Signs Of Trouble In China?
From China Daily by way of Zerohedge comes word that some of China’s biggest borrowers may be approaching insolvency:
BEIJING – China’s biggest provincial borrowers are deferring payment on their loans just two months after the country’s regulator said some local government companies would be allowed to do so.
Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan ($490.5 million) in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan, according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November.
As local governments delay payments for projects commissioned as part of the stimulus to ward off recession in 2009, less money is available for bank lending even as China is taking steps to inject more into the economy. The central bank has held interest rates at 6.56 percent since July to boost the economy, while the US Federal Reserve and the Bank of Japan have kept benchmark rates near zero since 2008.
“When companies start to roll over debt they’re not retiring debt, and banks aren’t retrieving their capital, so you’re crowding out new lending,” Patrick Chovanec, a professor at Tsinghua University in Beijing, said in a Dec 13 interview. “This is a problem that’s going to start to bite next year.”
More at the link, but it does look like things could be coming to a head in the Middle Kingdom. If that’s the case, then the world economy could be in for another bumpy ride in the coming year.
China’s banking system is so opaque that we might not even recognize a financial crisis in China if it happened.
This isn’t how the banks work. When they extend credit they don’t actually loan out capital, they promise to clear a payment in exchange for a series of smaller payments from the borrower. The payments are cleared by bank reserves, so rather than deposits creating loans, loans create deposits. Capital is used by banks for meeting leveraging requirements, so what really causes a credit crunch is a lack of credit-worthy borrowers, not mythical “crowding out”.
All the Glitterati and Illuminati, the Best and the Brightest, the Paul Krugmans and other talking head pundits have all waxed gloriously at the better way represented by the Communists in China. Now you tell me that they are all wrong and Pick Perry was right when he said that the current regime in China is headed for the ash heap of history. Incredible that he is so much smarter than they are!