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"China Has A Massive Debt Problem", And Why It Is About Get Much Massiver
We’ve spent quite a bit of time recently discussing the fact that China faces tough choices as Beijing attempts to counter decelerating economic growth while maintaining a peg to what has lately been one of the world’s strongest currencies. With pressure coming from four consecutive quarters of capital outflows totaling some $300 billion, devaluation is a somewhat risky (if inevitable) proposition and so the PBoC has opted for interest rate and RRR cuts to keep liquidity flowing into the economy.
But even as the reserve requirement cut freed up more than a trillion yuan, policymakers must also grapple with competing agendas such as deleveraging a system that, as we exposed more than two years ago, and as Bloomberg now reports, is weighed down by a veritable mountain of debt.
China has a $28 trillion problem. That’s the country’s total government, corporate and household debt load as of mid-2014, according to McKinsey & Co. It’s equal to 282 percent of the country’s total annual economic output.
President Xi Jinping’s government aims to wind down that burden to more manageable levels by recapitalizing banks, overhauling local finances and removing implicit guarantees for corporate borrowing that once helped struggling companies. Those like Baoding Tianwei Group Co., a power-equipment maker that Tuesday became China’s first state-owned enterprise to default on domestic debt.
Now hold that thought, and consider this: China’s also trying to prop up a $10.4 trillion economy that’s decelerating and probably will continue to do so through 2016, or so says the International Monetary Fund. The economy expanded 7 percent -- the leadership’s growth target for this year -- in the first quarter, the weakest since 2009 and a far cry from the 10 percent average China managed from 1980 through 2012.
Against this backdrop, a barrage of recent policy moves out of China in recent days comes into sharper focus. It also helps explain why various parts of the government don’t always seem to be working from the same playbook.
“There’s obviously a contradiction between attempts to deleverage the economy and attempts to boost growth,” said Dariusz Kowalczyk, a senior economist at Credit Agricole SA in Hong Kong.
As a reminder, Baoding Tianwei Group Co (mentioned by Bloomberg above) is a subsidiary of state-owned China South Industries Group, and so when Baoding Tianwei indicated it would likely come up short on $14 million in interest payments due Tuesday, many speculated the parent company would step in to support it rather than risk a panic triggered by the first bankruptcy from a state-backed borrower. Instead, China South Industries called the issue none of their concern, suggesting that going forward, Beijing will allow the market to play a greater role in shaking out excessive debt burdens.
The country is also moving to curb the excessive margin debt that has helped fuel the country’s world-beating equity rally and is set to kick off a pilot program that will allow heavily indebted local governments to refinance their high interest loans (which total 35% of GDP) and save billions in interest expenses in the process (and which incidentally may eventually be part of the Chinese version of ECB LTROs). And that’s not all:
Among regulatory overhauls in train is a deposit-insurance program and ending a cap on deposit rates that effectively subsidized credit and punished savers. The deposit-rate ceiling may be abandoned this year and deposit insurance, a vital prerequisite, is scheduled to start May 1.
Putting depositor safeguards in place would allow for bank failures without stoking the kind of panic that spurred almost 1,000 customers to rush to outlets of Jiangsu Sheyang Rural Commercial Bank last year amid rumors the lender might go bust.
Moving toward a financial system where risk is more accurately priced and defaults tolerated is also crucial to the government’s fiscal overhaul of debt-besotted local governments...
All this explains why cleaning up the debt mess matters. With $3.73 trillion in foreign currency reserves, China has the financial resources to handle any future bank bailout or economic stimulus if need be.
Even so, if borrowing levels keep rising, at some point the country’s ability to both roll over existing credit and fund new projects will get tapped out. That’s not a good place to be for a one-party state with huge inequality and still-considerable development needs.
