China Banks

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#21
Mind you, this comes even as the government claims financial imbalances are being addressed. As recently as July, total social financing, a proxy for debt, was still growing by almost 16 percent year-over-year, a rate well above China’s nominal GDP growth. In other words, China has spent much of this year adding to its debt and credit bubbles -- not curbing them.


Bad Loans Could Bust China
http://www.bloombergview.com/articles/20...bust-china
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#22
This is merely a short term 3-month loan to the banks. Why are so many people making a big fuss about it? After 3 months, the banks repay PBoC. Everything is back to normal.

It merely is to address a short term(3 months) liquidity issue. Otherwise, PBoC will do what ECB does, LTRO, which can be as long as 3 years.
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#23
^^ Agree with freedom here. But unlike him i am mid term negative on chinese banks as it seems clear that the Xi govt is going to solve this shadow banking problem and liberalise the sector. Fundamentally I cant see how it can be positive banks until the skeletons are out. Shoring up capital with pref shares are also on the way
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

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#24
I am bullish on mega banks(stock) in China. It does not mean I am positive on Chinese banks. That's a huge gap in between.
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#25
CBRC allows 2 more private banks

By Ding Yining | September 30, 2014, Tuesday

THE China Banking Regulatory Commission yesterday approved two other private banks, including one mainly funded by a micro-business financing company owned by Alibaba Chairman Jack Ma and colleagues, to start preparations for their setup.

They are Zhejiang MYbank and Shanghai Huarui Banking Co, according to a statement on the CBRC website.

Alibaba Small and Micro Financial Services Group, the operator of the popular third-party payment service Alipay, will be the major sponsor of the Zhejiang-based bank with a 30 percent stake.

Fosun Industrial Technology Development Co, a unit of Shanghai-based privately-owned Fosun Group, will hold 25 percent, and China’s largest auto parts supplier, Wanxiang Group, will own 18 percent in MYbank.........................................

http://www.shanghaidaily.com/business/fi...aily.shtml
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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#26
No rebound in copper till after 2016
THE AUSTRALIAN OCTOBER 02, 2014 12:00AM

Rowan Callick

Asia Pacific Editor
Melbourne
THE falling copper price — which has held its value much better this year than its metal peers, down just 8 per cent so far — will not bounce back any time soon, due to a series of one-off developments in China, which consumes 40 per cent of the world’s production.

That is the verdict of Michael Komesaroff, a leading Australian expert on China’s mining industry — a former Rio Tinto executive in Asia, who then worked for a major Chinese resource corporation — writing in new analysis for China-based GavekalDragonomics.

Over the past 10 years, he says, China’s consumption of ­refined copper has almost trebled, while consumption in the rest of the world has contracted by 6 per cent.

The metal’s high value to density ratio and the ease with which it can be stored for long periods has resulted in its widespread use as collateral in China, being pledged against relatively low interest hard currency loans.

This practice was driven by the People’s Bank of China raising in 2010 the reserve requirement for the commercial banks, effectively tightening domestic credit.

Mr Komesaroff says: “Speculators, mainly small and medium-sized companies with access to copper, pledged their stocks as collateral against US-denominated letters of credit issued by the domestic banks.

“This allowed the speculators to arbitrage the difference between low US dollar interest rates and higher yuan interest rates in China” — and then leverage those gains further, for instance by investing in shadow-banking products, often yielding returns of more than 10 per cent.

The volume of copper tied up in such deals has ranged from 500,000 to 1 million tonnes.

But Beijing issued an increasing number of regulations to stamp out this speculation.

In May, the news emerged that a Chinese trading company had used faked copies of warehouse receipts to obtain multiple loans from different banks against the same consignment of warehoused copper, exposing local and Western banks to losses of more than $3 billion.

The banks began to suspend loans against copper as collateral, causing imports of refined copper to fall since then.

The second big challenge to the price is an audit of State Grid Corp, the world’s largest consumer of the metal. The National Audit Office has uncovered $1bn of misappropriations, involving managers of expensive, high-profile investments — involving large amounts of copper.

The investment program due to grow 13 per cent this year is thus running well behind budget, says Mr Komesaroff, as managers look over their shoulders at the auditors.
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#27
http://www.cnbc.com/id/102066916?trknav=...:topnews:1

China banking crisis? Here's what it might look like
John W. Schoen | @johnwschoen
5 Hours Ago
CNBC.com


As Beijing scrambles to prop up a slowing economy and cooling real estate market, the government last week announced measures to make it easier for households and developers to borrow more money.

That may help in the short run. But the cure, say some observers, will do little to address the growing pile of bad loans that has left China's financial system with deepening debt hangover.

"In the overall level of debt, they can still push it without creating immediate problems," said Diana Choyleva, head of Macroeconomic Research at Lombard Street Research. "But if you look at the rate of increase in debt since the global financial crisis it's extremely alarming."

China's debt has been piling up for years. To offset the financial collapse of 2008, Beijing borrowed and spent heavily on an epic building spree of roads, airports, rail lines and water projects. Now, to keep growing, China has to keep spending: More than half of gross domestic product comes from investment. (Consumer spending, while rising, makes up about a third of growth.)


