China Insolvency Wave Begins As Nation's Biggest Provincial Borrowers "Defer" Loan Payments

Tyler Durden's picture

Remember, back in the day, when a bankruptcy was simply called a bankruptcy? Naturally, this was well before ISDA came on the scene and footnoted the living feces out of everything by claiming that a bankruptcy is never a bankruptcy, as long as the creditors agree to 99.999% losses at gunpoint, with electrodes strapped to their testicles, submerged in a tank full of rabid piranhas, it they just sign a piece of paper (preferably in their own blood) saying the vaseline-free gang abuse was consensual. Well, now we learn that as the global insolvency wave finally moves to China, a bankruptcy is now called something even less scary: "deferred loan payments" (and also explains why suddenly Japan is going to have to bail China out and buy its bonds, because somehow when China fails, it is the turn of the country that started the whole deflationary collapse to step to the plate). After all, who in their right mind would want to scare the public that the entire world is now broke. Certainly not SWIFT. And certainly not that paragon of 8%+ annual growth, where no matter how many layers of lipstick are applied, the piggyness of it all is shining through ever more acutely. Because here are the facts, from China Daily, and they speaks for themselves: "China's biggest provincial borrowers are deferring payment on their loans just two months after the country's regulator said some local government companies would be allowed to do so....Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November." So not even two months in and companies are already becoming serial defaulters, pardon, "loan payment deferrers?" And China is supposed to bail out the world? Ironically, in a world in which can kicking is now an art form, China will show everyone just how it is done, by effectively upturning the capital structure and saying that paying interest is, well, optional. In the immortal words of the comrade from Georgia, "no coupon, no problem."

Our advice: go long Teva, which recently acquired Cephalon, and its wonderful drug Provigil, which is basically legalized cocaine, speed, meth and heroin all in one perfectly legal pill, as the newsflow, up until now only picking up with the idiot headlines out of Europe at 3 am Eastern is about to become one constant 24/7 flashing red rumor/disinformation mill. Also, next time someone wants to make THE drug cocktail of choice for the headline reacting speed trading junkie, please name it appropriately. Jeffrey will suffice.

More on China's piglipsticking:

As local governments delay payments for projects commissioned as part of the stimulus to ward off recession in 2009, less money is available for bank lending even as China is taking steps to inject more into the economy. The central bank has held interest rates at 6.56 percent since July to boost the economy, while the US Federal Reserve and the Bank of Japan have kept benchmark rates near zero since 2008.


"When companies start to roll over debt they're not retiring debt, and banks aren't retrieving their capital, so you're crowding out new lending," Patrick Chovanec, a professor at Tsinghua University in Beijing, said in a Dec 13 interview. "This is a problem that's going to start to bite next year."


Local governments had 10.7 trillion yuan in debt at the end of last year, 79 percent due to banks, according to the country's first audit released in June. So-called local financing vehicles that meet collateral requirements can have a one-time extension on their loans, Zhou Mubing, vice-chairman of the China Banking Regulatory Commission, said at a conference on Oct 24 organized by the Internet portal, according to a transcript of his comments on the website.


Guangdong Provincial Communications Group, Hunan Provincial Expressway Construction Group, Gansu Provincial Highway Aviation Tourism Investment Group Co and Sichuan Railway Investment Group Co owe more than 200 billion yuan to banks, the data show. They plan to defer 34.4 billion yuan in interest payments, according to their bond prospectuses.

Yes, that's a lot, and it's going to get much worse. But not if you listen to Beijing Bob: yes, even communist countries have a department of propaganda:

Lei Wanming, Gansu Highway's deputy Communist Party secretary, said the company's interest payment deferrals do not raise any concerns. "Our company can pay our interest and our principal payments with no problem," he said in a Dec 5 interview. "You can't just consider this issue by looking at a bond prospectus."

Said otherwise, all is good, and China's 'relatively fast' growth is still on the agenda:

National leaders set a goal of "relatively fast" economic growth for 2012 at a major conference in Beijing that ended on Dec 14, according to the Xinhua News Agency. The global outlook "remains very grim", Xinhua cited the leaders as saying.

What is most ironic is that Meredith Whitney will be right... just wrong about the country.

