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China's Economy Slams On The Brakes: 30% Of Coal Miners Unable To Pay Employees On Time

Tyler Durden's picture




 

The thing about any debt-funded Ponzi scheme is that it is like a great white: it has to keep moving, or else it dies. The problem with China is that for the past decade, in order to fund the most rapid period of industrialization and modernization in history, it has been moving at an absolutely torrid pace.  And by moving we mean creating credit, which always takes us back to our favorite chart comparing the US and Chinese financial systems, that of total bank assets in the two countries. Spot which one is poised for a horrendous crash the second credit creation slows down from the breakneck pace of $3.5 trillion in inside money creation per year...

 

Still, what China has successfully done in recent years, is maintaining the facade that all is well in the economy, despite ever sharper gyrations in its credit markets, gyrations which have finally put enough pressure on the economy to send China's core driver of economic growth, fixed investment which accounts for over 50% of GDP, sharply lower, something we explained a month ago when we observed that the Chinese commodity crash is not only continuing but accelerating at a record pace, and in fact as we reported overnight, Singapore iron ore futures just tumbled to a record low.

And where this slowdown was seen best of all, is in China's critical coal industry, critical because not only is China the world's largest consumer of coal, not only does coal provide the bulk of China's electric production, generating nearly 70% of the country's electricity, or because the industry employs so many workers, but because it is to many the best harbinger of what else is taking place within China's resource and commodity space. And what is taking place is very bad, as we showed in early September:

 

 

 

Maybe most importantly, the Chinese coal industry is one of the places where the country's shadow banking funding structures, including wealth products and trusts, is most pervasive.

Also, keep in mind that as a result of Beijing folding instead of holding bankrupt companies to task, it has simply delayed the inevitable. Because this is what BofA said back in February:

We believe that during April to July the market may see many trust products threatening to default, especially those related to coal mines. By our estimate, the first real default most likely could happen in May with a Sichuan lead/zinc trust product worth Rmb140mn. This is because the product is relatively small (so the government may use it as a test case), the underlying asset is not attractive (so little chance of 3rd parties taking it over) and we also have heard very little on parties involved trying to work things out. Whether this will trigger an avalanche of future trust defaults remains to be seen and this presents a key risk to the market in our opinion.

 

... it’s still possible that many of the upcoming cases in Apr-July may get worked out one way or the other. Nevertheless, as we believe that many of the underlying assets of the trust products are insolvent, it’s a matter of time that many products will ultimately default, in our view. Various bail-outs will only delay the inevitable.

Of course, nothing was worked out, and only yet another record credit injection in Q2 prevented a credit crunch that could and would have rivaled what happened in June of 2013 when overnight repos soared to 25%.

Instead, what has happened, is that the fundamentals in the coal space have gotten even worse, the cash flow is even weaker, if it exists in the first place, while the funding mechanisms are more stretched than ever.

But the one place where the feces are finally hitting the fan, is in the companies themselves, as kicking the can for the past year has done nothing to resolve the underlying issues. And as a result, here is what is going on in China, courtesy of SCMP:

Wang Xianzheng, the chairman of the China National Coal Association, told an annual meeting of the Coal Industry Committee of Technology at the weekend that more than 70 per cent of the country’s coal miners were losing money and had cut salaries.

Translated: widespread wage deflation, in a country where M2 is expected to grow at a double digit pace...

And the really bad news:

About 30 per cent of the industry’s miners had not been able to pay their employees on time and a further 20 per cent had cut salaries by more than 10 per cent, the Economic Information Daily, a Xinhua-affiliated newspaper, reported on Monday.

 

Due to weak economic conditions, coal output fell 1.44 per cent year on year in the first eight months of this year to 2.52 billion tonnes, while sales dropped 1.62 per cent to 2.4 billion tonnes, the association’s figures show.

 

Coal inventory last month stayed above 300 million tonnes for a 33rd month.

 

...

 

China’s main coal ports recorded an 8.3 per cent year-on-year decline in inventory at the end of last month, and the national import volume fell 27.4 per cent year on year to 18.86 million tonnes, the association’s figures showed. In July, Wang called on coal-mining firms to reduce output by 10 per cent. Leading listed miner China Shenhua Group has cut its output target for this year by 4 per cent, while rival China Coal Energy has trimmed its target by 10 per cent.

Clearly, they did not.

And the result is that nearly a third of the coal industry doesn't know if and when it will get paid, while over two thirds are on the verge of being fired. We are talking millions and millions of workers. Correction: millions of soon to be angry workers. And if those angry workers make their way to Beijing or Shanghai, what China's SHIBOR, repo rate, or any other made up financial metric is, will be the least of anybody's worries.

 

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Mon, 09/22/2014 - 12:47 | 5243433 knukles
knukles's picture

A lump of coal for Christmas.
How nice

Global economy's a-hoppin'!

