Comments on: Chinese Banks: "An Accident Waiting to Happen"

By: Aki_Izayoi

Aki_Izayoi — Tue, 30 Jun 2009 12:30:49 +0000

"Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".
"

What does "correctly counted" mean? Does it include debts from municipalities? What is the US' "correctly counted" debt if you include municipal governments?

By: Hugh

Hugh — Tue, 30 Jun 2009 05:28:28 +0000

China is another bogus green shoot much like our suckers market.

For me, China's actions are all over the place and do not represent a coherent response to what looks increasingly like global depression. As here, we are seeing massive diversions of resources into unproductive, even fraudulent, sectors of the economy. It is further evidence of the lack of any real attempt at a coordinated international response. All we have are individual nations mostly in denial flailing away, addressing the wrong problems with worse solutions.

By: Peripheral Visionary

Peripheral Visionary — Tue, 30 Jun 2009 02:10:29 +0000

@Brick: "The question then becomes where does china get the money for the bailout from."

Easy: they print it. They clear out bad debt and depress their own currency, in one fell swoop. I'm not sure where the fears about Chinese deflation are coming from when they have every incentive to inflate their own currency.

Unfortunately, this can continue for quite some time. In the long run, of course, inflation will set in and will ravage the Chinese economy as consumers and manufacturers are forced to pay atrocious prices for fuel and raw materials. But until then the Chinese have the perfect formula for fending off all challengers int their domination of the manufacturing sector.

By: marsha donner

marsha donner — Tue, 30 Jun 2009 01:43:23 +0000

Yves, what percentage of the fed and US bailout to banks has gone to unproductive use? how much into stock, recapitalization etc etc?

By: D

Mon, 29 Jun 2009 22:14:39 +0000

How China's banking system went from one of the most troubled ones in the mid 90s to apparently a healthy one in the mid 2000s is an amusing story.

The real story is Chinese banks have the worst features of Capitalism and Socialism, all in one set of institutions.

By: In Debt We Trust

In Debt We Trust — Mon, 29 Jun 2009 21:51:21 +0000

The tragedy is that you could also be describing the US w/in recent months.

By: The Rude One

The Rude One — Mon, 29 Jun 2009 20:32:15 +0000

As a Communist state and a distinctly mixed economy, China is subject to a 'political business cycle.' The good news: when the banks go bust, the dark cloak of secrecy averts full-blown panic there and produces only urgent whispers here. The bad news: nobody in the world, and certainly not the Chinese, really know the value of any investment at any time. The result: wild swings from deflation to inflation and back again, muted but frantic government response in imposing and removing price caps; epic movements of labor hither and thither at the drop of a hat. Who said that capitalism is the only dynamic system? Having said all this, in the long run one must be bullish. One just does not know where or perhaps, when.

By: "DoctoRx"

"DoctoRx" — Mon, 29 Jun 2009 18:19:36 +0000

China made a deal w the devil when it signed on to import the industrial pollution the West no longer wanted and become the mfr of first and last resort. Their banking system appears to be as polluted and subservient as the rest of their economy.

By: Russell

Russell — Mon, 29 Jun 2009 14:27:02 +0000

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

Sounds exactly the same as the unrealistic expectations of US pension plans.

By: Brick

Brick — Mon, 29 Jun 2009 10:19:42 +0000

Macquarie Research suggest that the lending is mostly going into the state owned enterprises.
"most of this increase in bank lending would be channeled to the least deserving customers: the many clapped-out large state-owned enterprises, rather than the far more numerous thriving private sector companies short of cash"
"The most deserving borrowers, China’s dynamic entrepreneurial Small & Medium Enterprises (SME), mainly came away empty-handed when all this new lending was being handed out."
"the government-owned banks make loans to other government-owned bodies, which then default, causing losses at the government-owned banks that then need to be recapitalized by – you guessed it – more money from the government"
http://www.chinafirstcapital.com/blog/?tag=china-bank-lending
This I think would tend to shift the risk to the state owned enterprises which off course with their government backing means a bailout from the state. The question then becomes where does china get the money for the bailout from.
As Edward Hugh points out
"producer price index, which measures prices paid at the factory gate, fell 7.2 per cent in May"
which suggests that China has got itself into a deflationary spiral which could very easily spread to other economies. China would then be taking up the mantle of the US in the 1930's.
http://chinaeconomywatch.blogspot.com/2009/06/chinas-prices-continue-to-decline-as.html