Why China's banking system is in so much trouble

S'pore banks exposed to slowing China
2014-02-28 00:31:45.299 GMT


By Grace Ng, China Correspondent and In Beijing
Feb. 28 (Straits Times) -- BOCOM Financial Leasing, a Chinese state-linked firm handling aircraft and ships, last week borrowed 700 million yuan (S$145 million) from the Singapore branch of Shanghai-based Bank of Communications.
The transaction, which got the Chinese firm credit at cheaper rates in Singapore than at home, underscores the fast-growing economic linkages between the Asian financial hub and the world's No.2 economy.
Those connections extend to Singapore banks, such as DBS Group, that are enjoying strong growth in the China market, driving up the gross flow of loans and deposits from Singapore to the mainland by 85 per cent since the 2008 financial crisis.
But even as Singapore plugs firmly into the world's biggest emerging market, worries are rising - including at the Monetary Authority of Singapore (MAS) - about the island's exposure to the slowing Chinese economy.
In the past week, several analysts have flagged Singapore as the second most vulnerable economy after Hong Kong - in terms of financial risk exposure - if China's growth were to dive, say, to
3.8 per cent, Societe Generale economist Yao Wei's definition of a hard landing.
International banks' lending to China has crossed US$1 trillion (S$1.3trillion), Bank of International Settlements data shows.
Of this, Singapore banks' exposure could be around US$48 billion, or upwards of 15 per cent of the country's gross domestic product (GDP), some analysts estimate.
"The bad news is (this) overseas forex exposure to Chinese entities is concentrated in Hong Kong and Singapore... and the exposures have built up rapidly since the global financial crisis," UBS economists wrote to clients last week.
Likewise, BNP Paribas analysts Mirza Baig and Yii Hui Wong have highlighted Singapore - one of three offshore yuan clearing hubs along with Hong Kong and Taiwan - as among the most exposed economies to the "explosive trend" in cross-border lending to China.
While Hong Kong banks' exposure far exceeds that of Singapore, it is the swiftness at which the Republic's loan book to China is climbing that prompts worry.
In December last year, MAS urged Singapore banks to be wary of loan risks to China and India.
Singapore lenders' combined loans to China reached 9.2 per cent of their total loans portfolio last year, said MAS. That compares with about 2 per cent in 2007.
"I don't think the Singapore banks had projected such a rapid growth in China loans, but this reflects their opportunistic strategies - that they are taking advantage of growing trade flows between Singapore and China, and lend more to facilitate that business," said Moody's senior analyst Gene Fang.
DBS, in particular, has been seeing strong growth.
It has ramped up its loans to Greater China - excluding Hong Kong - from 8 per cent at the end of 2009 to 19 per cent of the total portfolio at the end of last year.
To be sure, the China loan books for Singapore lenders DBS, United Overseas Bank and OCBC Bank look in good shape currently.
Just about 5per cent of Singapore banks' non-performing loans come from China.
This is "low relative to Singapore banks' exposure to the region", Fitch Ratings analysts told The Straits Times in an e-mail.
"A large part of the loan growth to China for the Singapore banks in recent years has been in the form of trade financing, which is typically shorter in duration than corporate loans, and generally secured against deposits or letters of credit."
Banks like DBS are more buffered as they tend to lend to Chinese clients with diversified operations overseas, so any credit shock within China may not impact them as much, added Voyage Research deputy head of research Ng Kian Teck.
A DBS spokesman said the bank has been managing credit risks carefully as it grows the China portfolio. "In particular, we have kept to our strategy of targeting top corporate customers and focusing on trade loans, with an emphasis on loans backed by bank guarantees," she said.
Meanwhile, with China's capital controls still in place and the pool of offshore yuan liquidity still relatively small in Singapore, the spillover effects of any financial crisis from China to Singapore's banking system are more contained, analysts add.
"Singapore's exposure to China has grown in recent years, but we are talking about a ripple, not a tsunami, spillover effect," said UBS economist Donna Kwok.
For now, the projected returns from tapping China's vast market outweigh the risks. Risk managers can also take comfort that even with China's recent factory activity slowing more sharply than expected, the median analyst forecast for China's GDP growth this year is still a respectable 7.4 per cent.
And International Monetary Fund chief Christine Lagarde said last Thursday that a hard landing is unlikely, describing the Chinese economy as "poorly understood".
That said, China's financial landscape may yet throw up some surprises. A default in its vast shadow banking sector or its 18 trillion yuan mountain of local government debt could trigger economic turmoil around the world.
"A key risk is the lack of transparency about the extent of problems in China's shadow banking sector and how the Chinese government might deal with potential defaults in financial products," said Moody's Mr Fang. "I think it is an indication of MAS' (sense of) caution to be flagging that to the banks."
graceng@sph.com.sg

