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China Insolvency Wave Begins As Nation's Biggest Provincial Borrowers "Defer" Loan Payments
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 Sina.com.cn, 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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China is down 20 % ytd and the global credit contraction is just barely getting started.
One of my fav ind. the ted spread is at .58 and rising..well below the 100 a level which is a sign of stress in credit mkts.. In Oct 08 it reached over 457. I believe the highest reading ever. This could go into 2012-2013 on how slowly its been building or compress in 2012 in a crash. A most complex mkt environment and risk to go along with it. I see risk and nothing but.
Forget the vix its become useless as an indicator, just another leveraged play. Congrats to the fed they have made the US Mkts a Lagging indicator. Not Leading nor Coincident but Lagging like jobless claims. China and Brazil, Communist and Socialist systems , have more open Markets than the US does due to intervention at every level.
who else is in the money?
told ya'll!
you should listen more closely.
smells like corruption. and when you say that word in china, you talk about chinese organized crime.............
As opposed to the Chicago oraganized crime or the Latin American drug cartels crime or the Islamic heorin pipeline from Afghanistan to Europe or the gangsters in the US Senate and the EU-SSR in Brussels or Japan's Yakuza which is all through Japan's business and political system.
[Posted in the wrong place.]
Much of what we perceive as prosperity in China is due to the tremendous amount of construction. That was paid for by massive expansion of the (fiat) money supply. When any boom is so funded, eventually the mirage of prosperity is no longer sustainable, and the expansion comes to an abrupt end. Then the assets (such as apartment highrises and shopping malls) will have a real-world value that is far below the amount that was borrowed to build them. This causes a great contraction, which is really a rationalization to true value. This explains our dot.com bubble and our housing bubble. This also will explain what is going to happen in China, only there is a real possibility the contraction will trigger unrest and revolt against the Communist Party who was happy to print the money and make the loans.
Someone said (Jim Rogers or Jim Grant or someone) said the Chinese communist party elite will engage in capitalism to hold onto power. The American elites like the islamic and the rest of Wash DC will engage in socialism to hold onto power.
China's "miracle" is based as you said on a huge amount of construction. I wonder how badly constructed a lot of those buildings are. A few people posting here and people I know say a lot of U.S. commercial construction ove rthe pastr few years is pretty crappy as well.
I cannot imagine some of the construction in China and Dubai, etc. Some of the middle east stuff supposedly had crap concrete mixed and in some cases salt water was used in the mix.
After watching the Jeffrey clip, I was laughing so hard I forgot what the post was about. Obviously missed the movie, don't think I could handle the whole thing.
I still have 2 questions :
1) What did this have to do with Toys R US ?
2) Why malign Provigil, it is simply a "wakefulness promoting agent."
3) Value is relative and despite the continuous machinations of a 90 year propaganda war, Capital cannot be separated from Labor, and there will never be "free" markets as long as there is "slave" labor.
Yeah, yeah, the last one was not a question, I know.
China is infused with slave labor and Capital in the western world has been leaching off of this for a long time.
Ill just go ahead and reply to your statement #2. Modafinil (as i know it) is more than just a wakefulness promoting agent... It got me through a few exams in grad school, and noticed it could go a lot further if required. Am not the type to get addicted to anything, you know, enjoy everything in moderation... but the kid pushing this swore by it like it was his alcohol on a night out clubbing or his upper pill on a lazy sunday.
Yikes.
I forgot to include the "sarc" button on that one (but if it has a button, is it really sarcasm?)
The phrase "wakefulness promoting agent" is a euphemism pilfered from the National Institue of Health website :
http://www.ncbi.nlm.nih.gov/pubmedhealth/PMH0000196/
Hunter S. Thompson in Fear and Loathing in Las Vegas would probably provide a more fertile ground for descriptive phrases. Like the scene driving through the desert with the ether, cocaine and giant bats.
Is a "deferred loan payment" an Asset?
and a
"Deferred loan REpayment a Liability?
I want my fucking PROVIGIL now
I love the graphic! -- Michael C. Ruppert
http://www.collapsenet.com/154.html
I don´t understand why the Chinese central government can´t print money, take over all collateral and wait until demand for more expensive housing (which the consumers currently can not afford) picks up and meanwhile build other things that give a better return, such as an electric grid that makes electric vehicles a more realistic alternative. Electric vehicles are a realistic alternative if you can cut the time needed for recharging the batteries to, let´s say, 10-15 minutes for a vehicle with a 100 km plus range. Furthermore, if they can replace imported oil for passenger cars with domestically produced electricity, they can improve their balance of payments. That would reduce the need for exporting labour intensive goods that take low wages, which in turn would facilitate efforts to increase wages in China. The cost price for producing the electricity needed for a 100 km trip is about the same as for the oil needed for an internal combustion engine vehicle that would make the same trip.
I reckon that the risk for hyperinflation due to money printing for the reasons mentioned above should be less than in Europe and the United States during an economic downturn if the money printed would be used for investments that would improve the productivity of the economy rather than be used for consumption like in the US and Europe.
They are doing that already - they invested tons into their infrastructure from 2008 - 2011. Plus, the real aim of printing money, as we're all coming to realise - print money, distribute to banks, banks buy government debt, earn differential between 0% and government debt rate. Allowing it into the real economy can lead to all kinds of trouble.
ucsbcanuck:
My comments:
The fact that you don´t state any problems associated with printing money for infrastructure investments that would improve the future balance of payment indicates that I´m right, especially if this takes place in an economic downturn.
(I am not familiar enough with the Chinese economy in order to tell exactly what they currently are doing but it seems as if local governments and others have invested in real estate which currently is too expensive for the consumers. If you are right the Chinese are currently doing about the same thing as the EU now is doing. I suppose that there are smarter options available for China.)
China's real estate market is filled with bad loans. A collapse there is inevitable.
a lot like Canada
china is doing well and will do better in the future.
http://covert.mypressonline.com