China Economic News

[BlueKelah]

China Exports Fall Most in Seven Months, Adding to Yuan Pressure

China’s exports dropped the most since February as global demand remained tepid, adding to pressure to the yuan, which is near a six-year low.
Key Points

• Exports fell 10 percent from a year earlier in September, the customs administration said Thursday
  
• Imports declined 1.9 percent 
  
• In yuan terms, shipments declined 5.6 percent, imports rose 2.2 percent
  
• Trade surplus fell to $42 billion
  

[Behappyalways]

李克强视察东莞被骗？假“工人”装样子露馅(图)
http://www.wenxuecity.com/news/2016/10/18/5694827.html

[Behappyalways]

Take the steel industry, for example. According to the National Bureau of Statistics, the debts of all steel makers in China added up to 4.37 trillion yuan ($648 billion) at the end of last year. Their combined net profit before deducting interest payments last year was about 166.7 billion yuan. If all of the profits were used to service debt, which carry on average an annual interest rate of 6.2%, the companies could borrow at most 2.69 trillion yuan. The difference between 4.37 trillion and 2.69 trillion yuan, which is 1.68 trillion yuan, is the amount of loans that must be resolved because the companies cannot afford them.

Debt-To-Equity Can't Be The Only Way to Deal With Corporate Debt
http://english.caixin.com/2016-10-20/100999008.html

[BlueKelah]

Lol good post

Coal industry collapsed Liao they had to reduce workday to 276d. soon will be collapse of steel industry.

Lastly will be property and banks.

Japan 2.0 coming closer and closer.

Get the popcorn out

Sent from my MotoG3 using Tapatalk

[CityFarmer]

Take the steel industry, for example. According to the National Bureau of Statistics, the debts of all steel makers in China added up to 4.37 trillion yuan ($648 billion) at the end of last year. Their combined net profit before deducting interest payments last year was about 166.7 billion yuan. If all of the profits were used to service debt, which carry on average an annual interest rate of 6.2%, the companies could borrow at most 2.69 trillion yuan. The difference between 4.37 trillion and 2.69 trillion yuan, which is 1.68 trillion yuan, is the amount of loans that must be resolved because the companies cannot afford them.

Debt-To-Equity Can't Be The Only Way to Deal With Corporate Debt
http://english.caixin.com/2016-10-20/100999008.html

I agree with the headline, which is consistent with its content. There is no "silver bullet solution" to China debt issue.

IMO, debt-equity-swap, should be done, after a bank's debt write-down to entice investors. The solution to the short-term debt issue, need a bundle with a long-term profitability solution. M&A with strong peer, is a viable solution, and good exit point for banks.

Based on the statistic above, theoretically minimum write-down of about 40% is required, and we know, in reality, the ratio should be much higher, depending on the asset quality.

(sharing a view)

[BlueKelah]

S&P: China's Credit Growth Weighs Down Its Sovereign Rating
[In a report released last week, S&P Global Ratings warned that China is at risk of losing its AA-status if it doesn't rein in its debt-fueled economic growth.

"Credit growth in China continues to outpace income growth, and much new lending appears to be financing public investment," S&P analysts Kim Eng Tan and Xin Liu wrote. "Consequently, we see support for the Chinese sovereign ratings gradually diminishing."

A downgrade would be the latest blow to the world's second-largest economy, whose outlook was slashed to negative from stable by the ratings agency in March. At the time, S&P cited the country's slower-than-expected economic rebalancing....]

[specuvestor]

Take the steel industry, for example. According to the National Bureau of Statistics, the debts of all steel makers in China added up to 4.37 trillion yuan ($648 billion) at the end of last year. Their combined net profit before deducting interest payments last year was about 166.7 billion yuan. If all of the profits were used to service debt, which carry on average an annual interest rate of 6.2%, the companies could borrow at most 2.69 trillion yuan. The difference between 4.37 trillion and 2.69 trillion yuan, which is 1.68 trillion yuan, is the amount of loans that must be resolved because the companies cannot afford them.

Debt-To-Equity Can't Be The Only Way to Deal With Corporate Debt
http://english.caixin.com/2016-10-20/100999008.html

I agree with the headline, which is consistent with its content. There is no "silver bullet solution" to China debt issue.