http://www.cnbc.com/id/101462579

Will a weaker yuan heighten China’s property risks?
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Published: Tuesday, 4 Mar 2014 | 6:08 PM ET
By: Leslie Shaffer | Writer for CNBC.com


Hong Wu | Getty Images
China's property sector, already a nagging economic risk, could become a victim of the unexpected weakening of the country's currency as developers face rising debt costs.

"Most Chinese developers are heavily exposed to U.S. dollar debt (up to 90 percent of their total debt) with no hedging," Credit Suisse said in a note Monday. "A potential renminbi depreciation may have a meaningful impact on both developers' earnings and net gearing – especially since Chinese developers are already highly levered financially."

(Read more: The China risk you may have forgotten about)

The fate of China's property sector is closely watched as a key economic risk. Capital Economics estimated that the property sector contributed 9.5 percent of China's gross domestic product (GDP) in 2013.

The renminbi, also known as the yuan, unexpectedly weakened recently, depreciating around 1.7 percent against the U.S. dollar since the beginning of February. The move caught many investors off guard as yuan appreciation was widely seen as a one-way bet. The currency has attracted considerable foreign investor demand over recent years on its steady appreciation and relative stability.


"China property stocks have long been considered a way to play the renminbi appreciation," Credit Suisse said, but it added, "the government hinted at a more balanced 'two-way trading' for renminbi going forward," which could dampen interest in the sector's stocks.

So far, the yuan's appreciation has flattered developers' earnings on the at least twice yearly revaluation of its foreign-currency debt as well as reducing gearing for many years, Credit Suisse noted. But the bank estimates that if the renminbi depreciates by 5-15 percent, some developers could see their reported earnings decline by as much as 74 percent while net gearing could increase by as much as 21 percentage point

(Read more: Is China's property sector facing a day of reckoning?)

For example, around 87 percent of China Overseas Land's debt is offshore, with nearly 33 percent of the total in U.S. dollars and around 55 percent in Hong Kong dollars, which are pegged to the U.S. dollar, the bank said, citing data from mid-2013.

It estimates COLI's net debt would increase by around 33 percent and its earnings would fall by 33 percent if the renminbi depreciates by 15 percent.

(Read more: Are EM companies the real debt worry?)

Investors appear somewhat nervous about developers' U.S. dollar bonds. The weighted average yield of China property U.S. dollar bonds is currently around 8.77 percent, compared with 8.26 percent at the end of January, according to Deutsche Bank estimates.

The high-yield segment's yields rose to 10.04 percent from 9.31 percent at the end of January, the data show. Prices of bonds move inversely to yields.
The concern may not be limited to the property sector. Along with other emerging markets, China's offshore corporate debt has surged around 134 percent since the end of 2011, according to data from the Bank for International Settlements

To be sure, Credit Suisse notes that while the renminbi's weakness has increased the risks, the currency's move may only be temporary.

"The fundamentals do not support a reversed long-term trend for renminbi," it said. Many analysts have said they believe Beijing may have pushed the currency lower to shake out excessive speculation and that the yuan may resume appreciation later.


