seeing for miles.
Maybe Fight Club was written about China more than the USA.The buildings over there would definitely fall easier, simple truck bonds. That cell phone misspelling is going to stay. Truck bonds that bring down buildings.
1,got gold check, 2 got oil gas check , 3 shit load of tanks check 4 nukes check . china next door check , they have items 1,3 and 4 too check, hummm
As always the question is when, not if. Bad moon rising. http://www.youtube.com/watch?v=5BmEGm-mraE&feature=kp
Being familiar with all CCR songs, I'd say that "Ramble Tamble" sums up the situation much better. Especially the third verse .... "Mortgage on my life ..." ;-)http://www.youtube.com/watch?v=LtURmn_knzA
Let the games begin.
http://0-media-cdn.foolz.us/ffuuka/board/tg/image/1359/26/1359266018154.png
How do you embed images?
This would be good for China because as the Chinese economy goes so does the rest of the world; however, for the Chinese population they are not hooked .gov cheese like the US and the rest of Europe. This will also give the Chinese to purge all their malinvestments. The Chinese population will not be missing EBT, Obamaphones, Medicare, Social Security, unemployment checks, welfare, section 8 housing, government subsidized student loans, etc., because they never had it in the first place. The Chinese society survived Mao when he starved his population. Can the US population with its over 1/3 obese, aging Social Security/Medicare government handout society, general sense of entitlement population living in the fairy tale of we're #1 mentality survive total financial collapse? We saw how well the welfare recipients did during Katrina. The Chinese are the longest surviving culture and their ability to tolerate psychopathic rulers and northern and European invaders has withstood the test of time. The Chinese population will survive; however, will TPTB (i.e., Communist Party) in China survive?
If .gov collapses, who will provide the Hoveround Chairs?
You're talking like they're bacteria. Survival?
Are you a borg? You can't be human.
Your resistance is futile.
Species and Civilizations all face the battle of the survival of the fittest.
I am looking at historical evidence of Chinese society. The language and the culture all survived. That is much more than I can say about the Romans, the Ottomans, the Byzantines, etc. I can say the same thing about the Russians. They survived a lot of brutality and continue to do so i.e., Stalin, invasion from Europe and the Mongols.
You're right, ok? But at what cost did they obtain your definition of survival? There ARE still so many dialects, but the official language is dominant, add is the state.
Tribes are dead, the state lives. But....and that is one big BUTT....
Let's meet back after a Chinese collapse and clink tea glasses over how many tribes re-form. Whether we observe survival or the renovation of absolute warlord anarchy.
Syringe anarchy and jammed rifles/pistols. Power at the end of a shovel.
warlord anarchy is an oxymoron because anarchy is a word derived from ancient Greek term meaning "without rulers" not without government. Warlords are rulers.
Your posts are on point. The west has no clue about the longevity of China and all that it has overcome.
Thanks, man. All of a sudden, I don't feel so alone.
With you too chino. I've studied Chinese history and culture. The gold is going east for a reason.
Good point. I never really thought about following the flow of gold will lead you to the emergence of the next empire. Throughout history, the amount of gold holdings equated to the strength of the economy. Fiat, money printing, coin debasement, debt and Gresham's law typified the fall of empires. We live in the age of fiat and forgot about the true value of gold.
But are we also underestimating the people in the west? Todays generation may not resemble the colonial days in USA, Aust etc - they were tough days where many failed but many survived. Perhaps there is a genetic history or memory is latent in most of us - one that the GMO and vaccines and brain washing crap we're all subjected to tries to kill but can only suppress?
Just pondering -what came to mind was the tv shows about problem/troubled kids taken out into the wilderness for detoxing and experiencing real life, it seemed to work ......
I'm not underestimating the west UE. I know we have incredible talent in our young and old people. We will survive, get married, have kids, plant gardens and entertain guests. It just might not be as ostentatious as before.
The hearty world traveler who sought religious freedom, economic opportunity and a fresh start in "the new world" amongst the old world's discarded are now fat, easily winded and ossified oafs who would have never made it past week one of the boat ride.
I guess the "New" New World will be either Antartica or Outer Space in order to escape government. I just need to figure out how to grow plants on ice and lunar soil.
My seeming irritability with your logic is the implicit credit you give a mass murderer for China's APPARENT unity.
Without worship of Mao, without the little red book and death squad execution/organ harvesting vans roaming the streets on imported oil, what will thousands of years of "Chinese"history bubble up within the ever increasing borders of China?
Jackie Chan even said his own people need to be controlled. Remove the control and what will happen?
You need to read more and those who downvoted you need to read more as well.
