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China Admits First Official Local-Government Loan Default
There has been a growing number of defaults since China first broke its non-payment cherry earlier this year. Names like Chaori Solar have "promised" to pay back the money they owe, only to falter on that promise mere months after a temporary reprieve. Wide-scale panic has for now been avoided by liquidity provision to banks (not shadow-banks) and mini-stimulus which many assumed was targeted at keeping the state-owned enterprises (SOEs) alive no matter what. That 'hope' all changed this weekend... As Bloomberg reports, Qilu Bank's annual report shows that Licheng district urban construction development company has not paid its loan interest..."To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."
As Bloomberg reports,
Bank loans of a local-government urban construction development co. in eastern province of Shandong were in default by end-2013, according to the full-year earnings report of Qilu Bank released in April.
The urban construction development co. of Licheng district in Jinan city, capital of Shandong, owes interest of 6m yuan [which we find fascinatingly small - how bad are things if they cannot fund this?]
The development co. holds a 0.08% stake in Qilu Bank [indicative of the interconnectedness within China]
As Nomura economist Zhang Zhiwei wrote in note today that:
"To the best of our knowledge, this is the first official disclosure of a LGFV default on a bank loan."
* * *
For those who need a refresh course on why the Chinese situation is rapidly going from bad to worse, read these several most recent comprehensive articles on the topic:
- "The Pig In The Python Is About To Be Expelled": A Walk Thru Of China's Hard Landing, And The Upcoming Global Harder Reset
- China Folds On Reforms - Bails Out 2nd Shadow-Banking Default After "Last Drop Of Blood" Threats
- Chinese Stocks Tumble On Contagion Concerns From First Shadow-Banking Default
- Welcome To The Currency Wars, China (Yuan Devalues Most In 20 Years)
- China Currency Plunges Most In Over 5 Years, Biggest Weekly Loss Ever: Yuan Carry Traders Crushed
Bank of America warns further that a more confident government means the start of defaults...
With amazing speed in consolidating power in 2013, a more confident President Xi Jinping and team are expected to push for a wide range of reforms. 2014 will be the year for China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008. We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market
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Can you say domino?
What is the sound of one domino falling?
Guess we'll never know -- too many dominoes!
I think it's moar like what's the sound of a single neutron splitting a plutonium atom in a bomb?
Who knew the Pointer Sisters were so prescient? Okay, I took some liberties:
"There's no more Fed money falling from the sky
'Cause a man named Yellen took my yield and robbed me blind
Someone recalled my brand new Chevrolet
And the rent is due, I got no place to stay
I'm just burning doin' the neutron dance
I'm just burning doin' the neutron dance"
Mo ni go bai bai, wi kan no pei yu tu dei! A wei glei ta fu lu!
I played on that record... still get residual checks from the union... I knew it was true then... what took you guys so long?...
Hot Snot!
Betcha they've got nothing whatsoever to do with solar panels, construction, warehousing of commodities, commodities, clean water, environmental concers or demographics.
Booyah, bitchez
Refresher:
How China Fooled The World - Documentary by BBC Robert Peston
https://www.youtube.com/watch?v=w2-axIk5yyI
China’s Monumental Ponzi: Here’s How It Unravels
http://davidstockmanscontracorner.com/chinas-monumental-ponzi-heres-how-...
In a heart beat.
They call it mahjong...
What do you think is bigger? The demise and default of Detroit once the automotive capital of the world or this default? And which on is all over the news? I for one have had enough of this media circus in the USA and their games to keep this corrupt Kenyan shielded while we are falling apart by writing about issues that have no importance at all to the Average American working man or woman!
Well, Premier Obatoes said the same thing that Premier Xiseeyounow about cleaning up the messes, so there is some non-dysfunctional parallel.
Then again, the folks in Detroit would likely say "Yangtzee go home" to any Chinee meddling at least until they get their full 100% allotment of South of the Border Immigrants under the new Don't Ask Don't Tell Lemme See Your ID, You Don't Have an ID, That's OK Immigration Reform and Subsidy Giveaway Program.
Vote Democratic, because there are no other parties, anyway.
Fucked without being tugged
You are serious with this comment?
Knucks is always serious.
Did he really ask me that or am I hallucinating?
Momma warned those flashbacks would be a bitch
nothing but a good clean wildfire to burn up the dead wood littered in China's economy .. should prove healthy long term.
"The 'local' Shangdong Gubmint officials could not be reached from their California homes."
Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.
Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
and yet the AUD is strengthening...
China's plan is to ship Australians in to fill the Ghost cities.
They're looking for enough beer to entice them now.
Ho Lee Phuk could not be reached for comment.
Trying to find original Blmbg article. Does anyone have link?
Does anyone remember when Germany couldn't get its gold back? Why didn't that default get top billing in the MSM?
They'll overcome this.
In due time, wage earners (white/blue collar) will be able to afford to live in those newly built ghost towns, raise tax revenue to cover the Bonds used to build the towns.
Even with the downturn, they can manage a high single digit growth rate.