Shadow Banking Risks Exposed by Local Debt Audit: China Credit

[kelvesy]

Hi guys,

I have came across three articles about China's shadow debt and its trust products which caused some worry.

Will the Govt be able to effectively deleverage the debt-ridden economy successfully? But one thing for sure, the good economical growth won't be substantial in the long-term since credit is tightening up. I hope the China doesn't bail out them, it's better to take short-term pains and send a clear message to everyone not to engage in risky investments.

Any thoughts?

Here are the links:

http://www.ibtimes.com/china-shadow-bank...sk-1542659

Following an investigation, China Credit Trust Company told investors that Zhenfu Energy had taken out high-interest underground loans totaling 2.9 billion yuan, bringing its total liabilities to 5.9 billion yuan. Meanwhile, total assets have been valued at less than 500 million yuan.

http://www.bloomberg.com/news/2014-01-06...redit.html

“As banks tightened their purse strings, local governments had no choice but to resort to shadow banking and incur more expensive borrowing costs,” said Tang Jianwei, a Shanghai-based economist at Bank of Communications Co., the nation’s fifth-largest lender. “That will further constrain their repayment ability and eventually overwhelm some lower-level entities which have borrowed way beyond their means. I won’t rule out some defaults in 2014.”

http://www.bloomberg.com/news/2014-01-23...risis.html

Chang Feng, 33, a finance-industry worker from Shanghai, who teamed up with his uncle to invest a combined 3 million yuan in Credit Equals Gold in 2011, said he was offered “implicit guarantees” of repayment by a product manager at ICBC.

“Originally, I didn’t plan to invest in a trust-related product,” said Chang, a spokesman for the protest group. “But ICBC’s product manager told us the project will be guaranteed by the bank. There’s no way to prove it now. We didn’t record it. We trusted ICBC.”

[LionFlyer]

http://www.forbes.com/sites/gordonchang/...anuary-31/

Not going to be a Happy Lunar New Year.

[kelvesy]

Hi LionFlyer,

I think it will shake investors' confidence if there's no bailout.

But I am all for a non-bailout. I rather the market takes short-term pains than long-term massive pains. The government is working on its shadow banking problems. It's very similar to Lehman Brothers, loose regulations and special vehicles to avoid accountability. Dangerous. Hope the Chinese government is skilled enough to deleverage their economy. Like your signature said, greed.

[Image: P1-BO663_CSHADO_G_20140106190004.jpg]
from http://online.wsj.com/news/articles/SB10...2528192434

Like how Howard Marks said, our economy is like a pendulum. It swings back and forth. The harder it swings to the other end, the harder it swings back to the other end.

[cfa]

Many Western countries tried very hard to discredit the financial system of China . The problems in USA and EU are much serious then this.
China gov has trillions in reserve and these western countries don't have. So no comparison at all.

[cfa]

The investors in these products will lose , not the banks. The banks in fact made the comm already.

[opmi]

WMP failures may not be a systemic risk to the financial system.

But if PRC banks taking on third party WMP liabilities confirm will increase systemic risk.

PBOC not so 'goon-du' one. Will let WMPs go bust.

[LionFlyer]

It's one of many NPL which I don't think will bring down the system. But dunno how many skeletons are in the closet. Easy money has been fuelling China's growth this last few years, with companies in construction and mining borrowing heavily. So what happens next will be interesting.

[BlueKelah]

Tip of the iceberg is melting

As I posted before in the crash thread, there is just too much construction in china that is fuelling their high GDP of 7 percent.. The government in fact was not able to contain the housing price bubble. Can you imagine a housing market where the seller will cancel the sale and pay you back all your deposit and some compensation because someone else gave him a much higher price? Thats happening in china. And that same house the buyer paid so much more for will be sitting there empty to keep it nice and shiny for resale.

No amount of foreign reserve is gonna save the economy when people start revolting and everything revert back to communism, there is just too much corruption going on in china...

[BlueKelah]

Hi LionFlyer,

I think it will shake investors' confidence if there's no bailout.

But I am all for a non-bailout. I rather the market takes short-term pains than long-term massive pains. The government is working on its shadow banking problems. It's very similar to Lehman Brothers, loose regulations and special vehicles to avoid accountability. Dangerous. Hope the Chinese government is skilled enough to deleverage their economy. Like your signature said, greed.

[Image: P1-BO663_CSHADO_G_20140106190004.jpg]
from http://online.wsj.com/news/articles/SB10...2528192434

Like how Howard Marks said, our economy is like a pendulum. It swings back and forth. The harder it swings to the other end, the harder it swings back to the other end.

From what i have read, debt to GDP for china now is about 170+% and rising which is prety much one of the highest if not the highest in the world.

[CityFarmer]

I found this thread refers to the same topic of the other thread, so I merge the two.

Thanks

Regards
Moderator