Play Video
Record loss for China's yuan
CNBC's Eunice Yoon reports the Chinese currency is under pressure and posted its biggest drop since 2005.
(Read more: Are we being complacent over the yuan's decline?)

Others also don't expect much of an impact on the property players.

"It really hasn't depreciated that much," said Sylvia Wong, a China property analyst at UOB KayHian. In addition, the net impact needs to be considered, she noted. "The renminbi has been going up. It's only coming back down."

She believes the impact will likely need to be measured on a company-by-company basis.

"Perhaps there's some paper profit and loss accounting impact, but the actual cash is really not that much, not yet anyway," she said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Shadowland
Lisa Murray with Lucy Gao
1728 words
1 Mar 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
China

The threat of default in non-bank lending is casting a chill over the global economy, writes Lisa Murray.

In a dusty valley in central China at the end of a winding dirt track, 20 half-finished apartment blocks rise up from the mud, veiled in a mist of fog and pollution. Chinese characters etched into the mountainside proclaim this isolated 10 billion yuan ($1.8 billion) development project will "change the world".

And just 12 months ago, teams of workers toiled around the clock to create the new metropolis, fortified by giant slogans urging them to "bleed, sweat but don't cry".

Now a single builder is left at the desolate site. He tells AFR Weekend that construction should have been finished more than a year ago but the money has dried up and all 800 workers left in search of a paying job.

This abandoned and eerie construction site, outside the coalmining town of Liulin in Shanxi province, is ground zero for China's fast-growing "shadow banking" system. It is one of the biggest risks lurking in the ­global economy.

The brainchild of local coal tycoon Xing Libin, it was supposed to transform his humble birthplace into a hive of economic activity. The unfinished apartment blocks would have provided accommodation for the people working on Xing's vast agricultural scheme involving hundreds of acres of nearby farms. In this idyllic new world, locals would tend to walnut trees, raise chickens, fatten cattle and farm fish.

Instead, Xing's grand plans have left his coalmining company, Liansheng Energy Group, crippled under a pile of debts worth more than 30 billion yuan, almost a quarter of which was sourced from China's poorly regulated trust sector.

Now the walnut trees are dying and the only cattle in the area are on fancy posters promoting the forgotten farming projects. Meanwhile, Xing's demise has sent ripples across global markets as his struggle to pay back investors lays bare what is arguably the most serious risk to the world's second-biggest economy this year – a major trust default. Such an event has been likened to a wake-up call on the scale of the Lehman Brothers' collapse in the United States.First default looming: strategist

David Cui, who has published extensive research on the issue for Bank of AmericaMerrill Lynch, says it will probably be more like the less dramatic failure of Bear Stearns. That is, it will be an episode that changes peoples' perception of risk but doesn't lead to financial panic. Not straight away, clarifies the Shanghai-based strategist.

Cui's view is that the first default will happen in the next few months and, once more defaults pile up, a tipping point will be reached in terms of public confidence. That's when the credit crunch happens. On his reckoning, probably within a year. "This is no different from the sub-prime crisis [in the US]," he says, except that in China, it is highly leveraged companies rather than households causing the problem.

Global hedge funds already have a watch-list of maturity dates for troubled trusts, and China's shadow-banking system was certainly the hot issue at last weekend's G20 meeting of finance ministers and central bank governors in Sydney.

The world is nervous. China's debt levels have been growing rapidly, with total outstanding credit rising an average 22 per cent a year over the past decade. Much of that growth has taken place in the shadow banking system. Assets under management by trust companies, for example, have more than tripled since the end of 2012 to over 10 trillion yuan. And Nomura economists estimate that 3.5 trillion yuan of trust products will mature this year. Already two trust products have been bailed out and at least another 10 are in trouble.

On the other hand, while China's debt has been growing quickly, it is still not high by global standards. According to AMP, China's total debt as a percentage of gross domestic product is 213 per cent, slightly lower than Australia's. And China's shadow banking system is still less than a third of the size of its formal banking sector.

