China Bailing Out Europe (Again)? Don't Make The Head Of Greater China Research At Standard Chartered Bank Laugh

With the G20 meeting in Paris such an epic dud there is nothing even the permaspin media can write about (there was no news of a bailout. Nothing), it is time for some paywalled publications to recycle the gibberish about China bailing out Europe all over again. Sorry, it's too late. Courtesy of last week we now know that China is much more focused on bailing out its own largely underwater banking system (first facts, then analysis), than worrying about buying the 17th Community Bank of Thessaloniki. Yet we can keep repeating this so very simple fact until we are blue in the face. So we will leave it Stephen Green, head of Greater China research at Standard Chartered Bank.

Via the WSJ:

Chinese Banks Need a Pre-emptive Bailout


Beijing can tackle tough reforms now, or wait until problems grow more severe.


China's banks are much unloved these days. The government is pressing them to maintain small-business lending even as Beijing scales back broader credit creation to fight inflation. Analysts fret about the growing risks of nonperforming loans. Last week, an arm of the sovereign wealth fund Central Huijin had to buy bank shares in an effort to arrest a sell-off that has seen share prices fall some 30% this year.


China is not suffering a banking crisis now, but there's growing cause for concern. The only way to avert more serious problems is a new wave of reform.


What ails China's banks? First, China's growth has slowed, thanks largely to tight monetary policy since the beginning of 2011. This inevitably will push some of the banks' borrowers into difficulties.


Second, China's real-estate industry is in the midst of a cyclical correction. This is a victory for the government's anti-speculation efforts, but not a cost-free one. After 18 months of various regulatory controls, developers' sales volumes have become weak and their finances are tight. Inventories of unsold apartments are accumulating. Apartment prices will have to come down. Some small developers will go under.


Finally, some 20% of outstanding bank loans are to entities established by local governments to fund infrastructure projects. This—alongside all that inflation–is one of the legacies of China's 2009-10 stimulus package. These local-government funding vehicles leveraged up on bank credit, and built new metro systems, roads and airports. But it's unlikely all these projects are going to be able to repay those loans.

Read the rest here.

So enough with the China bail out rumors already: they are so August 2011. Nobody is falling for that anymore.