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Did Something Just Snap In China: Total SOE Debt Rises By $1 Trillion In One Month
We found something unexpected when skimming through the website of China's finance ministry.
While most China pundits keep close track of China's monthly loan creation and, especially these days, its Total Social Financing number to get a sense of what, if any, credit is being created outside of conventional lending channels within China's shadow banking system, one just as critical please to keep track of Chinese credit is the monthly report on national state-owned and state holding enterprises.
Such as this one from October 22, which reports that as of September 30, total liabilities of state-owned enterprises had risen to 77.7 trillion yuan. Why is this notable? Because the monthly update just preceding it, reported a total debt figure of "only" 71.8 trillion yuan: a whopping increase of almost CNY 6 trillion, or USD $1 trillion, in just one month.
This is the biggest monthly increase by a massive margin among China's SOE by orders of magnitude, and yet just to get a sense of the magnitude of debt held at China's SOEs, even this record monthly increase is not even 10% of the total debt held by China's state-owned enterprises which stood at CNY78 trillion or USD $12 trillion at the end of September, more than the total Chinese GDP.
What can explain this snap? There has been very little commentary on this particular surge aside from a report posted on Wall Street.cn, and translated by Chiecon, which reports the following:
China’s state owned enterprises added almost 6 trillion yuan (around 1 trillion dollars) of debt in September, described by Luo Yunfeng, an analyst at Essence Securities, as “an unprecedented increase in leverage”. This means that not only is the government abandoning its deleverage policy, it is actually increasing leverage.
According to Luo “it’s possible that debt that was originally classified as government debt, has been reallocated as SOE debt”.
This might be a reflection of how the government plans to tackle its massive debt. Luo mentions that one of the obstacles to managing government debt is that it remains difficult to draw a line between government and SOE debt. The crux of of current reform plans to increase the role of market forces is aimed at resolving this issue.
If it really is the case of shifting government debt to SOEs, then it represents a step forward for this reform, and the prospect of revaluing credit risk. Another implication, it seems unlikely there will be a pause in government debt increase over the fourth quarter.
This raises the more important question of what will be the impact of this enormous debt? Over the past few years credit expansion has surpassed economic growth, and with the governments aggressive leverage, will this lead to a greater waste of resources?
Ironically, "shifting" the debt - no matter how troubling - would be by far the more palatable explanation. Because if somehow China had quietly "created" $1 trillion in debt out of thin air parked subsequently on SOE balance sheets, that would suggest that things in China are orders of magnitude worse than anyone can possibly imagine.
Still, if China did not create this debt now, it will eventually:
This raises the more important question of what will be the impact of this enormous debt? Over the past few years credit expansion has surpassed economic growth, and with the governments aggressive leverage, will this lead to a greater waste of resources?
[W]ith China experiencing slowing economic growth, and no turnaround on the horizon, its seems likely the Chinese government will continue to increase leverage. In September, China Merchants Securities stated that since Chinese government debt leverage ratio is still low, lower than the US, Europe and Japan, there is still more room for leverage.
It's low? Really? Because according to the following McKinsey chart total Chinese debt was $28.2 trillion as of Q2 2014 (it has since risen well over $30 trillion), and represents nearly 300% debt/GDP.
But there is another implication. If China's is indeed merely stuffing government debt on SOE balance sheets as the report suggests...
Haitong Securities said at the start of the year that in order to prevent systemic risk the focus over the next few years will be on government leverage. Based on the experience of other countries, monetary easing almost certainly follows an increase in government leverage, with interest rates in the long term trending to zero.
... then China, while ultimately having to engage in QE, will last out the current regime as long as possible, offloading government debt in ever greater amounts to SOE until finally their debt capacity is maxed out.
Then, and only then, will China unleash the world's last remaining debt monetization episode, whereby the PBOC will proceed to openly monetize the roughly $3-4 trillion in total debt China creates every year. At that point the "Minsky Moment" of not only China, but the entire world, will have arrived.
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SOE = Sell Only Enterprises? Shit Outta Everything?
Charlie Chan say: "Admitting failure like drinking bitter tea."
Not to worry, nasdaq up 2% tomorrow
State Owned Enterprise
Sorrow Over Expenditure
Shame Overwhelms Enthusiasm
Sickening Outcome Ensues
Shitty Overatted Explosion
Nothing to see here, citizen. Move along!
Go watch Monday night Football and then CNN, like a good trustworthy American Zombie.
China...Fictional Fairytale Vs. Factual Truths
The link below outlines why China is economically doomed but do they hold the ultimate trump card in 10k+ tons of gold???