Even so, trust defaults will be a hot-button issue for global markets this year, and Beijing knows it. People's Bank of China boss Zhou Xiaochuan acknowledged the problem at the G20, while insisting it was under control. The China Banking Regulatory Commission, meanwhile, is setting up a trust product registration system to get a better handle on the risks involved.Liulin at centre of fallout

So far, the fallout has been concentrated in the small (by Chinese standards) mining town of Liulin, with a population of 327,000. The two trusts that flirted with disaster last month before being bailed out by governments and financial institutions were backed by loans to local coalminers; Xing Libin's Liangsheng and a smaller player, Zhengfu Energy, whose founder is in jail.

In keeping with the US sub-prime mortgage crisis analogy, Liulin is the equivalent of Florida or Las Vegas – a vulnerable pocket where the bad loans start and potentially spread to the rest of the country.

Traditionally a very poor area because of its location on the western border of Shanxi, away from the main train lines, Liulin came late to the coal boom. But its rich reserves of coking coal put it in good stead during China's steel-making frenzy in the middle of last decade.

As the country rushed to build apartment blocks, hotels, railway tracks and bridges, coking coal prices soared to more than 2000 yuan a tonne, high enough to justify the costs of lugging coal around the country by truck.

Local entrepreneurs responded, buying up mines and transportation companies and pouring the profits into real estate de­velopment, lavish office headquarters and expensive cars. The money was easy. Trust companies bet that coal prices would stay high and excessive displays of wealth only encouraged them to lend the miners more money.

Xing's Liansheng expanded at a rapid pace, more than tripling its assets to almost 47 billion yuan during 2012.

Apart from funding the grand but doomed overhaul of his local village, Xing funded big donations to local schools and a six-tower property development including a hotel in the centre of town.

Xing wasn't alone. Other local miners were spending huge amounts of money on their own vanity projects as the Liulin contingent burst their way on to the country's rich lists. Hummers and Bentleys became a common sight along the streets of this sleepy Chinese town.Champagne days over

Perhaps the first sign that Liulin's rise, and that of leading coalminer Xing, had spiralled out of control were reports about the excessive spending on his daughter's wedding in early 2012.

Famous pop stars, a private jet to transport guests to the resort island of Hainan and a wedding dowry of three red and two white Ferraris reportedly contributed to a total bill of $13 million.

Another sign was the opening last year of The Coal Grand Hotel, a gleaming glass building in the middle of town, fitted out with an indoor driving range and swimming pool. Built by Chen Hongzhi, the 39-year-old owner of rival miner Lingzhi Group, it has struggled to fill its rooms ever since.

A deputy manager at the hotel says that initially its main customers were the children of the local coal tycoons, who would book out rooms months at a time to use at their leisure. But now even they have stopped coming. Another staff member says he has been paid just three out of the past nine months.

The timing was terrible for the town's first-ever five-star hotel. Not only did its opening coincide with the government's widespread austerity campaign banning public officials from expensive accommodation and dining, but it also came as coking coal prices were on the slide. In the past two years, they have more than halved.

The town's fortunes reversed in line with the national steel industry and, unfortunately, it happened just when all of the debts became due. Cash flow problems are on display everywhere in Liulin. From the deserted reception area at the Coal Grand Hotel and its legion of bored staff polishing spotless marble floors to the idle workers standing around the many coalmines dotted on the outskirts of town.Ten trusts on watch-list

One former coal truck driver says that during the town's heyday he was paid up to $1800 a month, but he quit last year to work for a taxi company when his salary dwindled to less than $450. To emphasise his point, he drives past an empty loading dock which, he says, used to be crowded with trucks at this time in the morning, just two years ago.

In a worrying sign for the town, the driver says that among the local miners, Liangsheng is not in the worst shape. Workers at a nearby mine owned by Hongsheng Energy Group claim they haven't been paid in eight months.