The extra yield required to hold Hunan Provincial Expressway's 900 million yuan in 2012 bonds has increased to 308 basis points from 151 basis points on June 21, when they were issued. That compares with a current spread of 11 basis points on Shenzhen's five-year direct municipal bonds. 


Yields on local government financing company bonds will remain high next year as selling debt becomes a main channel for raising funds, China International Capital Corp analysts led by the fixed-income analyst Xu Xiaoqing wrote in a Dec 16 research note. Most of the bonds are sold at yields of 8 percent, or 144 basis points more than the benchmark bank lending rate, according to the report. Five-year top-rated corporate bonds yield 4.98 percent, according to Chinabond, the nation's bond clearing house.


"Although the China Banking Regulatory Commission has recently eased loan restrictions to help liquidity, recent supply has been increasing, causing the secondary market to pay attention to systemic risks," they wrote. "The credit quality of recent financing vehicle bonds continues to get weaker."

For those who refuse to swallow China's lies, there is one way around it:

Five-year credit-default swaps insuring against default on China's sovereign debt rose 3.2 basis points recently to 149.66 basis points, according to data provider CMA...

As more and more scratch their heads, the math is clearly not your friend:

Even after the reduction in interest payments, Gansu Provincial Highway said that interest and principal payments in 2011 will amount to 3.33 billion yuan, more than its 2010 cash flow of 3.04 billion yuan, according to bond-marketing materials.


"This prospectus is telling us that banks can expect to only receive roughly half of what would have been expected in interest payments," Charlene Chu, a Beijing-based banking analyst with Fitch Ratings, said of the Gansu disclosure.

And as for what happens when an entire continent is stuck fighting simple math and failing, we refer you all to the case study that is Europe.

So as we all prepare for what is set to be, without doubt, a relentless barrage of headlines, lies, innunedo, rumors, media counterrumors, more lies, propaganda, from Europe, the US and now Asia, here, again, is Jeffrey.

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SMG's picture

Cry 'Havoc,' and let slip the dogs of war....

knukles's picture

Or can just ring the doorbell and run.

Harlequin001's picture

It's at times like this when you really appreciate holding physical metal, along with a goodly supply of tinned food....

Ahmeexnal's picture

Ukraine dumps euro and dollar, embraces gold and silver:


Former Soviet republic of Ukraine is considering to mint more gold and silver coins and made it available for general public.

According to Ukraine’s National Bank, launching of investment coins made of gold and silver will allow people looking for an alternative to dollars and euros as a means of savings.

The coins can be bought by Ukraine’s local currency, hryvnia, through the branch network of the banks to be selected by the centralbank .

The volume of the first issue of the investment coins can make 4-5 thousand pieces. They will be issued in denominations of 1, 2, 5, 10 and 20 hryvnias with the weight ranging from 0.1 to one troy ounce of triple nine gold .

Also it is expected to release silver investment coins, weighing one and two troy ounces. In addition to the investment coins, the National Bank of Ukraine is also planning to issue gold securities – gold rate-indexed certificates.


Real Money Wins's picture

This is just a prelude. They are only clearing their throats. You haven't seen any thing yet! From here the ride gets really wild. The next faze will be like base jumping off the Burg Khalifa in Dubai!

theMAXILOPEZpsycho's picture

That sounds COOOOOOOOOOOOOOLLLLLLLLLLL!!!! mean with a bungee rope right??

Oh regional Indian's picture

Wait till the Indian in-solvency wave begins. The whole game in the BRICS is a house of cards (or brics if you will), all tottering.

The demand is fake (pumped), th esupply chain is shaky (and this is true across all supply chains).

In fact, what becomes rapidly obvious if you pay attention, is that India/China were built up PURELY as low cost labour supply and easily led by the nose connedsumers.

If I did a post on Bangalore's growth in the last 15 years, the story would be a horror story of mangled implementation, curroption and a total lack of empathy for the humans involved.

BRIC wall is going down, even before the EURO I feel.




PS: That pig picture is chilling. Not just in a 1984 way neither in a lipstick on a pig way. Deeper.