Much of China's borrowing and spending fueled an historic run-up in property prices that has recently stalled, raising fears that a wider, deeper slump could weaken China's already slowing economy.

In response to slumping property prices, China last week cut mortgage rates and down payment requirements for some homebuyers for the first time since the 2008 global financial crisis. The government's latest effort to prop up a sagging real estate market also included steps to boost credit for cash-strapped developers, who risk getting stuck with too much debt if the slump deepens.

Read More World Bank trims China, East Asia growth forecasts
China's real estate market has survived similar slumps since 2008. But some economists warn the risks of a full-blown Chinese banking crisis are rising.

If it happened, the reverberations would be felt around the world, according to a report this week from economists at Oxford Economics, who ran numbers through their computer models and came up with a scenario worthy of a Hollywood disaster movie.

They figure the odds of this scenario playing out are about 10 percent, but it's not pretty. Here's what a full-blown Chinese banking collapse might look like:

The crisis begins when house prices fall 24 percent next year and another 27 percent in 2016. That unleashes a wave of bad loans as developers default, further tightening credit, driving up interest rates and forcing a bank default.

Read More China's local government debt burden varies widely: Moody's
To keep more dominoes from falling, the government floods the system with cash, financed with more debt, pushing yields on Chinese government bonds to 7 percent—despite the central bank's moves to cut short- term rates to 1.25 percent.

Despite those efforts, the damage to the Chinese economy and financial markets in this scenario would be severe.

Based on Oxford's computer models, the Shanghai stock index falls 60 percent next year and another 15 percent in 2016. Hong Kong stocks fall 12 percent next year and Singapore sells off by 9 percent.

As global investors seek shelter from the storm in U.S. Treasurys, yields would fall to 2.8 percent next year (from a predicted 3.3.percent without a China banking crisis.) The dollar soars against the Chinese Renminbi.

U.S. stocks would escape relatively unscathed in this scenario, falling 1 percent next year compared with Oxford's forecast of a 4 percent gain without a banking crisis. One reason: Oxford figures the Fed will hold off on raising rates until well into 2018—and begin its rate-supressing bond buying program again to help calm the financial waters.

Read More 'Perfect storm' to hit China economy in 2016
But the global economy would shift into even lower gear. Growth in China's GDP would fall to just 2 percent in 2015 and 1.4 percent in 2016. (Klachkin notes that China's GDP growth has never fallen below 6 percent since official record keeping began.) Emerging market economies would also be hit hard.

U.S exports would weaken, along with investment and consumer spending, slowing GDP growth to just 2 percent next year and in 2016, about a thir less than Oxford expects without a crisis.

Slower global growth would also accelerate the slump in oil prices, pulling the price of a barrel of Brent crude down to $80. Gold prices would rise 12 percent more than Oxford's current forecast. U.S. inflation would fall to 1.2 percent.

Over the past 30 years, the architects of China's modern economic development have dodged their share of economic and financial crises and kept the plan moving forward. So Oxford's disaster scenario is hardly a sure bet.

But given the high stakes if Beijing stumbles, China's ongoing transition—from a streak of red-hot, investment-fueled growth to a more sustainable, long-term path—poses major risks to the rest of the world.

"We don't think it's going to collapse," said Jonathan Schiessl, head of equities at Ashburton Investments. "We're going through this very difficult and tricky transition. And with all transitions there are always questions about how things are going to end up."
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#28
Sometimes it's strange why they don't get it. Technically defaults will drive up credit spreads, not interest rates, but China has capacity to lower rates as their benchmark rate is still 6% and RRR at 20%. Neither will the big 4 banks default when China has US$3tr reserves. Nonetheless pain and adjustment will definitely be there: what the govt is doing is spreading it out rather than a shock. A US$1tr write-off in any year is gonna cause big trouble, spread it out over 10 years and it becomes manageable. This is actually different from kicking can down the road.

Academics have totally no idea there is a difference betwen a market induced crisis vs a policy induced slow down. China is just incrementally unwinding what they had imposed. 解铃还需系铃人
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

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#29
What reserves has to do with the solvency of the mega banks in China?

The government has unlimited RMB resource to recapitalize any banks in China if it deems fit.

It does not cost a single cent of the reserve.
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#30
By this logic no banks would go bust since governments can just print currency and nationalise the banks. There are costs involved. Look no further than the debate in Eurozone and of course Mozambique. Recapping the banks with RMB vs say Dong are very different. But RMB is strong in the first place because of accumulation of reserve and economic prowess.

In a confidence crisis foreign investors would be withdrawing hard currencies from the system. Without sufficient reserve and confidence the country's machinery will groan as we can see from Argentina and to a lesser extent Russia. That has been the root of global crisis since Brady Bonds as far as I can personally remember. And most hedge funds look at foreign reserves as a proxy on whether it is "attack-able". That's why the Bernanke currency swap is IMHO ingenious
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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