As China Prepares To Bail Out Europe, Who Is Preparing To Bail Out China?

In the past week, any and every move higher in the market, which is a direct consequence of the EURUSD seeing an uptick, has been as a consequence of rumor or statement or outright innuendo that China may either buy European bonds or European assets, but generally bail out the now ridiculously insolvent continent (and with Greek 1 Years at 150%, it is pretty clear what will happen). Yet, once again the conventional wisdom leaves much to be desired. Such as the answer to one very simple question: China just may buy up a whole lot of Greek and Italian bonds, and even EFSF issuance, but... who will bailout China. Wait, China is in trouble? Why yes: from Marketwatch: " China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts. The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said." That's ok, by the time China is insolvent, Chinese stabilization of Europe will be complete, and Europe can boldly step up and rescue China in turn. And so on... And so on... In the wacky, wonderful, ponzi world of ours.

From MarketWatch:

“I advocate selling all [Chinese] property-developer stocks because a credit crunch is coming,” said Credit Suisse analyst Jinsong Du, speaking with MarketWatch about the research.


Du said worries he’s had for a while about the housing market were confirmed by the “big disconnect” in data released by China’s National Bureau of Statistics on Friday.


Among figures out late last week, investment in residential projects rose to 432.9 billion yuan ($67.75 billion) in August, up 37% on year, or 4% higher from the prior month.


Meanwhile, completed residential projects in August totaled 37,250,000 square meters, a rise of 1% from a year earlier, but down 6% from the prior month.


Credit Suisse analysts said the Statistics Bureau’s figures back its earlier research which flagged that China’s real estate developers were beginning to face major headwinds.


The report, published in May, forecast that payment disputes between developers and their contracted construction companies would become more widespread, eventually resulting in construction delays and pushed back delivery dates.


“It’s finally shown up in the numbers,” said Du.

Somehow Europe which is out of cash is relying on China to fund it. Yet the irony is that the biggest marginal driver of Chinese economic growth is also out of... cash.

In spite of curbing the acquisition of new land and pressing for builders to slow their work, developers appear to have exhausted options to preserve cash, Credit Suisse said in its report dated Sept. 6.


Net gearing rose slightly in the first half, even as firms scrambled to improve their balance sheets, with the result “financials [are] much worse than they appear,” said the Credit Suisse analysts.


Credit Suisse forecasts property prices will decline in the second half, as sentiment surveys show enthusiasm towards property ownership beginning to wane.

The irony is that with the entire world raging, raging against the dying of the leveraged night, China is doing all it can to sabotage its economy. And sooner or later it will succeed. How long before that terminal event is priced in, and those betting on a Chinese bailout finally start scratching their heads?