So in summary, China’s deleveraging efforts have the potential to work at cross purposes with Beijing’s desire to keep liquidity flowing and keep the economic machine from shifting further into low gear, but as Reuters notes, the PBoC is set to remove a bureaucratic hurdle from the ABS issuance process, which means that suddenly, trillions in loans which had previously sat idle on banks’ books, will now be sliced, packaged, and sold. This, in turn, will put in motion the classic securitization (non)virtuous circle in which banks offload credit risk to investors via ABS and, encouraged by the generation of securitization fees along the way, use their newly unencumbered balance sheet to make more loans to feed the securitization machine. This results, invariably, in shoddy underwriting as banks compete for business, and the amount of risk embedded in the financial system rises in lockstep with the percentage of securitizations backed by new loans to underqualified borrowers.
Here’s more from Reuters on the PBoC’s new rules for ABS issuance:
Issuance of Chinese asset-backed securities (ABS) could triple to more than $160 billion this year, reactivating huge assets now mouldering on bank books, as Beijing streamlines procedures for firms to securitise receivables.
By making it easier for banks to repackage and resell receivables - such as loan repayments on mortgages, car loans and credit cards - the government hopes to free up banks' balance sheets so they can lend more to the real economy.
The People's Bank of China (PBOC) announced this month that regulatory approval will no longer be required to issue ABS, and issuers will now only need to register to do so.
Getting banks to lend more is a major policy goal, given banks have so far been reluctant to lend despite repeated exhortations from top officials. Even Premier Li Keqiang has called for banks to "activate existing assets," - which is where this securitisation push comes in…
Market players now expect ABS issuance to more than triple to 1 trillion yuan ($161 billion) this year, up from 300 billion yuan in 2014, which was in turn twice the total issued since 2005.
"There is a huge demand from banks alone to securitise assets," said Zhao Hao, economist at ANZ in Shanghai.
"General demand can easily push issuance value exceeding 1 trillion yuan ($161 billion) this year."
What this means is that China’s massive debt burden is about to get massiv-er, as banks use ABS issuance as a pressure valve to free up lending capacity. And as a reminder, here’s what will be going into the ABS collateral pools:
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Let me introduce you to the computer file holding those debts, and the edit button.
Money is nothing more than a game of monopoly, a game where we invent and reinvent the rules.
Exactly, don't you think we would take the single most important thing in our society a little more seriously.
Wait a minute. I thought WE owed all of this so called debt that we have to China.....Thats what the TeeVee keeps saying. Who does China owe? Russia? Israel? The Fed? The IMF? I'm confused. So its true. Bankers create paper money or digital money and then everyone else borrows it to live, and then has to work their asses off to repay the interest on it.
How can everyone be in debt??
China has a $28 trillion problem.
Wake me when it gets to a gazzilion.
I'll stick with that crappy dollar.....then switch to the peso.
Naturally, this article will be followed by 3 that tell us how the US is dead and how the AIIB is the best thing since sliced bread. Add in a bit of missile porn and we're good to go!
Lately all the rules have been changed by Jewish Banksters.
That isn't a good thing.
The only way to win their game is to not play.
I'm voting with my check book for gold and silver,
but we all have to play unless we can go way off the grid. Easier said than done. A good direction, in any case;)
The idea that you can change the rules any time you want, is exactly what the Central Bankers believe. How is that working for you?
It's all a big conspiracy by Jews to ruin your life, isn't it, Bob?
Anything to avoid taking personal responsibility for your own failures and empty pockets, huh? :-)
If China is the world's exporter and was for the last 30+ years, where's the money you fucking jewish cock sucker hasbara cunt?
So, EU - Broke; US-Broke; Western World-Broke; Third world-Broke; China-Broke; Japan-Broke. Who owns all this debt you lying son of a bitch?
Cunt!
Although riddled with hatred and anger of exteme proportion, this was the funniest post I've read all day.
Ours is larger!!! US is over 60 trillion in total credit market debt. USA! USA! USA!
Not only larger but gowing faster with welfare and Obamacare liabilities adding in the last few years.
China has a $28 trillion problem.
and god knows what, if anything, which is actually profitable.
As screwed up as the West is, there is still some useful data escaping the censors. In China, not so much.
