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As China Admits It Lied About Its Local Debt Levels, Local Billionaires Are Quietly Liquidating Their Assets
It was almost exactly two years ago, when during China's long-forgotten attempt to actively deleverage its economy (remember that? good times...) we commented on the country's s first attempt to estimate what its local government debt is since June 2011.
This is what we said in July 2013:
"China is preparing to admit that the level of problem Local Government Financing Vehicle debt is double what was first reported just two years ago, something many suspected but few dared to voice in the open. But not only that: since the likely level of Non-Performing Loans (i.e., bad debt) within the LGFV universe has long been suspected to be in 30% range, a doubling of the official figure will also mean a doubling of the bad debt notional up to a stunning and nosebleed-inducing $1 trillion, or roughly 15% of China's goal-seeked GDP! We wish the local banks the best of luck as they scramble to find the hundreds of billions in capital to fill what is about to emerge as the biggest non-Lehman solvency hole in financial history (without the benefit of a Federal Reserve bailout that is)."
Not at all surprisingly, after conducting the goalseeked "exercise" of estimating its local government debt, the final number was well below the worst case or even average scenario, while the level of NPLs was at a very leisurely pace around 1% of total.
We promptly accused China of doing what it does best: fabricate the data, but since the housing bubble was still raging (it has since burst), and the stock market bubble (which also popped a month ago) was yet to be unveiled, few cared. Furthermore, in early 2015 China unveiled an LTRO-type plan in which in would swap out maturing local government debt with long maturities, thus hoping to firmly shove the problem with unsustainable local government debt under the rug for the (un)forseeable future.
Then overnight something unexpected happened: Sheng Songcheng, the director of the statistics division of the People's Bank of China (PBOC), was quoted by the National Business Daily on Saturday whereby he essentially admitted China had been lying about not only its local debt exposure but the level of NPLs across the economy.
Quoted by Reuters, Sheng said that "downward pressure on China's economy will persist in the second half of the year as growth in infrastructure spending and exports is unlikely to pick up."
He said that Chinese companies are not optimistic about business prospects according to the central bank's second-quarter survey, and that :pressured by uneven domestic and export demand, cooling investment and factory overcapacity, China's economic growth is expected to slow to around 7 percent this year, the lowest in a quarter of a century, from 7.4 percent in 2014." The Chinese GDP reality, of course, as noted here before is somehere in the 1-3% range, and based on such more credible metrics as industrial production and electricity usage, it may even be negative.
The punchline: Sheng warned about the risks of local government debt, saying that 2 trillion yuan ($322.08 billion) in bond swaps may not be able to fully cover maturing debt, according to the report.
What he really said, as paraphrased by Bloomberg, is that "local governments tended to not report all their debts when audited in June 2013, thus the 2 trillion yuan debt swap plan arranged this year may not cover all debts due, Sheng cited as saying."
Oops.
In other words, because the local governments lied (and Beijing had no idea, none at all this was happening) China will have no choice but to engage in an even more active bailouts.
That's not all: as a result of China's various bubbles bursting, the biggest problem with the nearly $30 trillion financial system in the world's most populous country is sttarting to be revealed: its non-performing loans, i.e, the level of bad debt. According to Sheng outstanding bad loans and NPL ratio at banks rose in 1H; banks’ profit growth slowed, Sheng cited as saying. NPL ratio reached 1.87% as of end-June, report cites Sheng as saying, without specifying which banks he refers to.
And if China is admitting a NPLs ratio of 1.87%, then the real print is probably 4-5x greater. Which means that on a system with $26 trillion in deposits, approximately $3 trillion in loans is non-performing. Or about half the market cap of Chinese stocks, and a third of Chinese GDP.
Is the problem starting to become clear? It is to some, particularly China's wealthiest.
WSJ reports that having glimpsed what is coming over the horizon, China's wealthiest are quietly starting to dumb their holdings to the greatest fools: "A property developer backed by Hong Kong billionaire Li Ka-shing has put an office and retail property project in Shanghai up for sale, according to two people familiar with the matter. A sale would mark the latest China property divestment by the investor, one of Asia’s richest, who is closely watched for signs of how he sees markets shifting."
This is not the first time Ka-Shing has cashed out in recent months:
In June, Mr. Li’s Cheung Kong Property Holdings Ltd. put up for sale Century Link and Century Link Tower, a shopping mall and twin office towers currently under construction in the Pudong Lujiazui area, said people briefed on details of the offer. A Cheung Kong spokeswoman didn’t respond to requests on Sunday for comment.
Or just before the market crashed. And then more previously:
Over the past two years, companies backed by Mr. Li and his family have sold five office and shopping mall projects in Shanghai, Beijing, Nanjing and Guangzhou. Many investors eye moves by his companies for hints on the tycoon’s view of the property market.
His companies, including Hutchison Whampoa and ARA Asset Management Ltd., have been offloading their real-estate assets as China’s economy decelerates to its slowest growth in more than two decades.