The pivot by BRICS, OPEC, etc. turning away from US Treasury's to initiate and maintain ongoing physical gold purchases coincided with a simultaneous and ongoing collapse in the price of gold (gold's price peaked in July '11 and has fallen by a third since?!?). Suffice to say, when the price of something collapses on ongoing record (physical) demand and the price of something else (US Treasury bonds) rises on a collapse in demand...these are not typical free market responses. When the largest and most fundamental markets act contrary to supply and demand...when the cornerstones of a market are seemingly removed...the validity of the market signals in general are clearly meaningless?!?
http://econimica.blogspot.com/2015/11/chinafictional-fairytale-vs-factual.html
It would appear we have idiots at the helm, but is soon to change ..
Guys like Bill Holter state that the PRC has some 10k of bullion. At the same, he hopes the vaults at Fort Knox et al have their ~8k. In '64, the U.S. had a reported 10.5k, equaling ~15 billion (USD). Today, some 2k = ~90 B. How much bullion do you think 32.8 TRILLION can purchase?
http://eagleonetowanta.com/wp-content/uploads/2015/04/US_Treasury_Federa...
(above as of 2011. Consider interest earned since.)
And yes, the compromise was breached. Wanta has possession of the entire amount. It sits in the U.S. Treasury as we converse. The National Debt Clock should read -0- and be dismantled. Where is the public outrage?
https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (Read Me First)
Now my theory on China (PRC). We don't have SOEs. We do have GSEs. (possibly about the same thing).
Let's say we (USG) screwed China and should have rectified by 2006. We didn't. China wants revenge. They plan this revenge. However, it could blow up the entire world as we know it. Certain elements within the USG. Let's call them "white hats." They cannot allow China to succeed. Therefore economic warfare must be performed in similar manner as was on the USSR.
http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...
We (USG) did create the monster. (Spook-craft is a "hall of mirrors.") It is possible we (USG) really exacerbated things in June with the Shanghai Exchange attack. Since that the white hats have had to do overtime. Then again, the PRC created their own stupidity. 300% of GDP?!? We The People are not in that bad of shape. And yes, our industry can be rebooted in short order for 50k+ miles of high speed rail.
http://www.veteranstoday.com/2014/01/05/the-wanta-reconstructing-america...
I could write an expanded essay on this, but I'm not ..
I gave you my archive. Connect your own dots ..
More debt? That's good, right? That's the name of the game! Without it, (slashing motion across throat).
Stick with Craaamer!
Is there anything you miss, roundeye?
Chinee market love you long time, no sheit!
China should arrest this Minsky fellow before maxing out SOE debt limits. It stands to reason.
Wow! 1 T$ new debt? Like that would make any dent to "armageddon moment" for china?
Hahahaha..
Ching Lee Soo. The financial bullet catch trick using a China plate. He was a fraud. His real name was ..
http://birthmoviesdeath.com/2013/03/12/the-magician-who-was-shot-to-deat...
HELICOPTER BENXIANG!
A trillion that's a pretty big number, what comes after that ? we got America used to 70 billion a month money printing, now a trillion here a trillion there.
has to be a bigger number on the Horizon Soon. we need Growth
Moar zeros > Moar stuff??? seems legit.
Japan is already counting in quadrillions!
Exactly.
What's a few trillion dollars when infinity is the limit of the money supply?
We have no problems yet. After trillion we have quadrillion, quintillion, sextillion, and septillion. Plenty of room to print. Once we have a few hundred septillion in debt we will have a minor problem; the need to come up with a new and bigger order of magnitude.
There is literally no reason they cannot print money and add zeros till the end of time. It's laughable to think we will ever pay it back, or that they have any intention of stopping the presses. I think everyone knows that at this point.
Read between the lines.
Socalism downloading under Bill Gates WIN 10 will clean his fucking clock. Millieium edition will be a stroll in the park. Vista will make a roll stand off laughter.
"The crux of of current reform plans to increase the role of market forces"
Can't believe people buy this line of shit.
Smells like "manipulate the stock market higher" to me.
That was just some non-performing off book debt being rolled over onto the books.
Nothing to see here, move along now.
They own all the Gold so fuck it. They can default on their loans all day and laugh their asses off. Perhaps their leadership are busy also buying up more American soil so they can eventually move out of their country when its rioting?
I also really love their new nuclear reactors they are building made of cheap Chinese parts I imagine and put together by the hands of frauded cheap chinese labor. How many of those laborers are building those plants and have already lost their life savings on their market? Hard to concentrate on important shit when you know your Government has just screwed you. I'm sure sabotage is going through some of their minds every day. I'm glad Obama is also helping them build up nuclear power. Billions to be spent doing it. http://www.theguardian.com/world/2015/may/25/china-nuclear-power-plants-...
"I know how to fix it. Let us just add another zero, OK ?"
But they have all the gold - they just need a massive revaluation and its debt is gone overnight.