Sunday, Jun 28, 2009
Fitch Ratings has been warning for some time that China's lenders are wading into dangerous water
Telegraph: China's banks are an accident waiting to happen to every one of us
Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump. Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than bears had suspected.
Posted by chris @ 11:34 PM (556 views) Add Comment
7 Comments
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1. Old_traveller said...
Eye opener for me, but I'm totally confused now. Article says: "...Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted"..."
Wasn't China the No1 country re fiscal surplus? i.e. no deficit? I might have gotten it completely wrong from the likes of Paul Walker et al then.
USD debt is held mainly by rich oil countries, Japan and.... China. But who the fook is holding Chin'as debt then? the US? now, that'd be funny.
2. tudorian said...
Anyone else want to buy some lovely freshly issued government toilet paper??
Get 'em while they're hot!
3. icarus said...
It's been obvious for several months that China was in trouble from (a) the collapse of its US and European markets (someone here argued that the domestic market was big enough to make up for this - I don't think so) and (b) the printing of huge amounts of renminbi to buy dollar-denominated assets and keep the Chinese currency down (probably to ensure that the Asian, especially Korean, manufacturing crisis of 1997 didn't repeat itself in China). The latter has injected a flood of renminbi - and easy credit - into the Chinese economy. This credit has gone into the building of overcapacity by companies and local governments and into - you guessed it - land, real estate and shares, making for the same asset bubbles ("wealth creation" generating consumer demand) as we have in the west. The humming, thriving activity in China that observers report stems from the inflation of these bubbles. When they burst the overcapacity will be manifest, consumer demand will drop, and a serious crisis will develop that will worsen the global crisis.
4. stillthinking said...
Fitch's macro-prudential risk goes from category 1 (safe) to category 3 (Iceland) !? What kind of grading system is that?
5. bellwether said...
Standard AEP hyperbole I suspect but still his articles have been pretty accurate on overall direction for past couple of years.
As Icarus says in far more detail China appears to be misallocating capital into speculative bubbles of its own eg the stock market. While C is an incredibly ambitious country its incredible need to believe in its independance from the west will be its undoing.
6. bellwether said...
Some of the posts after the article are good liked this one:-
The UK has been in a state of permanent decline (slowed by the Conservatives and speeded up by Labour) for 50 years.
What will follow is a migration of talent and their wealth away from broken "economic prisons" (to use Stephen's apt phrase) like the UK to much safer and more economically sound nations. Countries like the UK with its horrible welfare addiction will find its tax base (the wealth creators) steadily eroded until it is a relative basket case as each successive government fails to re-structure and make the 'big' decisions (50% cut in NHS funding & compulsory health insurance just to name one of the more obvious ones).
You CANNOT live beyond your means whether you are a country or an individual. It just that it takes many many years for countries to go bust. You CANNOT operate a trade deficit indefinitely. You CANNOT function effectively with a massive public sector and an equally massive welfare program UNLESS you have an eqaully massive wealth creation 'unit' to support it.
Anything else is economis lunacy (socialism) and leads to eventually bankruptcy.
7. shipbuilder said...
bellwether, the annoying thing about the post you quote is that like so many, it presents its view as self-evident, simply a matter of producing more than you spend, in monetary terms, which always makes a public sector/welfare state look like a bad idea. Thing is though, that the NHS and welfare state's benefit cannot be easily explained in monetary terms. I could state that it is easily as self-evident that the reason that the public sector does not seem affordable is because private industry does not pay it's fair share for public services - the health and welfare if its employees, transport systems and so on, not to mention huge grants and subsidies, also not to mention a huge amount of steady business from public spending. To present the situation, as it so often is, as simply a matter of wealth-creating private sector/wealth-consuming public is just idiotic.