Tao 4 the Show's picture

Know what you mean. I have connections in Brazil, and though the resource/growth story is true, there are loads of problems. Corruption probably tops the list, followed by societal breakdown (they have graduated from simple robberies to gunpoint robberies/murders of car drivers, etc), inflation, and many others. Not sure how the story will play out, but it is certainly no paradise.

Yes We Can. But Lets Not.'s picture

ORI. How about a guest piece on Bangalore?

Oh regional Indian's picture

I'd do it. In fact, I'd do a video piece, that will really tell a story, BRIC by BRIC.

Iinterestingly enough, I have 8mm film from 1972-1975 bangalore, silent film... just the contrast tells the story. 

Interesting, I'll pursue tha tline of thought. Thanks Yes we can.


OldPhart's picture

With you on the pig picture.  It has an uncanny resemblance to a lot of North Florida/South Alabama in-laws.

cleverlemming's picture

I'd like to know more about your assertions about supply and demand. Apple has every machine in China that can make aluminum unibody notebook cases under contract. Demand is strong. Huge growth in road and rail construction. The only logistics problem I know about is that we have to ship huge numbers of empty containers back East. I don't see Bangalore as comparable except, perhaps, where deliverables are software and services but I look forward to learning more.

Winston Smith 2009's picture

"The US dollar is toast."

Eventually.  But there will be a fairly wide window of opportunity where it is king as everyone rushes to the safety of the (for now) best of the fiat currencies.  In that window, there'll be a chance to buy productive assets in dollars at greatly depressed prices, just as the smart money did during the Great Depression.

WhiteNight123129's picture

Agreed, through of stock matket after real estate bust usually bottom after 12-18 months. You might have real bargains on the Hong Kong stock exchanege outside of banks and real estate related businesses.


Temporalist's picture

They better stop considering before they can't get any.

Right-on Left-off's picture

Uh Oh!

This sure looks like real money from a sovereign going into circulation.

I got the Bull by The Horns - HELP's picture

I am calling the top of the gold market.


Jews have always shafted the Ukrainians, and they have an inside joke of picking on them. I bet they sell them gold at the top of the market. I feel sorry for the non financial literate but honest and kind Ukrainians.


Thats why the ukrainian village idiots stomped them in WW2. Payback bitchez!


moral of the story. If you are a Jew, it is not funny to short change the village idiot. One day a competing army gives them, a uniform a gun and a sense of pride in themselves.

CoolClo's picture

@I got The Bull..


+100. When a government decides to get into an investment its time to do the opposite. Government is  the herd mentality in the fullest. 


The ongoing Deflationary Depression will hit PMs as they are sold to pay down debt, which is mostly denominated in Private Federal Reserve Notes.


The Great De-leveraging continues..



frostfan's picture

only 13 anti-semite jew baiters today?   Where are the rest of you idiots?

e2thex's picture

"Considering" was the operative word.

Next comes the ad in the WSJ announcing a LIMITED Printing.  You know the money back guarantee will be no problem, right? And they're gonna give you an affadavit attesting to the purity.

If you want an affadavit now with a new driver's license that will cost you an additional $29.99 or can you just give them your bank routing number...

wisefool's picture

from you lips to anyone in state/defense if we dont have Ron Paul in 2012.

Hugh G Rection's picture

The thread picture is confusing... what does Candy Crowley have to do with the story, and doesn't she have long hair?

Troll Magnet's picture

shut the fuck up HGR! you're insulting the pig!!!

Hugh G Rection's picture

My apologies to the swine community.  My comment was lowbrow and way over the line.

There is no way Candy tastes half as good as bacon.

ucsbcanuck's picture

"There is no way Candy tastes half as good as bacon." Yeewww...

fonzanoon's picture

I thought between China and japan they owned trillions of treasuries. Why not sell some to help these companies that can't pay their loans?

Bindar Dundat's picture

As ZH has been saying for two years -- the world is broke, there is not a Country who can bail us out and when the tidal wave of bankruptcy hits there will be no safe place to be but gold and barter.   It is going to be bad: currencies will be worthless and every nation and company in the world will be scrambling to stay afloat and our economies will dissolve into feudal states where barter is the only means of business and personal survival.  