One of the talking heads today on BBG said just after the Apple 10mm unit sales report, that must be an absolutely certain indicator that the global economy is roaring along with all them folks standin' in line for days to buy the newest gadget.
Out of touch or too much propaganda?  Take yer pick.

Mon, 09/22/2014 - 13:01 | 5243529 Richard Chesler
Richard Chesler's picture

I love the term "bank assets". Almost as clever as "affordable care".

 

Mon, 09/22/2014 - 13:02 | 5243537 MarsInScorpio
MarsInScorpio's picture

knukles:

 

Apple will soon satisfy the Apple Addicts craving for product. After the initial rush, sales will decline because Apple no longer has the power to switch others out of their technologiically advanced products into Apple's "Me Too" products.

 

There are only so many psychos that get their sense of worth from a phone . . .

-30-

Mon, 09/22/2014 - 12:45 | 5243443 ejmoosa
ejmoosa's picture

How much of this malaise in the coal industry is due to a drop in eletricity demand?

Can we call this what it is?  A global depression?

Mon, 09/22/2014 - 12:47 | 5243456 knukles
knukles's picture

Shame on you, ejmoosa!  You weren't given permission by the PTB to say that, yet.  Gotta let the NYT say it first.  Like that article about the CIA creating ISIS they published the other day.  Let "them" have their way.  You'll be happier.  Much happier.  They know where you live.

Mon, 09/22/2014 - 12:55 | 5243490 disabledvet
disabledvet's picture

See below (Sissy Spacek and "Coal Miner's Daughter" does come to
mind) and "now we see the violence inherent in the system!" (Dennis the Constitutional Menace...I mean Peasant.)

Mon, 09/22/2014 - 16:17 | 5244382 ejmoosa
ejmoosa's picture

I've been waiting for them.

Mon, 09/22/2014 - 12:44 | 5243446 Yen Cross
Yen Cross's picture

  Put another log on the fire...

 ? Waylon Jennings w. Friends - Put Another Log on the Fire - YouTube

 In this distorted world, that's good news for the PBoC... They can really get those printers fired up now!

Mon, 09/22/2014 - 12:45 | 5243448 konputa
konputa's picture

Slams on the breaks?

 

Slams on the brakes?

 

 

Mon, 09/22/2014 - 12:49 | 5243465 Dr. Engali
Dr. Engali's picture

Tyler's wordplay for a broken economy. Yeah, that's what it is.

Mon, 09/22/2014 - 12:46 | 5243453 ekm1
ekm1's picture

China is currently running at MINUS 8% GDP GROWTH

 

Printed money is going to Pyramid Schemes connected to communist elite only.

 

If they bailed out all the economy, then food inflation would sky rocket and Tianaman2 would become inevitable.

Mon, 09/22/2014 - 12:52 | 5243473 Yen Cross
Yen Cross's picture

  What part of deflation did you miss? The PBoC will print long before they let a couple hundred million hungry unemployed Chinese loose on the country.

   Look at the drop in commodity prices recently. You may not see the effects reflected in prices you pay yet, but they have dropped and the PBoC can take advantage of that.

 Printing is the lessor of 2 evils.

 

Mon, 09/22/2014 - 12:57 | 5243499 ekm1
ekm1's picture

survival of Politburo is the lessor of all evils

Tianaman was a food inflation protest.

 

How are food prices doing in China?

Mon, 09/22/2014 - 13:12 | 5243584 Quaderratic Probing
Quaderratic Probing's picture

http://www.tradingeconomics.com/china/food-inflation

Really good but Party compiled the figures

Tue, 09/23/2014 - 00:42 | 5246152 Son of Loki
Son of Loki's picture

I doubt this has any effect on the corrupt officials carrying suitcases of Loot across into HK to buy yet another $2 million apartment or house with their official salary of $600/month.

Coal miners are near the bottom of the blue collar heap; an extremely shitty job making a few back-breaking RMB/day and where many will die from "Miner's Lung" before they are 40.

 

Mon, 09/22/2014 - 13:12 | 5243579 BandGap
BandGap's picture

"then food inflation would sky rocket and Tianaman2 would become inevitable."

Tianaman Squared is more like it. I have seen estimates where 30% of the population would be hungry within a week should infaltion be allowed to grow without "fixes".

Mon, 09/22/2014 - 12:57 | 5243458 Dr. Engali
Dr. Engali's picture

Time for a little industry cosolidation and workers to be fired..... Er I meant to say synergies realized. Somebody get the squid on the line, they know how to save us.

Mon, 09/22/2014 - 12:55 | 5243492 q99x2
q99x2's picture

Buy the trannies before word gets out.

India hails first transgender newsreader after law recognises third sex Padmini Prakash has become India's first transgender newsreader, after India's Supreme Court recognised transgenders as third sex
Mon, 09/22/2014 - 15:48 | 5244244 walküre
walküre's picture

Teleprompters do not have a gender. No gender, no confusion.