A watch-list is doing the rounds among hedge funds with the 10 most troubled trusts and their coming maturity dates. Three of the trust products are related to Liansheng borrowings and one, which is maturing on July 27, is backed by a loan to Hongsheng.

It appears that Liansheng will be rescued. On the Liulin scale of business, it was too big to fail. A restructuring plan was leaked to the state-run media last week, which includes fresh loans from the China Development Bank. Hongsheng, too, may be able to extend its coming repayment date, but the group has other trust loans.

Sooner rather than later there will be a default, says Cui. At first, the market won't be too worried about contagion, but then "there will be more and more defaults which chip away at confidence", he says.

"At a certain point, something happens and people lose confidence and then we have a credit crunch in the system.

"I think the government will react very fast, write off some debt, force some debt to convert into equity and hopefully we can recover quickly."


Fairfax Media Management Pty Limited

Document AFNR000020140228ea310000g

Spooked by defaults, China banks begin retreat from risk

Published on Mar 26, 2014


People walking past a branch of Agricultural Bank of China in Shanghai in this May 14, 2013 file photo. Fearing a wave of defaults as China's economy cools after decades of rapid growth, regulators in the past two years told banks to cut off financing to sectors plagued by excess capacity such as steel and cement. -- PHOTO: REUTERS

BEIJING (REUTERS) - Some of China's struggling firms are finally getting the reception that regulators have been hoping for - a cold shoulder from banks in the form of smaller and costlier loans.

Reuters has contacted over 80 companies with elevated debt ratios or problems with overcapacity. Interviews with 15 that agreed to discuss their funding showed that more discriminate lending, long a missing ingredient of China's economic transformation, has become a reality.

Up against a cooling Chinese economy and signs that authorities will not step in every time a loan goes bad, banks are becoming more hard-nosed and selective about whom they lend to.

There are signs that even state-owned firms, in the past fawned over by lenders for their government connections, have to contend with higher rates, lower lending limits and more onerous checks by banks.

"Interest rates are going up 10 per cent for the entire industry," said Wang Lei, a finance department manager at PKU HealthCare Corp. "Obtaining loans is getting difficult and expensive."

PKU HealthCare, which is controlled by Peking University and makes bulk pharmaceuticals, has struggled to remain profitable.

Its debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio exceeded 60 at the end of September, four times the average for listed Chinese companies from the sector.

To be sure, several companies with strong balance sheets and profits reported no significant changes in their funding conditions.

That in itself is a welcome sign that banks are finally differentiating between the strong and the weak, more aware that they are on the hook for losses if businesses fail.

China's first-ever domestic bond default earlier this month when solar equipment maker Chaori Solar missed its payment and regulators refused to step in, drove that message home.

"It was a wake-up call for lenders," said Christopher Lee, managing director and the head of greater China corporate ratings at Standard & Poor's. "There is no such thing as a risk-free investment."

That marks a painful, but necessary shift for the world's second biggest economy to fulfill Beijing's ambition to cut wasteful investment and secure more balanced long-term growth.

For household goods maker Elec-Tech International Co Ltd , less credit is the new reality. Its bank cut its borrowing limit by 500 million yuan (S$102 million) to no more than 2.5 billion yuan this year, said Zhang, an official at Elec-Tech's securities department.

"Last year, the bank gave us a discount on our interest rates. This year, we probably won't get any discount," Zhang who declined to give his full name said. "It feels like banks are not lending and their checks are becoming more rigorous."

Some gauges of China's corporate debt are already flashing red.

Non-financial firms' debt jumped to 134 per cent of China's GDP in 2012 from 103 per cent in 2007, according to Standard & Poor's.

It predicted China's corporate debt will reach"stratospheric levels" and become the world's largest, overtaking the United States this year or next.

