[video] China / US: a second ‘great rotation’?
There has been a lot of talk about the ‘great rotation’ from bonds to stocks but are we about to see one from east to west, from China to the US? Chris Watling of Longview Economics talks to the FT’s John Authers about green shoots in the US – and worries in China.
A top Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash, reports Simon Rabinovitch.
Zhang Ke, head of leading Chinese accounting firm ShineWing, said he had all but stopped signing off on bond sales by local governments as a result of his concerns. Continue reading »
China debt: heading for a fall?
Could China in 2013 be heading towards a financial crisis similar to the US in 2008 and Japan in 1989? It’s the billion dollar question of the day, but for now the optimists have been able to outshout the doom-mongers by pointing to China’s much lower debt to GDP ratios than those that characterised the US and Japan before it all went pop.
Then along come analysts from Nomura with some unsettling numbers. Continue reading »
It’s well known that loose credit has played a big role in driving Chinese growth, but the rest of Asia could have a debt problem too. So says HSBC’s Frederic Neumann, who warns that bank credit to GDP in Asia (excluding Japan) is now running at levels higher than in the 1997-8 Asian financial crisis. Continue reading »
China’s booming fake muni bonds
Despite racking up huge debts, China’s local governments aren’t allowed to issue bonds to help pay them off. Although there is a small trial programme underway, the market is still effectively closed.
However, the ban doesn’t stretch to local government finance vehicles – LGFVs for short – which are technically corporations, even though they do the work of a government body. Bonds issued by LGFVs – called chengtou bonds – have been booming. Continue reading »
Guest post: China’s looming debt burden threatens growth
By Ben Simpfendorfer of Silk Road Associates
For the past few years, I’ve described myself as a short-term bull and medium-term bear. But it’s time to update that view, as the medium-term has finally arrived; in short, China’s trend growth rate has shifted down towards 7 per cent and will likely stay there through 2015.
The bigger question though is whether it will shift downwards again. If that proves to be the case, the unsustainability of China’s debt-fuelled growth will have played an important role. Continue reading »
Emerging markets riding to the rescue?
Will emerging markets ride to the rescue of the developed world? A new report from Ernst & Young suggests they will.
The report, Rapid-Growth Markets Forecast, Summer 2012, says a re-balancing of emerging economies towards domestic consumption, led by China, should reduce their dependence on western export markets while providing a new engine of growth for the world economy – even to the extent of “stabilizing financial markets and economic systems across the world”. Continue reading »
Is China embracing CDOs?
Readers of The Big Short will recognise this once-fashionable trick of financial engineering: 1) Take some debt rated BBB, BB+, and A-. 2) Bundle it together. 3) Get it rated AAA 4) Flog it to investors.
Recent reports from China suggest that this technique is beginning to catch on among the most cash-strapped of businesses: SMEs. Continue reading »
Hugh Hendry: forget Europe and the US, the next crisis will be in China
He’s back. Hugh Hendry, the outspoken hedge fund manager best known for his bearish views on China and this jerky, homemade video of empty malls and deserted developments, has come out with a new letter to his investors after an 18 month absence.
China bulls will find few comforting words in it though. Quite simply, Hendry thinks China’s massive property bubble will burst in a spectacular fashion and become the focal point of the next financial crisis. Continue reading »
Guest post: social housing won’t fix China’s economy
By Ben Simpfendorfer of Silk Road Associates
The chairman of a large Chinese construction company recently commented about the increase in spending on public housing: “The government is satisfied. The people are happy. And the banks all benefit, as the company will not lose money”.
His comment could be a slogan for 2012’s outlook: and it’s both good and bad news. Continue reading »
Shanghai’s bond issue: thanks dad
Nothing beats a bond issue these days when you’re looking for an opportunity to jump to conclusions. No, we’re not talking about Rome, Athens, or Lisbon. Instead attention was on Shanghai, where the municipal government became the first local state entity to offer bonds in almost two decades.
It went well. Yields came in at 3.3 per cent on 5-year notes, lower even than South Korean sovereign debt of the same maturity. So the Chinese local debt crisis, involving Rmb10,700bn ($1,650bn) owed by local authorities across the country, is over? Continue reading »
China: let a hundred muni bonds bloom
Much has been made about the huge debt-pile that China’s local governments have taken on to fund infrastructure projects over the past three years. But just how big of a headache has China’s municipal debt problem become?
Big enough it seems for Beijing to finally act.
In a move aimed at giving its cash-strapped local governments a much needed funding boost (and reduce the possibility of defaults), China’s finance ministry on Thursday approved a trial programme that will allow the cities of Shanghai and Shenzhen, as well as the provinces of Zhejiang and Guangdong to issue short-term bonds. Continue reading »
Guest post: China’s local debt problems – the next Europe?
By Ben Simpfendorfer of Silk Road Associates
I visited Changde’s still unfinished international marathon track last week. It’s not likely to feature on the international circuit anytime soon. Changde is a third-tier city in the largely agricultural province of Hunan, more famous for exporting migrant workers to export factories in the coastal provinces.
The idea of building a track was conceived in 2008, in the afterglow of Beijing’s Olympics. A local government financing vehicle (LGFV) subsequently issued $136m in debt to help finance its construction. Today, the track is little more than sticky red mud, a blue hoarding sign and discarded steel drums. Continue reading »
Guest post: China’s disappearing Rmb1,100bn bank deposits
By Victor Shih of Northwestern University
In July this year, households and companies withdrew a total of Rmb1,100bn ($172.5bn) from China’s banks, equivalent to 2.5 per cent of GDP. In August, household deposits barely clinged to positive territory at Rmb26bn, despite receiving over Rmb188bn in new loans that month.
Corporate deposits grew a bit more, but were still abnormally low. Although the September numbers are not out yet, Chinese press reports suggest that the deposits in the major state banks declined substantially in the first half of the month. Where did all the money go? Continue reading »
China debt: Moody’s warning
The folks at Moody’s are the latest to issue some stark words on the levels of debt building in the Chinese economy – specifically within local governments.
The official figure for LG debt – released by the government’s national audit office last week – of $1,650bn is probably too low, say Moody’s. The real number may be much higher. Continue reading »
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