China's history IS NOTHING BUT a mass murderer creating unity. Mao was nothing special, but your 20th C perspective and obsession with COMMIES blinds you to this.
China is a 12900 BC feudal god-kingdom that has survived to the present day. Every so often a new warlord seizes power, millions die, and then he unifies China. A few decades of peace follow, and then a new warlord seizes power...
The West has endured as long - you just look at one nation such as the USA and note it's short tenure.
I consider myself a Citizen of The West - a culture that dates to 500BC or earlier, as long as post-Kongzi China.
They survive, but look at the results.
Women don't know how to properly hold their infants is one of a million things, and I could make a list that would fill a library.
Ghost cities, corruption, capital misallocation, and overcapacity on a scale never seen before.
Did you guys see how big the Chinese stimulus package was? Our bankers And industrialists could only dream of such a package.
According to Austrian theory the higher they go the further they fall. Crack up boom or deflationary crash?
We may see the Chinese puke up their gold at 900.
They ain't gonna let go of their gold - gauranteed. They'll let all their paper burn to ashes but won't move their gold.
It's tough for some to understand a culture that is 4500 years old and been through numerous currency collapses. Americans tend to be shortsighted upon these things....especially those who were brought up in The 20th century.
"We may see the Chinese puke up their gold at 900. "
We might see a lot of people puking up thier Gold at 900.
& maybe more at 600.
& maybe even more at 300.
Consider that 666 is the proper price sans support for the DOW which is presently at 16,270ish.
Now imagine that Gold deflates in proportion to Equites in a true uncontrolleddeflationary collapse...
Gold will be free. It's worthless. Oil and food will be free too. Everything will be free in this super deflationary collapse. It will be the best of times.
Yes, except toilet paper will cost $500/roll. And you won't get laid until you own some.
I thought 666 was the support for the S&P adjusted chart. I guess someone is even more pessimistic than I am. In this context, I am an optimist.
"We may see the Chinese puke up their gold at 900."
I thought the Chinese have a shitload of US dollars? Why wouldn't they cough those up instead of their gold?
The problems in China's economy are going to put a lot of pressure on them at a time when Putin is asking for their assistance/cooperation. Frankly, the leadership in Beijing is a hell of a lot more worried about their economy than backing Putin's play. The Chinese will make a show of it but their heart isn't in stirring up a lot of problems right now. I just got back from China and the people I spoke to didn't have any strong emotional feelings about supporting Russia and its movement against Ukraine. They are more worried about the missing Malaysian airliner, the property boom/bust and why prices are going up so fast.
Seems like the Globalists/NWO types are smarter and shrewder than the Chinese after all: neutralize China financially, and isolate Russia.
The FED back in 2009 instead of closing the pipeline decided to extend it and to open it to all forms of sewage.
Both the USA and China have a lot to pay for as a result of their mishandling of their crises.
Take cover, if it isn't the shit hitting the fan it will be FED toilet blocking all the way back up to to your nostrils.
so does that mean this will become a national phenomenom http://www.youtube.com/watch?v=ZBA95a5Fw5M
No, this will become a national phenomenon: http://www.youtube.com/watch?v=_nVk25ZvTkU
Or maybe this.......
http://www.youtube.com/watch?v=zDAmPIq29ro
I don't understand why central planners can't set some rules then walk away. The economy would be a lot more stable if the fed had a constant interest rate. Just say the discount rate will be 5% and stop fucking with it. Almost every major crash is caused by central planners fucking with interest rates.
I don't disagree, but that would end this shit real fast.
Prime rate would instantly be 8% - reasonable when viewed historically, BUT death kneel today.
The only thing keeping the zombie housing market alive right now is .25% rates and hudge funds. Who could borrow $500,000 with an interest rate of let's say 9.25%? And in CA, and NYC, that loan would be $750,000+, and forget about when all those ARMs reset over the next 5 years.
I don't understand why central planners can't set some rules then walk away.
I do not understand why there are people who believe that central planners are needed at all.
I do not understand why they are there in the first place.
The day the Central Planners walk away voluntarily is just a pipe dream. They want that CONTROL rather than to allow for FREEDOM which is anathema to them.
THEY ARE NOT NEEDED.
It must be that I am just a more-on (thank you ORI) because I just do not understand.
https://www.youtube.com/watch?v=I7j7CaHc_Kg
Renaissance..."Things I Don't Understand"
Communism... We'll centrally plan your economy right into the ground... FOR FREEEEEE!!!!
In other news, a Chinese man made it into the Guinness Book Of World Records by selling his Shanghai apartment forty times in less than a month.
A spokesperson for the U.S. Federal Reserve Bank commented on the achievement saying, “Well maybe so, but, our purchase is the only one that counts.”