China is likely the last great real estate driven bubble...nearly all debt from here will be created by governments and corporations (taking advantage of ever lower rates to issue ever more debt)...financial and household debt growth will continue subisiding.
Still, China believes gold is money and have amassed quite a hoarde with some clear purpose in mind...the linked story discusses the dollars conversion into gold since '71 and who has been deemed important enough to utilize the conversion of dollars into gold.
http://econimica.blogspot.com/2015/04/exactly-what-did-nixon-say-about-dollar.html
Debt owed to whom.....the Rothschild clan?
Another anti-Semite exposed.
Hey Debt Slave (IOFERA)...Your buttholes leaking.
Go spin your fairy web somwhere else.
RIPS
the reach of hasbara's law extended courtesy of IOFERA.
Another non-effective (and growing more non-effective-r by the day), 'anti-semite' canard tossing accusation.
Like an overused antibiotic, iofera, your precious term has lost its effectiveness. Slimeball 'Marvins' are the ones being exposed now.
You say "anti-semite" like it's a bad thing. Being against evil is a virtue.
My best mate is Maltese, a semite I understand. The Rothschild pack of thieves are semites?! I guess they must pay you well to do a complete sell out from humanity. You're a fucking idiot!
That's just General Relativity. As Debt picks up speed (VoM) that nears "c" (speed of light), it increases in Mass.
Seriously though... I would not bet on China beating the Jewish bankers at their own game. NFW!
They can only beat them by playing a different game, i.e. their own Game and if it's a good game.
can you provide any evidence (beyond superficial) that the chinese bankers are playing in opposition to the NWO? the AIIB is being welcomed warmly by the IMF - they will play from the same songbook as long as there is middle class wealth to be asset stripped. main difference in china right now is they are growing a middle class that is not ready to harvest, but harvest they will, in good time.
these psychopathic banksters still have much to gain by cooperating, and that will not end until they turn on each other, once the rest of the world is a grey, bloodless corpse.
So this is basically the US subprime debacle on steroids, so we'll have to endure this crap, followed by Chinese QE after it collapses. When China becomes USA MK 2 we'll be in the midst of the new world order endgame.
All I know is there's a flood moving over here from China and buying the houses with cash. They walk into the builders/sellers office take a quick look at the place and ask how much and prepare to write check. I guess these are some of the [lucky few] recipients of China's massive [4x bigger then USA] QE. They usually have a kid and move here because the school is highly rated.
However, this foreign stuff sure does distort the market for locals who can barely afford to eat esp those on a fixed [zero COLA] existence. I wonder how long this will last and if their flow of $$$ into other economies will ever stop.
Clinton led the way with his NAFTA and other tade/globalization moves. These are some effects.
It would be interesting to compare Slick's DNA to the Rockefeller family's...
that tree don't fork
But, but the AIIB ...
forty thieves?
Oh wait, there are more bankers than that. The other Alibaba.
Yes, the AIIB is now the best bank in the world and it has loaned money to Putin who has completely isolated the US by sending new torpedoes to Iran. This was done to facilitate the nuclear deal negotiatations which are now being moderated by ISIS because the negotiators were hit with EMPB (B=Brain) which has further complicated the "intense" negotiations.
Russia almost went on nuclear alert because of the US Navy presence in Yemen but recalled the alert at the last moment because all sailors were stricken with Greek baklava syndrome and could not operate the equipment which automatically activates the Nuclear alert equipment! It is suspected this syndrome is the latest weapon in the arsenal of Greek politicians and is being investigated vigorously as it may be a part of game theory.
Come on people! You live under a rock? Get with the program folks!
As long as China or anyone else with outstanding debt has a military sufficient enough to repel foreign invasion and suppress dissent (with the aid of a brainwashed populace) at home, debt is but numbers in a computer. I'm sure just as the shit hits the fan China will go about some marginal liberalizations that will pacify the internal forces that could threaten the party. Sure trade is affected but it's not a zero sum game. Considering China has a strong foothold in Africa I think they won't hurt for resources.