Fearing a wave of defaults as China's economy cools after decades of rapid growth, regulators in the past two years told banks to cut off financing to sectors plagued by excess capacity such as steel and cement.

Experts say banks were at first slow to respond, but in the past few months, banks have started turning down credit taps.

"We have become more prudent in issuing loans," said a spokesman for Bank of Ningbo.

He added that the bank has intensified communication with companies in troubled sectors or borrowers deep in debt.

"Under normal circumstances, we would review company loans every quarter or every six months, but for the sensitive cases, we will step up channel checks and work closely with the companies."

Another manager at a regional Chinese bank said it was overhauling its lending in cities identified as high-risk, such as Urdos and Wenzhou.

Located in Inner Mongolia, Urdos is infamous for its clusters of empty apartment blocks that pessimists say is an emblem of China's housing bubble. Wenzhou, is China's entrepreneurial hotbed that recently lost its shine after local property boom went bust.

Companies spurned by banks find a way around it. At a cost.

A listed supplier of building materials in southwestern China that declined to be identified said banks blacklisted it after two years of losses.

The firm, which is undergoing restructuring, borrowed 10 million yuan in the underground market at an annual rate of about 15 per cent this year.

And as companies bend the rules, risks shift outside the banking system into the universe of networks of seemingly unrelated firms connected by murky financial deals.

For example, trade loans subsidised by the government to help selected sectors are quietly re-directed by companies to other unrelated businesses, firms say. New financing methods also emerge as easy credit dries up.

The latest plan hatched by a cash-strapped aluminum end-user involves having banks buy the metal and re-selling it to firms who pay out monthly loan plus interest.

Others such as Xiamen C&D Inc, an import and export firm, are directly cashing in on firms' thirst for funds.

Xiamen C&D, which borrows at less than 6 per cent per year is offering loans of several hundred thousand yuan to smaller firms at 7-8 per cent, said Lin Mao, the secretary of Xiamen's board of directors.

For larger companies, typical loans amount to 20-30 million yuan, and are 90 per cent insured by Chinese insurers, he said.

Banks grow more aware of the risks. But rather than pull the plug on teetering firms, some bankers say they prefer a slow exit to keep them afloat for as long as possible to claw back their loans.

"Few banks are able to retreat completely even if they should," said a banker at another regional Chinese bank who declined to be named.

China bank run highlights risks
SCOTT MURDOCH, CHINA CORRESPONDENT THE AUSTRALIAN MARCH 29, 2014 12:00AM

China bank run highlights risks
The Chinese government is working to improve confidence in the nation's banking system after a recent bank run. Picture: AFP Source: AFP
AS hundreds of worried customers queued outside a regional bank in Sheyang county on China's eastern coast to demand their deposits this week, new concerns emerged about the stability of the nation's financial system.

An unsubstantiated rumour spread through Jiangsu province that the Jiangsu Sheyang Rural Commercial Bank was running short of funds and might be trading while insolvent.

The whisper campaign unleashed a bank run, with the institution's elderly customers flocking to two of its main branches for three consecutive days this week and demanding cash, which prompted prudential regulators and local government authorities to intervene.

The provincial government's mayor, Wei Gouqiang, was forced to confirm that deposits at the bank were guaranteed. The bank even stockpiled cash in its window to show customers it was maintaining liquidity.

The bank is the largest in the county, with $US1.2 billion ($1.3bn) in deposits, but it services mainly low-paid workers and farmers, and they are worried about their future.

There is speculation that the bank run began after a customer was stopped from withdrawing $US32,000 from his account.

"I assure you the bank will be operating as normal today, tomorrow or in three years' time," Wei told worried customers. "Do you know whom the bank is backed by? It is the government."

The South China Morning Post reported that a bank official shouted to the crowd: "It is a sheer rumour. You don't have to withdraw money now . . . your deposits are safe."

A certificate from the China Banking Regulatory Commission, the prudential regulator, was posted to ease the customers' fears. However, the three-day bank run has prompted fresh concerns about the strength and stability of the financial system.