Barter skills and  professional and trade  skills will be the key to living, but not all skills and products will be seen as equal in the coming changing world.  What good is barter if your product is software? What good is barter if you are a lawyer or an accountant?  What good is barter if  you have nothing to trade that will help  people survive?  QUESTION: Is it time to asses your skills and see if you will be a survivor in the coming crash or is it already to late?


I suppose if you are a Doctor a dentist, a farmer with land or make and sell supplies that people need to exist you will be OK.  But anything else and I am afraid you better learn how to kill and steel because you will be part of the massive group of citizens that are in deep trouble and when they do the population will become animals and it will be survival of the fittest.  


Any ideas of what we financial types should be getting into?

JimmyCDN's picture

I think you may be right.  Time to trade in my laptop for a good set of bicycle repair tools again.  I can't wait for the grime under my fingernails.

Hugh G Rection's picture

Any ideas of what we financial types should be getting into?

Religion. They better get right with God. Managing a hedge fund may have made you a pile of fiat in ponzi times, but with no combat/survival skills you'll end up dog food in the new world disorder.

Elwood P Suggins's picture

Ah soooooooooo.  Have tickee but still no laundry.

Buck Johnson's picture

They are trying to do and say things that aren't supported by mathmatics.  They might as well get a bailout from a planet in Alpha Centauri star system.  Everyone is in denial and many are starting to believe the denials.

cherry picker's picture

I've been around awhile and have never witnessed so many governments at all levels so poorly run and indebted as in 2011.

A reflection of populations' desires and habits or the other way around?

What the unsuspecting do not know as they sit in front of their Christmas trees today is this system is going to stall and head down to earth rapidly.

There are no parachutes.....

Freddie's picture

I've been around awhile and have never witnessed so many governments at all levels so poorly run and indebted as in 2011.

It's called socialism and politicians dear boy. Look it up.   They are not "poorly run" - they loot the system and taxpayers by design.

Harlequin001's picture

I hope we all realise that we are living in the golden age of civilisation and that this is the very peak of human development.

Problem is that by definition, it's all downhill from here...

Merry Christmas everyone...

wisefool's picture

I agree. if material wealth is the criterion.

But I a fascinated on a spirtual level about the world without the USA as supercop to the world. And I dont mean that in a bravadic sense, I mean it in a 50 vs. 750 military bases around the world way of doing things.

Harlequin001's picture

Having the US as Supercop only takes the war elsewhere, so that will be very different going forward, but lets face it, most of us would not have been educated had it not been for the educational facilities made available by the State(s) various through fiat money, neither would our families be as safe, healthy and well fed had it not been for the medical and agricultural advances made available from research paid for by fiat money, and the investment made into these companies which is itself originated from fiat money. Whilst we all slag this system off we have all benefitted from it greatly.

The world is going to be a very different place very soon, and I for one am not too keen to see it happen. Let's face it, the next global policeman might not be a Western power. How does that sound?

Dasa Slooofoot's picture

America has never been more fatter & dumber...

dolph9's picture

Americans have given up.  Not that I blame them.  Just look at the shit everywhere around you in this country.  When you swim in shit, eventually you just give up and drown in it.

Hugh G Rection's picture

"Two mice, fell into a bucket of shit, one mouse quickly gave up and drown... the other mouse, struggled so much, he churned that shit into silver, and moved south to bang senoritas..."

Troll Magnet's picture

mmm...senoritas...mas mamasitas por favor?

Normalcy Bias's picture

"I don't know what's gonna happen, man, but I wanna have my kicks before the whole shithouse goes up in flames. Alright!" - Morrison

Bobbyrib's picture

It will be great when the great collapse occurs and he is the only gringo within miles.

Hugh G Rection's picture

Ohhh Bobby, worry about yourself, I'll be fine ;-)

"No no gringo, no dispare, por favor, lo siento, no quiero sus balas en mi culo!"

La flama blanca bitchez, you're fucking out!

Hugh G Rection's picture

Hillarious. Hadn't seen this movie yet, now I have something to do later. That Lahey character is a riot.

ucsbcanuck's picture

The Trailer Park Boys - one of Canadian TV's greatest exports

Ganja Jane's picture

Yeah, I discovered them on Netflix. I saw Movie 2 first. Hilarious! I laughed so hard my stomache hurt for about 2 hours afterward.