Not in support of Red China or any of our other fascist state actors. But this whole fascination with debt that EVERYONE knows is never going to be re-payed by countries that have the military power to say "no" is beyond me...
"Let me introduce you to the computer file holding those debts, and the edit button."
No....let me introduce you to Mr. Yellen. He will show you CNTRL-ALT-P
"Get to work, Mr Yellen" Chucky Schumer
Well at least they only have about 1.4 trillion in derivatives. As ZH has shown with Deutsche Bank having more derivatives then the entire GDP of Germany in contrast, China between all of it's banks only have about 1.4 trillion.
China only has about ~0.33 percent of world derivatives.
Because of this, they can deal with defaults and companies that go under without massive contagion (which we here in the West forget to point out is really derivative contagion), unless of course those defaults trigger a WESTERN firm failure who also happens to be a counterparty to WESTERN derivatives.
So if we want to see this as bad, we should not forget that we in the 'west' are far, far, far, far worse.
Glass-Steagall
As China gets backed up against a wall they will be less effective standing up to western banksters so I hate to read news like this. China still has gold and reserve assets. They can alway take it all to London and rehypothecate it X1500 and still do well in the clinch.
China's three biggest assets:
1) Manufacturing/industrial base and the technology to go with it.
2) Hard assets like gold.
3) No Zionist control and plunder.
Liberty is a demand. Tyranny is submission.
While not concurring with Armstrong on other things, this is a good article on how the banksters plundered eastern Europe after the fall of communism. The eastern Europeans went from debt free to debt slaves in a short time.
http://armstrongeconomics.com/2015/04/21/how-banks-wiped-out-eastern-eur...
China can default on any debt it chooses to, and can close failed banks and create new ones out of thin air. It can also execute corrupt officials in numbers, if the situation requires it. Over there, their commie party is in charge of their central bank, and it can do whatever the heck it wants when it comes to money, economy, industry, immigration, taxation, military, and so on. Heck, they can even build new islands in the middle of the ocean and call them home ! Compare that with US...
So.. Gold?
If this figure hits anywhere near 50, the emerging market shorts are going to get toasted. ;-) lol
18:45 CNY HSBC Manufacturing PMI (Apr) 49.6 49.6 (GMT-8)
With a huge manufacturing base, hard assets and friends around the world, things are going to one day be bad in China.
What of the DC US that has none of those things, is the pariah of the world, and dominated and controlled from afar by and for Zion?
Liberty is a demand. Tyranny is submission.
Their problem is there, our problem is here.
Common sense fails to dictate the day, when you're paid to spend "OPM".
If that HSBC number comes in hot after the RRR adjustment, the $usd is going to get sold. It's overbought on the 5 hour chart again.
Paging Mario Draghi?
What this means is that China’s massive debt burden is about to get massiv-er, as banks use ABS issuance as a pressure valve to free up lending capacity.
So, is China about to emulate Wall Street and sell "HIgh-Rated, Risk-Free Asset-Backed Securities" to yield-starved investors around the World? Huge amounts of money out there seeking anything that promises decent yield. China could clean up. And if the ABSs turn out to be BS? Would China bother to bail out the issuers, or just pocket the investors' money and yawn (Yuan?). (Yeah, I know, bad pun).
Any bets on whether the ABSs will be backed by CDSs? Issued by Wall Street?
i'll bite.
chinese ABS with CDS insurance issued in what? yuan? what institution in china has the means or mechanism to do this? if wall st gets involved, and takes a cut, are they the underwriters in yuan? if that goes tits up, who bails them out? is china's recent overture to inclusion in the SDR basket a tactical approach to having the IMF backstop the introduction of chinese financialization?
who in the hell would want chinese ABS anyway, given their track record on transparency, and the gross inability to hedge that crap...
i'm betting that most of the vaunted 7% growth is lies, like the ghost cities, bridges to nowhere, industrial capacity, and now mom and pop day trading. bring this cockroach into the daylight, and its revealed to be a continuation of the old communist tradition of reporting the numbers demanded by the latest 5 year plan, or lose your head. this talk about cleaning up chinese debt is window dressing to keep attention off the fact that china is one monstrous bubble of partially productive mal-investment - the inevitable result of central planning. not much different from the ZIOFED experience in the US.
china is about to lever to the moon with no net. what could go wrong...