Hey! Everything is cool man. I got an Obamaphone, free internet & BO-Care. The world is doing great man.
I just can't see any bankster run economy ( and aren't they all ) to let go of their ability to print paper. No matter what, they will papert it over. Count on it.
This gets even more interesting since China & Russia are getting cozy...even warming up to Iran. But don't worry everything is fine..just turn on some more cable news and drown out reality.
I'm going to chop you up into little pieces and sprinkle you on some ice cream.
I'm going to cut you up into pieces...PF?
Are we talking about the same Russian TV commercial where they have Obama, ( a yellow peanut M&M) in the car trunk?
The point is that we still want more ice cream.
"one of these days" from MEDDLE
Russian Roulette while playing musical chairs on the Titanic. When the music stops everyone shoots the one standing. The winners then jump into the icy water and drown.
What do you mean about counter party risk? Just give me the damn loan!
So........... What to come of the USA, EU (And big countries within them), Australia, Canada, etc. When this blows. . . More QE than evar??
Here is how it works ( from my experience of being on the wrong end of the trade). You short gold and miners, and go long DJI. Forget about China and everything else, it means nothing.
Sooner or later China had to put the breaks on money growth now it will get really interesting. Every country has unofficial lenders, but in China individuals, companies and even local governments who can not get loans from state-controlled banks have been on a borrowing binge from these unofficial sources. China is awash in overcapacity and debt.
After several years of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down bringing China and possibly the global economy with it. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be vary painful. More on China's credit trap below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
So the shitty companies that have been surviving on loans go under, while the industries critical to national security will be further consolidated and reformed. End result of course, being that China comes out stronger as more opportunity becomes available. Hmm, seems like something that real markets do. I'm really failing to see the problems here. In the meantime, China is focused on expanding and building out national infrastructure, which also acts as a sink for displaced labor in the short to mid-term. What you'll be seeing come out of this is hidden talent being uncovered as more opportunities reveal themselves. Some pain of course, especially for those entrenched, but it won't be major. Low-value add industries will get hit the hardest, but in order to move up the value chain, this is essential for progress, otherwise you're just looking at stagnation.
+1 Laomei; a couple years' correction whilst the U.S. spirals where the woodbine twineth.
Looking at how their central planners think and act, they're going to treat this credit tightening/economic re-alignment as a complex transition. Like all complex manipluation though, there will be a lot of by-products and side effects with the transition.
I believe the majority here feel a run on banks/markets out of fear, and I tend to agree with that premise. That said, I agree with you laomei, China has played her hand well.
Let me see if I understand you. China blew this gigantic bubble thru reckless management but for some reason she understands perfectly how to get out of this mess? Sorry, these effer's only understand how to pillage a nation and its peoples, not build one.
China has all the time and resources in the world to fix this mess. Right up until the point the food riots start. Chinese history is pretty solid on that point.
The bubble wasn't inflated by government policy. The bubble was inflated primarily by a mix of real world demand and exploited loopholes (legal or otherwise). This is a key difference between the US and Chinese cultures. In China, loopholes, once uncovered are exploited by everyone to the point where they practically become sinkholes which only expand. When you have 1.? billion people looking for an angle, sure enough some will find it, and word will get around. Rather than have hilarious laws which go into all sorts of detail (and leave loopholes open for those who bribe enough to create them), the laws generally tend to be short, to the point, and purposefully vague so as to enable enforcement and crackdowns on loopholes that are technically grey.
The bubbles in China are as follows:
Real Estate - It's a quasi-bubble. It's not nearly as big as one might think. There is tons of demand, especially in the major cities. In the minor cities, there's overcapacity, but it has more of an urban-renewal bent. Consolidation and ensuring that housing exists. Developers build excess because they want access to land for other purposes, however to obtain that land, they must also build what the local government wants. Housing means tax revenue, while at the same time better stats to report for access to modern facilities.
Credit - It's not consumer credit that's the problem. It's business. Those shitty little companies got easy credit that they shouldn't have gotten, that's the primary problem. Large stable companies borrowing money for cheap so they can lend it out like loan sharks to boost their profits. WMPs to keep loans off the books while eating for free as middle men and brokers. Banks however, while there might be a shakeup, are rock solid. Worst you'll see is some consolidation, which, to be honest, NEEDS to happen. Too many fucking banks, really, there are just too many fucking banks now. Pre-reform, there was ONE bank. Not saying 1 is the right number to have, but neither is thousands. The Big 4 are safe. Postal savings is safe. But the privates need to get their asses kicked.
