Why China's banking system is in so much trouble

[Behappyalways]

http://www.telegraph.co.uk/finance/newsb...ouble.html

[greengiraffe]

Good fundamental explanations. I do not think anyone really have a clue on what is really going on in China except that there is an absolute ponzi scheme of unimaginable scale.

The other way to look at it is the mess migration of capital overseas - seemingly never ending flow of Chinese $ to politically stable countries to buy hard assets. We have already seen what happen to Singapore and what is going on in Australia but the able and capable are definitely hedging their bets overseas cause they probably know there is not much left within.

http://www.telegraph.co.uk/finance/newsb...ouble.html

[freedom]

Charlene Chu, formerly a senior Beijing-basied banks analyst at Fitch and now head of Asia at Autonomous Research, has warned repeatedly about the problems brewing in the Chinese financial system.

Every time I read such statements, I can't help laughing. They has warned repeatedly, but yet nothing that bad has happened. So should readers trust them more or less given the success rate of their predication? Even a broken clock is right twice a day, as long as they continue to predicate the same thing again and again, one day, they will be right. So does that make them better or worse?

I haven't read the full interview yet. Just the subtitle only.

[freedom]

She lost most of her credit when she stated "I suspect if we get into a situation where we need some kind of sizeable bailout, the FX reserves will be on the table for capital injections into the state banks and then some sort of compound of bad debt and asset management companies (AMCs – Chinese “bad banks”) and other types of forebearance."

Which school of economics or finance has she attended? I want to blacklist that one. If the Chinese state owned banks require a bailout, the Chinese government can issue a huge sum of different durations of debt to the PBOC(directly or indirectly as what the US government and the Fed did) and PBOC can create the reserve to buy it and credit them into the state owned banks. This isn't any different from what the US government and the Fed did. The US government used TARP by issuing US Treasuries to save its financial institutions and the Fed purchased a lot of US treasuries through open market operations. For the Chinese government and PBOC, there is no need to pretend that it is a market transaction.

[freedom]

What will be the impact of a banking crash on Chinese savers?

Quote The vast majority believe that retail deposits will be protected. I think it really comes down to what is the severity of the problem. We are talking about a very, very big financial system at this point. The ability of the authorities of the authorities to support that becomes a bit more difficult and I think that does [put] certain liabilities under question.

Whether we would get to the point that retail deposits are in jeopardy too? That would be a very, very severe scenario. That certainly wouldn’t be the base case at this point, but we’ve still got an issue here with a significant amount of the assets being impaired and not recognising that’s obviously got to impact their ability to meet some of their liabilities

What? PBOC can't print enough RMB to guarantee all the retail deposits? Does she understand what a fiat system is or not?

[orangetea]

Good fundamental explanations. I do not think anyone really have a clue on what is really going on in China except that there is an absolute ponzi scheme of unimaginable scale.

The other way to look at it is the mess migration of capital overseas - seemingly never ending flow of Chinese $ to politically stable countries to buy hard assets. We have already seen what happen to Singapore and what is going on in Australia but the able and capable are definitely hedging their bets overseas cause they probably know there is not much left within.

http://www.telegraph.co.uk/finance/newsb...ouble.html

Western media exaggerate this news.

China still have levers in place.
They will not want to jeopardize their country with bank runs.
They could QE too.

Aberdeen EM manager Devan Kaloo has addressed this in the video link.
Video 2.30' he addresses the China issue.

http://www.citywire.ch/news/devan-kaloo-...ar/a733113

[BlueKelah]

I do find the repackaging of mortgage/loans as trust investments very disturbing and the recent ICBC scandal i would think is just the tip of the iceberg.

I feel that taking the number of failed S-Chips/ scandals we have had on the SGX, we can sort of get a feeling of the level of integrity as well as how china is running its corporations as a whole. Not to mention the problems S-chips are having on the american bourses.

Also if you had the chance to encounter those china "pei du ma ma" who come here and buy up the new apartment releases in 4-5 units at a time with a BAG OF CASH as deposit, you will realize the magnitude of their greed and speculative nature. Where they get their capital from is another matter.

[greengiraffe]

Trust is starting to breakdown in China and lack of proper handling will start the snowball of breaking down on confidence on the domestic banking industry and may force the hand of policy makers

http://www.todayonline.com/business/6-ch...-coal-firm


6 Chinese shadow banks face default over S$1.04b exposure to coal firm
Investors said their willingness to invest was based on their confidence in China Construction Bank as a large state-owned bank. Photo: REUTERS
Investors in another trust product in default vow to seek repayment from country’s second-largest bank, CCB

Published: 15 February, 4:03 AM

SHANGHAI — Six Chinese trust firms have lent more than 5 billion yuan (S$1.04 billion) to a delinquent coal company, state media reported yesterday, raising the prospect of further defaults in China’s shadow banking system.