So let's see....
Banks will start selling securitized debt to free up room for more lending. And when they do, they'll find that Shanghai brokerage firms can't get enough of the stuff. Maybe the Hang Seng, too. It's a new stock market bubble, er, boom! Regional Chinese banks will furiously push more money out the door so they can sell MOAR collateralized loans! Sliced and diced a thousand different ways!
Ooh! I'll get the popcorn.
China owes itself, no one else.
Who does China owe all this money to fools?
They haven't borrowed a dime from any other nation.
Then it isn't a problem?
It's an internal problem.
Good point, and frequently made. Here's the rub.
When bills can't be paid, some enterprises have to shut down. In a Maoist, crony economy, that won't be the most productive, because no one even knows who the are. Those with the clout will do fine, until next time, but the spiral will not stop.
The rub is China is a communist society.
They execute 10,000 prisoners every year.
The Chinese execute their debtors.
Why do old debts, never to be repaid, stay open?
Who benefits from that?
China assigns dead man loans to released prisoners.
Great system they have.
Perpetual debt slavery.
Rockerfeller loves this system of banking.
You need to put down the crack pipe and turn off Fox News. Go to the post office and get a passport. Get a visa and go to China. Find out that all your above statements are false and that you live in a government-supported fantasy.
Or just stay in your trailer park and continue being a Good Citizen, believing what you are told to believe.
Hardly communist. Fascist certainly, just like the US. Deng Xiaoping got rid of the communist hangup.
"China owes itself, no one else. Who does China owe all this money to fools? They haven't borrowed a dime from any other nation."
You brought up an excellent point. If they only owe themselves, then what's the beef?
The joys of Globalisation.
LOL!
How stupid is all this debt shit? The numbers are ridiculous...they don't even make SENSE. In many cases, simply mathematically impossible. Yet still they try to keep it going.
Of course it is doomed to failure. I just wish this 'failure' had been chosen at a different time. As in, not my lifetime. But noooooo, I had to go and be born during one of those eras that will have its own chapter in future history books...great.
Why couldn't I have been born during one of those relatively peaceful, prosperous periods that occasionally happen in human history in spite of ourselves?
Again...interest rates will continue to fall and the dollar will only get stronger from here.
nope.
So China is going to allow bankers to package up their debt and sell it to someone else. What could go wrong? Where have I heard of this before?
The majority of these debts don't exist under US laws.
It's obvious that the Chinese don't understand the concept of a discharge of debt.
Debts are generational in China.
Good luck with that.
Zero Hedge is pleased to announce that its sister site, JewHatred.com, will be up and running shortly. We encourage our readership to use this new forum to document their manifold grievances against Jews in exhaustive detail.
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Thank you, the management.
go away troll
I hear you. No matter what the topic, the eye rolling moment comes . . . it's the Jews. Believe me I know all about AIPAC and the issues, but it's carried to such extremes that it gets sickening. Every lineage has its own share of responsibility for the world's woes. This ant-semitic campaign has got to be very similar to what was going on in Germany before the Holocaust.
hasbara's law in action
Jews need to ask themselves the question "Why have we been kicked out of 109 countries?"
Then they can start to find an answer as to why they are so reviled.
Dear Tsingtao, I just enjoyed a Ruskie brewskie Baltika (from St. Petersburg) and I gotta tell you, it's way better than your beer.
Much cooler bottle too: nice design, with a pull-off metal cap. Love it!
What would you expect from a German brewery run by Chinamen?
All those debts are assets on someone else's books, and to be borrowed against.......
Are we now spoofing good grammar?
More Reuters BS, even Bloomberg says PBoC is only "mulling/considering" the proposal.