It remains to be seen who will buy what Ka-Shing is selling: if indeed the public mood is determined by his marginal trading activity, only the government will be bold enough to acquire his assets now that he has entered a liquidation phase, especially since the asking price of just one commercial project is about $2.6 billion.
The asking price is around 60,000 yuan per square meter, the people said. According to Cheung Kong Property’s website, the shopping mall and office project occupies a total of about 269,000 square meters, which would bring the total asking price to more than 16 billion yuan ($2.6 billion).
To sum up: misrepresentations about local government debt, lies about bad debt levels, and now, the wealthiest locals are quietly, slowly getting out of Dodge, er, China. We can only hope that China's desperate attempt to hold up its stock market, the final frontier before all confidence in China crumbles alongside, lasts a few months longer, or the great Chinese hard landing that has been discussed for years, and always delayed in the last moment, is now virttually inevitable.
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Ka-shing, too funny!
When the going gets tough, the tough lie about it ....
Where'd we hear that before? Was it another public sector financial oligarch?
"A billion here and a billion there and pretty soon we're talkin' about real money. Especially if its in Yuan because it's got a whole iot more zeros."
Why when I was writing that did I get a visual of Jean Claude Juncker saying that while wiggling his penis in the air on live television in front of Francoise Hollande?
The first thing a bureaucrat learns is how to lie with confidence and it doesn't bother them a bit to lie to other bureaucrats. I get the feeling that nobody in China knows what's going on, most especially the leadership. I see a very large "unexpected surprise" in their future.....
so.... where are the other mentioned Chinese billionaires? local billionaires suggests that every region has billionaire's liquidatin
but i just see the mention of one guy from HK
not saying it ain't happening... but I was hoping for a few more recent examples =p
Argh, those visuals, knukles, those visuals...
* * *
Attention Chinese Billionaires! Contact me if you want an ocean view condo and are prepared to pay $1,000,000 - $2,000,000 more than it's worth.
Most of those on board were Chinese.
http://www.reuters.com/article/2015/07/31/us-malaysia-airlines-crash-com...
I'm surprised the airlines did not settle with these folks yet.
And on top of everything the Western Banksters will be attacking China all the harder. We are at war and I'm at summer school. They need my trained brains to pull them through. I won't let them down. I'll learn Sense and Sensibility by Jane Austin inside and out. Hold on the Q99X2 are coming to the rescue.
The Chinese and the Russians are stupid. They are on the same side as the Americans and the Europeans.
The Chinese make their people work for slaves' wages so that ruling class Chinese can sell the goods and services the Chinese lower classes produce, to the Americans in return for undefined (essentially worthless) electronic digits known as U.S. Dollars.
Anybody who consciously gives something up for nothing is stupid. The Chinese are stupid.
The Russians are stupid.
It is clear that the Americans are Russia's enemies and that the Americans have already declared war on the Russians by imposing illegal economic and financial sanctions against the Russians.
Yet,
The Russians continue selling their oil and gas to their enemies for essentially worthless electronic or paper digits that their enemies create out of thin air!
If The Russians said that they no longer sell oil for dollars, the dollar would cease being a globally-accepted reserve currency and thus eliminate the Americans' exorbitant privilege to print dollars out of thin air and pay for their wars and crimes against humanity with them.
The Russians could win their war with the United States without firing a single bullet and save the world from nuclear armageddon by effectively disarming the Americans and their European allies.
But,
The Russians refuse to win this war without bloodshed.
Hence,
The Russians are stupid.
I think the reason they continue to accept dollars is because to stop doing so is a declared act of war and the bombs will begin falling anyway. By continuing to accept dollars the rapidly collapsing dollar and the western banking system will destroy itself on to itself. Washington still is trying to blame everyone except itself for this but for Russia to stop the dollar trade gives Wasgington the boogy man they need on a silver platter. IMHO
As long as Russia converted all new dollars it could still indirectly challenge the dollar's supremacy. But if it wanted to cause a totally chaotic event all it would need to do is spend a few billion dollars in one go in the physical silver market.
It always goes back to the pipe-dream that someone is going to bail out the bubblicious investments of the lake silver crowd, doesn't it?
How much real support for the centralised authoritarian principles of China and Russia is there here? ZH comments simply seems to be desperate people longing for any autocrat with the ability to change the price of their metals.
The Russians refuse to win this war without bloodshed.
Hence,
The Russians are stupid.
--
You just can not understand what makes Russian.
Please read this article:
http://www.gold-eagle.com/article/grandmaster-putins-golden-trap
And the next part of this article is here:
http://cont.ws/post/92743
We love this type of "news", bad across the board, Expect S&P's to open much higher!
MSM is so busy bashing Trump, China, Iran, and Russia they're looking ot hire Moar Bashers.
If you thought Puerto Rico was bad. Wait until all those TBTF banks, pension funds, 401K administrators, and the rest of the financial fraud team tell us how they were exposed to this municipal Chinese debt disaster. Makes me think the Chinese government encouraged unpayable debt levels to blow up the apparently stupid and greedy global financial oligarchs.