Capacity - Factories are going to die, that's just a matter of reality. Buggywhip factories died out, and so did all the low-value add factories in the US. Building trinkets for foreign brands is just a pitstop along the path, not the destination. Those who confuse the two are just fucking themselves in the end. To be successful means controlling your own brands and building them, while locking out foreign investment. Once quality and domestic demand has been established, it's export time. You are starting to see this now, and it scares the fuck out of the US and west in general. So yes, some shit needs to die out.
The capacity bubble ain't all THAT bad though, in fact, it's hilarious. The result of it has been to make not a small number of economies entirely reliant on China buying their shit. Which means that if the demand falls, China's looking at some excess labor, but the economies impacted are looking at crisis-level shit. If China has a small hiccup, Australia has a heart attack and Japan implodes. It's just a great position to be in.
A fairy tale with a happy textbook ending. Dream on.
China's financial crisis is embedded in and a part of a world financial, economic and political crisis. Our interlocked financial Ponzi schemes will not escape, and our collapse will feed back into theirs. And into the chaos the dogs of war are being loosed.
Sorry, no happy endings, not for a while anyway.
But I appreciate your industry-by-industry analysis below. Very informative.
Not that I have any doubt, but I would like to see better proof of the accuracy of that chart. Where did the chart come from? "Source Zero Hedge"? WTF? Where are the numbers? Where's the data? Is this data publicly available? I've seen this chart on many occasions, and never once have I seen an explanation of where it comes from other than "Soure Zero Hedge"? How about a little help here? Anyone?
"PKU HealthCare, which is controlled by Peking University and makes bulk pharmaceuticals, has struggled to remain profitable..."
Controlled by Peking University, eh? "How many divisions does Peking University have?"
Not as many as yesterday, probably. This little Factoid is MOST interesting. I would suppose that Ol' PU is one of those "Open Enrollment Kolleges", right?
NO?!?? Follow the money. Follow the Patronage. Follow the Party
Mostly, follow the Party. They'll tell you who's getting sent to the Gulag on this one.
Sure. Yeah. Peking University. Uh-huh. Yeah. Right.
Peking U. is where Michelle O. spoke this week.
Hmmmm . . .
-30-
More flexibility
Did she have silence after her talk or laughter directed at her during it? Or did she experience both?
I wonder which essential drugs they manufacture and what happens if the company blows up?
I keep thinking about China's long time planning and wonder if this is part of it. Crazy, but so is most everything else these days.
So China's economy is imploding, as ZH readers knew it would
Yet everyone here seems to be trying to dope out how it will collapse, who the winners and losers will be, how far it will spread, as though this is just an extraordinarily large "normal" financial meltdown and collapse. Not surprising; that's what investors do. But still ...
ZH readers know the situatoion in and with China is anything but normal. With the whole world financial system going unstable, with Russia being virtually forced to bring down the petrodollar to survive, with the Empire making its moves on Russia and perhaps instigating wars and new color revolutions all along its borders, with the Empire militarily provoking China, with China politically starting to go critically unstable due to it's internal conflicts, the unfolding crisis in Chaina is certainly not normal. Not even high normal. Predictable for a little bit yet, but destined for chaos.
Add to this another huge unknown: could the leadership of the Chinese government and Party propose and impose radical solutions as the system fails and collapses? Or will China's leadership ride the collapse down into the abyss, until an uprising from below overthrows them? And what kind of revolution will that be? There are competing alternative revolutions waiting to happen. Will they merge into one big one? Does the US have a color revolution worked out and ready for China?
And what role will the members ... how big is it? 80 million - the members of China's Communist Party play? Can China collapse back into its old communist core, or is that door closed behind it forever?
My but we all iive in interesting times!
Another question: how much of China's old command economy, which was managed by that huge communist party, still survives? When their new and extravagant and utterly reckless capitalist system ceases to function and the people are starving and desperate, will this or a new government be able to revive the command economy through the efforts of that communist party? And if not, either because it's too far gone or there exists no will to try, what story will they tell each other about it? Will there be a great mass revulsion at the outcome of their experiment with capitalism? And if so will that have any consequence? Or will they blame their Communist Party for the collapse of their new capitalism, turn on it and destroy it in the hope that this will cause their new system to revive?
I would guess we'll see them transitioning to a second-generation Organized Crime/Government Oligarchy model with a sprinkle of heavy-handed repression on the side. That seems to be all the rage.
Aye, and they have the West for a model of that.
Sooner or later, a country with nuclear weapons will have a civil war. If history's answer to my last question above is something close to a 50-50 split between pro-capitalist and pro-communist forces in a context of mass desperation, anger and recrimination, with regional advantages allowing each side to consolidate a power base, will China be the first?