No official news regarding any regulation changes to ABS is reported on any official Chinese new sites(they have English versions if anyone wants to check from the source).
and Reuters is reporting it as fact when nothing has been substantiated.
It looks like US govt is speeding the anti-China propaganda. This is the price you pay for becoming #1
sell all the debt to foreigners then introduce gold backed yuan when it defaults.
Debt that doesn't exist is already in default if you're a sucker and buy it.
Dear ZH ers...I have a rather crazy notion I wish to share with you...if interest rates go to zero and only zero then debt becomes money...the only differentiating factor is interest. loans are considerd assets by banks and liabilities to debt holders...but what if you don't truely force them to pay it back. what if assets equaled debts...then you have balance, this is not reality but it doesn't have to be, the asset holders being the lenders don't need you to pay them back...because they are the money creators or think of them as loan creators its the same thing!! they can create their own wealth...they create volitility and thus markets through velocity of money, they create and control market movements which allows money or assets and debts to ebb and flow...you see its all an illusion of a reality that we've been conditioned to believe. Their system is not madness its genius!! what say you??
Tell the analysts on Wall Street your idea for zero growth.
what i am doing is describing the situation at hand...what i'm describing is in my opinion, exactly why we have no growth. two percent or so inflation...but we know its much higher, just include food and energy the things which are relatively inelastic, couple that to between 2 and 2.5 gdp...through the use of a massive percentage increase in debt to generate no growth, my description is reality.
Maybe somebody could tell them about 'limits to growth' cause that is where this planet is heading to. Predictions are still right on track.
China has something to show for their spending. They have massive additions to their infrastructure. The so-called "ghost cities" exist in the minds of outsiders who don't under why Chinese buy homes and keep them vacant. The home ownership rate is 130%. It is part of a long term plan. Also, having a savings rate of 36%. the Chinese are more prepared for an economic downturn. Outsider alarmist drama queens who try to point the "crash" of the economy are not embarrased to admit that the growth rate has slowed to 7%. When has America grown at 7%?
I just returned to China from 3 weeks in America. What a comparison. One is dying and depressed. The other is growing and optimistic. Guess which is which.
That leads me to wonder where in China you are? Oh and if you are in Hong Kong....then please shut up, you're not in China. But get out and actually look around China before you say the things you are saying....oh wait, you can't can you.
Print till the computers can't handle it. In the meantime BTFD
Chinese copy everything. Reverse engineering and all that.
Looks like it was an American ploy to create delibrate bad strategies because :
"We think that stoopid asians would copy us , and when they do, they would get ruined. ha ha"
Cadmium in the rice paddies.
which means that suddenly, trillions in loans which had previously sat idle on banks’ books, will now be sliced, packaged, and sold. This, in turn, will put in motion the classic securitization (non)virtuous circle in which banks offload credit risk to investors via ABS and, encouraged by the generation of securitization fees along the way, use their newly unencumbered balance sheet to make more loans to feed the securitization machine. This results, invariably, in shoddy underwriting as banks compete for business, and the amount of risk embedded in the financial system rises in lockstep with the percentage of securitizations backed by new loans to underqualified borrowers.
Sorry, for a moment there I thought someone was trying to describe the banking system here in the USA.
it's all internal debts owed internally for the most part. it's not really a big deal. the vast majority of it is local government debts. Worst case, it turns into a "haircut" where they get refinanced for more legitimate rates around 5%, transferred to the central government and the crisis is over. Housing might be in a bubble, but there is still no such thing as no/low money down. A primary residence is still 20% down at the minimum with a preference for 10 year mortgages. Chinese can do the math and consider the total amount paid rather thsn just the monthly. For investment homes, it's 50% to 100% paid in cash. Securities might be shoddy, but they are not exotic. There's no "mark to fantasy" going on. For a primary residence, no one cares if the value falls. It's home no matter what and falling prices mean a chance to upgrade (especially in a country where most people save 50%+ of their paycheck). Chinese are also much more prone to hold longterm, flipping doesn't work due to the fees and taxes involved.
And the Chinese love GOLD.