One highlight of the government's recent Work Report, the yearly document published during the National People's Congress that outlines the economic and political agenda for the year ahead, was the creation of a broader national deposit insurance scheme.

Premier Li Keqiang said that a strengthening of the reputation of the nation's banking system was needed not only for customers but to encourage greater interest from foreign investors.

The plan was approved by the ruling Communist Party last December, and the People's Bank of China deputy governor Yi Gang recently told Xinhua, the official news agency, that the scheme was ready for implementation.

"Relevant departments are busy drawing up the plans," Mr Yi said. "We can consider launching a deposit insurance system as soon as possible."

Despite the current spotlight on the regulated banking sector, there are growing concerns about the shadow banking sector.

In this "grey market" of unregulated financing, money is invested in trust and wealth management products that are then on-lent, mostly to local government authorities.

Most of the shadow "banks" are not regulated and do not have the same supervisory and fiduciary responsibilities as prudential institutions.

The majority of these institutions offer higher rates of return that are attractive to customers because interest rates in China are regulated, but these deposits come with higher risk.

Reserve Bank of Australia governor Glenn Stevens told the Credit Suisse Asian Investment Conference this week that the rise of shadow banking could pose a threat to China's financial system.

"The greater concern of risks (compared to others) is involved with the build-up of credit in the so-called shadow banking over the past five or so years," Mr Stevens said in Hong Kong. "To a considerable extent this growth in financial activity surely reflects the natural tendency to avoid the effects of price and quantity constraints imposed on the core banking sector in an environment of strong demand for credit."

Estimates of the size of shadow banking are doubtful but range between 10 and 30 trillion renminbi ($1.73 trillion to $5.21 trillion).

China Investment Corporation chairman of supervisors Li Xiaopeng said shadow banking was a major economic risk that the government needed to regulate.

"There is some cloudy weather (for China's economy) which means there are challenges such as local government debt, shadow banking, overcapacity and environmental pollution," Mr Li said.

Good read from UBS


  UBS_ChinaWeeklyEconomicFocus27032014.pdf (Size: 520.26 KB / Downloads: 67) .

Thanks for sharing the UBS commentary. It spoke more truth than most of the headline news.

What UBS is saying is nothing new. I have long maintained that the entire Chinese economy at least the prosperous part is largely closed to foreigners.

China has the benefit of a huge market underpinned by the largest population in the world. They also have intelligent people that will continue to erect barriers to entry to foreigners on the prosperous sector.

Basically that means that those that are available to foreigners are usually sectors that requires foreign capital (inferior quality).

Chinese usually adopt the head I win, tail I also win attitude. Hence, if you really want to make money from these smarter Chinese, then you have to think and plan ahead of them. Nimbleness is required.

Back to the banking sector - a truthful analysis is made impossible as analysts will continue to have difficulties matching the earnings quality of the sector against what they are seeing as lingering problems. Given the lack of quality of data that is available for analysis, it is likely to be muddy waters for most analysts for a long time coming.

For those who really decide to try their luck in any Chinese markets and stocks, this is the risks that they have to bear.

GG

(30-03-2014, 09:11 PM)greengiraffe Wrote: What UBS is saying is nothing new. I have long maintained that the entire Chinese economy at least the prosperous part is largely closed to foreigners.

China has the benefit of a huge market underpinned by the largest population in the world. They also have intelligent people that will continue to erect barriers to entry to foreigners on the prosperous sector.

Is that any different from the Japanese and Korean before their companies were ready to compete with the rest of the world?

To me the biggest difference between the Chinese banking system and the American before the GFC is that the whole world has been telling the Chinese that they are going to get into trouble. Unless the Chinese are idiots, they would have been trying the fix the problems for the past years.

Contrast that with the Americans. Except for a few lone voices in the desert, who would have predicted the GFC? In fact even those few who have foreseen the problem probably did not expect the magnitude of it.