If Ukraine still had nuclear weapons, they might have beat China to it. Hopefully they really did get rid of them.
The factories don't just get new owners, they close because they can't make the vig, any vig.
A sunken boat raises all tides.
even if the Tide has holes in it!
The chinese are new to this uber economy thing, they went at it gangers. Its gunna blow and wow will Australia fall with it
(im in Au)
Flip that wonton!
Jumping Jumping Jumping
Get those banksters jumping
Hell with the banks and the FED.
Globalists be gone.
No wonder there are so many Chinese millionaires.
Energy Myths
Coming tomorrow on the Frostbite Falls Daily Rant, PEAK STUPIDITY.
RE
while people are worried about some place they never been to, just read about and certainly never invested in, their own country is being raped, pillaged and ransacked and they think the titanic is still on its maiden voyage to NY as the music on the deck is still playing. Funny as hell.
Yes, China's going to have some serious Bankruptcies, that moment has been in the works for quite some time. But being one of the biggest trading partners of the US and EU, I've got my popcorn ready for the boomerang effect. DC/EU seem to have a knack for these things recently.
People, make sure you have vaulables outside of the banking system, they are all but thieves. When the SHTF, their true colors will be revealed.
what's the big deal... the chinese are, after all,... COMMUNISTS... using CAPITALISM as a vehicle to advance their LONG TERM GOAL of WORLD DOMINATION.... got it??????? they envision running the world and enslaving EVERYONE... Hey if capitalism fails so what .... they can revert to mass killings and war to calm the restless masses and START OVER.... With 1/4 of the gloabl population all they have to do is send 100 million people walking west and feed them enroute... chinese mexico.... envision that ... europe thinks it has problems with putin... 10-15% muzzies has them in deep shit... envision 100 million angry yellow fellows on the move...
http://www.bollyn.com/are-the-israelis-planning-another-9-11-using-the-m...
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Ummm .... out of curiosity .... just how high do you get before reading comic books?
and building that fall down weeks after their erection
Explains why they're buying up Australia. Shitty houses make them feel like they're back home.
China isn't going to a hard currency any more than the usa is. This is all for show.
Oh yeah. The Chinese government told their citizens "buy some gold", meaning "our currency will crash too, so you better have something to buy food with, because the paper Yuan will be good for toilet paper sooner than we care to talk about".
It seems to me that China can suck the hot air from it's credit bubble with it's physical gold vacuume (the world's anti-bubble) once the paper market defaults and gold is priced in a free market for real metal. After all, isn't that what China is preparing for?
And isn't that what the Narrators hope to acheive as well? Kum Buy Yah
Sell gold, buy turds. You can't eat gold (or turds for that matter), but you can fertilize lousy soil and grow food on that soil with good turds. Now if you can only get some farmland...
What happens when the Chinese factories close, or, even worse, are forced to continue making shit nobody needs when the buyers of last resort, EU and USA, are dead fucking broke?
Overcapacity has been a huge issue for the past - how long? 6 years? - and now it's all about to contract. China is indeed the first domino to topple, but it will have effects around the globe.
Along with overcapacity, there's also overpricing of financial assets on a global basis.
China may be a big domino, but from where I sit or stand, the failure of the KING (Candy Crush) IPO, tells the real story. Overpriced assets with barely any real value will melt down and take good companies with them.
Overcapacity, overpricing, over-leveraged. It's OVER.
I give it six months at most before the Dow trades below 12,000 and the 10-year is yielding 1.8%. There will be nowhere to hide.
By rights all that should probably happen, but I wonder what if "they" just keep buying indexes up with unlimited printed funds, such that the indexes just never go down?
For that matter, these charts and indexes are just numbers in computers, what if "the powers that be" just publish fake "averages" for these various charts and interest rates?
On the other hand, I see store fronts literally closing everywhere I go, so there will come some point where the cities look severely depressed but the happy-talk indexes all say it's a bright day today.
There must come some point that people just dismiss all TV reports contrary to what they are experiencing. But maybe not. More food stamps, more printed money. This could go on for decades, or months. Depends on the populace, and they aren't exactly alert and aware of things in this historical era are they?
Fail to manage the Medium of Exchange (MOE) properly and you will fail to get a proper result.
Proper MOE management:
Special note: Interest collections "do not" increase on existing certified trading promises. Interest collections "do not" increase for responsible traders (those who don't default). Thus you don't get a cascading failure effect with proper MOE management. Rollovers are defaults ... thus governments aren't allowed to play.
Remember: Money is "a promise to complete a trade". Treat it as anything else and you will get a suboptimal result ... i.e. failure of the MOE.