Mon, 09/22/2014 - 12:55 | 5243497 LostandFound
LostandFound's picture

The avalanche is truely starting now ladies and gentlemen, it just hit the size of a big fuck off snow man and is getting bigger by the day..............

Mon, 09/22/2014 - 13:00 | 5243521 BudFox2012
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Why does this matter?  The S&P is at an all time high, the NFL season is in full swing, and there is a new iphone on the market.  What could possibly go wrong?

Mon, 09/22/2014 - 12:59 | 5243522 jubber
jubber's picture

I guess the Editor of  the Economic Information Daily, a Xinhua-affiliated newspaper 

will be propping up a new Motorway tomorrow...?

 

Mon, 09/22/2014 - 13:03 | 5243538 RagnarDanneskjold
RagnarDanneskjold's picture
Housing market is also hitting full on collapse. Handan has 10 years housing supply, developers going bust and taking out credit guarantee firms backing trust products, residents are unwilling to buy homes, many developers have fled and the police have arrested over 90 people.

 

Handan Residents Afraid to Buy Homes; Market Frozen With Developers on the Brink

 

Credit Bubble Collapses in Handan; Arrests Made; Developers Repaying Suppliers With Property
Mon, 09/22/2014 - 15:45 | 5244235 walküre
walküre's picture

This news is music to my ears. Keep 'em coming.

Mon, 09/22/2014 - 13:03 | 5243541 pachanguero
pachanguero's picture

Thailand where I live is a hugr property bubble.

Mon, 09/22/2014 - 13:27 | 5243652 disabledvet
disabledvet's picture

Yep.

Mon, 09/22/2014 - 13:11 | 5243586 WillyGroper
WillyGroper's picture

Speaking of energy: Listen to this crap. Rottenfellars divesting.

Mon, 09/22/2014 - 13:28 | 5243656 seek
seek's picture

And this comes on the heels of saturation news coverage yesterday of PV solar being cheaper per KWH installed than natual gas, allegedly.

Probably true with deflation hitting chinese manufacturing.

Mon, 09/22/2014 - 13:22 | 5243597 Tachyon5321
Tachyon5321's picture

 

 

The Chinese government forces coal companies to sell coal below their product cost to power plants.  So the power plants only get 75% of the coal they need. In order to keep the light on the power plants turn off their pollution control equipment at night because this saves coal.  

Mon, 09/22/2014 - 13:16 | 5243598 SethDealer
SethDealer's picture

Im suprised Chinese dont get 2 years of unemployment and then put on "disability" for permanent checks in the mail. Stupid Chinese

Mon, 09/22/2014 - 13:18 | 5243621 Spungo
Spungo's picture

Will this affect my ability to beat off to pictures of Jennifer Lawrence?

Mon, 09/22/2014 - 13:22 | 5243636 orangegeek
orangegeek's picture

we're talking coal here, not hamburger meat

Mon, 09/22/2014 - 13:21 | 5243631 orangegeek
orangegeek's picture

fucking communists can go to hell

Mon, 09/22/2014 - 13:39 | 5243663 jubber
jubber's picture

One consequence of this could be that the price of Gold in Yuan is likely to sky rocket, one because obviously the Yuan will lose value against every currency, but more so that the people with money in China will try to protect there savings in Yuan and property by increasing their Gold holdings...Not a small move if 100 Million +  Chinese suddenly start buying, even a few Ounces each???

This would also have a huge knock on effect in time in the West as the volume involved would empty Warehouses & Bullion Banks  within weeks on any panic?

Some 2015 OTM Calls may be interesting

Mon, 09/22/2014 - 15:43 | 5244221 walküre
walküre's picture

They buy physical gold which has absolutely no consequence on the Comex paper gold fraud!

For every $100 potential increase in Comex paper gold, the Fed prints $200 worth in new gold certificates and sells at market to beat the price down. All digital of course.

Mon, 09/22/2014 - 13:44 | 5243737 joego1
joego1's picture

Well atleast they will have cleaner air. Al Gore would be proud.

Mon, 09/22/2014 - 13:58 | 5243805 Yen Cross
Yen Cross's picture

     This comes out in about (8) hours and should offer some guidance, as it's the HSBC print. It should be interesting to see if bad news is good news... PBoC steps up it's QE.

   Then the "carry trade" will get fired up all over again, at cheaper prices.

18:45   CNY HSBC Manufacturing PMI     50.0 50.2
Mon, 09/22/2014 - 15:41 | 5244207 walküre
walküre's picture

Laid off miners have more time to shop on BABA!

#WINNING

#FUCKJACKMA

Mon, 09/22/2014 - 23:38 | 5246042 user2011
user2011's picture

no wonder accident rate is so high... no workers.. no need to pay them. The world most deadly job.

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