In addition, investors in a trust product already in default have vowed to seek repayment not only from the trust firm, but also from China Construction Bank (CCB), the country’s second-largest lender, which acted as sales agent for the high-yield investment products issued by Jilin Province Trust.

Analysts have warned of moral hazard caused by the widespread assumption among Chinese savers that even high-yielding investments carry implicit guarantees from state-owned banks. If a major default occurs, it could spark a panic in which investors abruptly stop buying such products, leading to bankruptcies among weak corporate borrowers who rely on non-bank financing to maintain their operations.

Jilin Trust has already failed to pay off 763 million yuan in maturing high-yield investments it sold to wealthy clients of CCB, state media reported this week. The products were based on loans to struggling coal firm Shanxi Liansheng Energy.

However, exposure to Liansheng extends far beyond Jilin Trust, the official China Securities News reported yesterday. Chang’an International Trust Shareholding sold 1.2 billion yuan in products linked to Liansheng affiliates last March that mature in the coming weeks, according to disclosures on the trust’s website. The spokesman for Chang’an did not answer calls seeking comment.

The paper did not name the other trust companies that lent to Liansheng, but reported that six trust firms have 5 billion yuan in exposure, citing an unnamed source.

A court in central China’s coal-rich Shanxi province said last year that Liansheng had 30 billion yuan in outstanding debt and had applied for debt restructuring. The local government plans to consolidate Liansheng’s debt and share future cash flow among the various creditors. But a few creditor banks have so far refused to sign the restructuring agreement because it calls for them to extend new credit worth 2 billion yuan, China Securities News quoted its source as saying.

Investors in the Jilin Trust product are demanding that CCB also take responsibility for compensating investors, 21st Century Business Herald reported yesterday.

“A few days ago, we went looking for CCB. CCB’s leader in Shanxi still says it’s not his responsibility. In the end, if they really don’t take responsibility, we’ll go to CCB and fight a war to the last drop of blood,” the paper quoted an unnamed product investor as saying.

Investors told the paper that all paperwork and fund transfers related to their purchase of the Jilin Trust product had occurred on CCB’s premises, and CCB sales staff had verbally assured investors that the product carried no risk. They also said their willingness to invest was based on their confidence in CCB as a large state-owned bank. CCB did not respond to requests seeking comment. REUTERS

[BlueKelah]

The big question question is where did all that money paid to the coal mine go to?

ANSWER : To the top 5 countries listed for rich people migration

http://www.valuebuddies.com/thread-4588.html

[BeDisciplined]

She lost most of her credit when she stated "I suspect if we get into a situation where we need some kind of sizeable bailout, the FX reserves will be on the table for capital injections into the state banks and then some sort of compound of bad debt and asset management companies (AMCs – Chinese “bad banks”) and other types of forebearance."

Which school of economics or finance has she attended? I want to blacklist that one. If the Chinese state owned banks require a bailout, the Chinese government can issue a huge sum of different durations of debt to the PBOC(directly or indirectly as what the US government and the Fed did) and PBOC can create the reserve to buy it and credit them into the state owned banks. This isn't any different from what the US government and the Fed did. The US government used TARP by issuing US Treasuries to save its financial institutions and the Fed purchased a lot of US treasuries through open market operations. For the Chinese government and PBOC, there is no need to pretend that it is a market transaction.

Hi Freedom,

I am no finance trained. But isn't US the only country in this world that can print money to get itself out of trouble? If every country can do that, why would Ireland and other European countries needed to borrow from IMF during the GFC? Also back in 97/98, why can ASEAN countries print lots of money to pay back debts and get themselves out of trouble? When US government issue treasuries etc to inject liquidity into the banking system, there must be willing buyers of these treasuries and bills. Their balance sheet also needs to be balanced, right? Could any 3rd world country print money to get itself out of trouble? Who would want to buy and throw good money after bad? IMHO, as long as RMB is not freely traded, they can better manage the problem at home. Once RMB is freely traded, there could be free flight of funds and open to foreign speculative attacks ...recall George Soros attacks during Asian Financial Crisis.

Charlene Chu graduated from Yale.