That thought had crossed my mind.
The Chinese have a lot of experience picking up the pieces after a cuirrency collapse.
Wipe out the old debt, and issue a new backed currency, or have it backed just for
international trade. Most of their debt is internal,nothing stopping them if their SDR
hopes are dashed.Do it as part of gold revaluation and its two birds with one stone.
China lied about gold. What's news that they lied about debt? Like all governments, they lie about everything.
Excellent point. Take all such news with appropriate caution and with a jaundiced eye...
Everybody lies about gold.The truth about gold holdings is beyond Ultra Secret.
Amazing considering they tell us its a barbarous relic, but the sheeple ignore the obvious
disconnect.
The big difference, of course, is that the Chinese are understating how much they have; the Fed, probably pretending in the other direction. Stay tuned.
After mulling this over a bit, I figure if Russia or China started a war with the US, the primary target would first be the city of New York, where they would level the entire area --- and somehow, unexplainably the only building left standing in the whole place would be the New York Stock Exchange.
Nah, they moved the actual operations over to Jersey so its safe to turn the whole of the Big Apple into fritters.
We thought Japanese bankers were the stupidest in the world when they created the mother of all real estate bubbles that burst in 1989.
Japan has not recovered since.
But Wall Street was determined to outdo them in the stupidity stakes using derivatives and complex financial instruments to magnify up the losses from a housing boom. The bubble burst in 2008 and the global economy hasn’t recovered since.
James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.
Losses from sub-prime - less than $300 billion
With derivative amplification - over $6 trillion
"It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" (pg 404, “All the Presidents Bankers”, Nomi Prins)
Japan only managed to cripple its own economy through crazy lending into real estate, Wall Street crippled the global economy.
Perhaps Chinese bankers are now looking to steal Wall Street's crown?
The competition is fierce with European bank lending into Greece as another contender.
A merit award for Spanish and Irish bankers who have destroyed their nations finances with unconditional state bailouts after reckless lending into real estate.
More idiot bankers:
Icelandic bankers
Cypriot bankers
"Only lending to people who can pay you back?
Are you sure?
No one told me" a typical banker
Payday loans, sub-prime, student loans, sub-prime auto loans ..........
Rotation`Location,... Location Rotation?
In 1989 the 'Berlin Wall' came down! The 'hot`money' rushed into Germany. The next decade was unprecedented in the German Economi[y]c History (POst WarS!
The 'Marshall`Plan from April/1948- late/1952 pumped into Europe ~ $13 BIllion to aid and rebuild the devastation from WWII,... was only outdone my the building`out of a 'Whole Germany'! Imagine $13 Billion dollars in real-value in 1948 when the rest of the world was a scrambled-egg... [?]
Just note the dates? Taiwan was in similar situation having moar gold than 'Fort Knox' than money [stolen from the mainland on his way to Formosa] in which the USSA quietly ?absconded? via military protection for Chiang Kai-Sheks' marshall-laws... paying for his Army?!? Uncle SAM always gets its,' pound-ole-flesh'!
Paul Krugman: China's Leaders Have No Idea What They Are Doing
http://www.alternet.org/economy/paul-krugman-chinas-leaders-have-no-idea...
Listen Tylers - that has to be considered evidence that they *do* know what they are doing....
I read the Times story the other day.
Krugman is a guy who often confounds me. I disagree with his domestic observations utterly and in toto, yet at times I think he's a pretty smart observer of foreign economic developments. To extend the point a little bit further, I feel the same way about the New York Times in general. I find some of their foreign reporting to be quite illuminating, even if only because nobody else is doing it. In this particular case, I think he offers some valid points to consider.
I know, I know. Stone me to death for expressing such heresies but nobody is always wrong all the time.
Except me, of course.
Good post. Green. Sorry about that.
Conclusivly so.
I'm not too worried about China. They have the 2022 Olympics awarded to them so construction will suck up alot of workers, materials, etc.
It's a real problem for earnings going forward for a lot of companies listed in the U.S. and Europe.There goes the income from the second largest economy in the world,which is China.What does that do to your stock price?And they'll be cutting back on where and what they invest in as well.I think it's called "oversupply".
"FIRE :: 'Finance, Insurance, and Real`Estate'"
First coin'd in 1982 and later pick'd-up as 'change?isn'tgood', naysayers in 2008?
http://en.wikipedia.org/wiki/FIRE_economy
Note: Geography shows China at the opposite side of the globe, congruent to the United States, but with ~ 4Billion +/+ Consumers?
RE-member that the chinese buy the bulk of US surplus grains at a net loss to the USSA farmers subsidized by a broken gov't! WE use up our valuable land resources and energy while depleting our soils and water...[?]
{?}
Re "Local Billionaires Are Quietly Liquidating Their Assets" this is where all the new San Diego billionaires are coming from.
No SDR fo yuh...