IMO, debt-equity-swap, should be done, after a bank's debt write-down to entice investors. The solution to the short-term debt issue, need a bundle with a long-term profitability solution. M&A with strong peer, is a viable solution, and good exit point for banks.

Based on the statistic above, theoretically minimum write-down of about 40% is required, and we know, in reality, the ratio should be much higher, depending on the asset quality.

(sharing a view)

On paper this will be non-issue if they able to close down marginal producers that don't pose a systemic threat (read: not bulk of debt outstanding) and boost steel price by say 40%
http://www.smh.com.au/business/markets/c...oe4uy.html

Which incidentally is what they are doing

IMHO the fundamental reason is that producers should not be so leveraged but should always strive to pay off their debt when they plan their capacity on a declining loan basis rather than bond basis. They are not commodity traders. But people are lazy to learn from history in the midst of booms

[Behappyalways]

China capital flight flashes warning as authorities forced to prick property bubble
http://www.telegraph.co.uk/business/2016...oom-defla/

[specuvestor]

^^ Like I posted before, most people don't understand that if RMB were to be a reserve currency, China's foreign reserve will drop because she will hold her own currency like the US or EU. Germany international reserve is USD38b, non-Euro UK is US$115b and US is measly US42b.

The implication is China's monetary liquidity (assuming a developed bond market) and assets will likely be boosted, depending on the speed and timeframe, which we know China is very patient.

[BlueKelah]

China 1.0 = Japan 2.0
Good article.
=-----------------------------------------
Is China Repeating Japan’s Missteps?
Beijing may seem dynamic, but it’s heading down a path we’ve seen before.

China and Japan may seem to inhabit alternative economic universes. After more than two decades of stagnation, Japan is a fading global power that can’t seem to revive its fortunes no matter what unorthodox gimmicks it tries. By contrast, China’s ascent to superpower status appears relentless as it gains wealth, technology, and ambition.
Yet these Asian neighbors have a lot in common, and that doesn’t bode well for China’s economic future. The sad case of Japan should serve as a cautionary tale for China’s policymakers. Beijing pursued almost identical economic policies to Tokyo’s to generate its rapid development. Now China’s leaders are repeating the missteps the Japanese made that tanked Japan’s economy and thwarted its revival.

“Just like Japan, we believe China will eventually face a period of much slower growth,” Goldman Sachs investment strategists said in a report earlier this year. Analysts at ratings agency Moody’s, writing in May, warned that China could suffer “a prolonged period of sub-optimal economic growth and persistent deflationary pressures, or possibly even economic stagnation.” James Chanos, founder of fund manager Kynikos Associates, has compared China’s trajectory to Japan’s “on steroids.”

Some may disregard these warnings as the same predictions of doom that China has shrugged off time and again. But recall that 30 years ago, few foresaw the decline of Japan, either. Japan was the East Asian giant poised to overtake the U.S. as the world’s top economy. Driving that ascent was an economic system that many considered superior to laissez-faire American capitalism. By fostering close, cooperative ties among the state, big corporations, and banks, Japan’s policymakers encouraged investment and guided a national industrial strategy. Bureaucrats in Tokyo interfered with markets to a degree unthinkable in the U.S. by protecting nascent industries and directing financing to favored sectors and companies. Backed by such support, Japanese companies burst onto the world stage and pushed their American competitors to the wall.
But even as Japan appeared destined for greatness, its economy was, in reality, starting to rot. Those clubby ties among finance, business, and government misallocated capital and led to wasteful investments. Growth was given a boost by cheap credit in the second half of the 1980s, but that also helped inflate debt levels and stock and property prices. When this “bubble economy” burst in the early 1990s, the financial industry was flattened. Japan has yet to fully recover.

China could be hurtling down a similar path. The methods Beijing employed to generate rapid growth—directing finance, nurturing targeted industries, and promoting exports—are replicas of Japan’s. And since the state in China’s “state capitalism” plays an even larger economic role than Japan’s officious bureaucracy does, the Chinese government interferes with markets to a greater degree.

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