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THE GREAT BIG CHINA THREAD


winkie
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As i've said before, when the london bubble burst the UK house price bubble bursts. If the London bubble is based on easy Chinese debt, this could be the final trigger point that forces the English to face reality about their debt based housing pyramid.

I do love a good credit crunch, me.

Strap in. Or for hpcers, remain strapped in.

(Reuters) - Chinese policymakers must ensure the property market, which has started to show signs of cooling, does not become a source of social and financial instability, the official China Daily said in an editorial published on Wednesday.

Investor jitters over the housing market heightened after data showed on Monday house price growth slowed for the first time in 14 months in January, with prices in five cities having a decline on a month-on-month basis.

The news triggered a selloff in shares of property developers and pulled down the overall market on Tuesday to its lowest level in two weeks.

China Daily, noting local media reports about angry homeowners in the southeastern city of Hangzhou protesting offers of deep discounts by some developers, said policymakers also need to be prepared to deal with any social impact that may result from a weaker housing market.

...The editorial added the government has not done enough as a market regulator to avoid conflicts of interest and ensure information disclosure, although it was unreasonable for homeowners to seek compensation from developers when prices decline.

in full: http://www.reuters.com/article/2014/02/26/us-china-property-editorial-idUSBREA1P0BH20140226

There's a terrible impact from a housing market where prices power upwards and upwards, month on month, year on year, decade upon decade, way beyond earnings and via manipulations in extending ever more credit to eager borrowers/high-payers.

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http://www.mindfulmoney.co.uk/wp/shaun-richards/chinas-shadow-banking-sector-and-the-iron-ore-and-copper-problem/

'Comment Back in 2007/08 us western capitalist imperialists saw what had become large shadow banking systems collapse and contribute to the credit crunch from which the world is still suffering. It is hard not to think of that as one reviews the state of play in China now. From a British perspective we went into it with banks offering 7% one-year returns too although the base rate cuts soon put paid to them.

If the Chinese manage to bob and weave their way around this then they will have achieved what we could not. However there are already costs from a centrally planned approach as highlighted by the photographic evidence linked too below of China’s largest ghost city Orso.

http://www.thebohemianblog.com/2014/02/welcome-to-ordos-world-largest-ghost-city-china.html'

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http://www.nytimes.com/2014/03/03/business/international/families-left-vulnerable-in-chinas-housing-market-study-finds.html?ref=business

China’s banks may not be directly exposed to losses from the country’s soaring housing prices, but any slump in those prices could trigger widespread public anger, data from a broad new survey of household finances indicates.

The survey — the largest academic study of personal finances in China, with 99,000 individuals interviewed late last summer in 28,000 households — found that Chinese families have put their savings overwhelmingly into their houses. A combination of large down payments and soaring prices means that even if housing prices halve, only 5 percent of homes would be worth less than the remaining balance on their mortgages, the survey found.

But the survey, conducted by Southwestern University of Finance and Economics in Chengdu, China, also found that Chinese households havean overwhelming share of their assets in their homes, with very little diversification into stocks, bonds and other assets. Housing prices have been soaring for more than a decade in China, up as much as twentyfold in smaller towns suddenly connected to big cities by high-speed-rail lines and up significantly in large cities as well.

If housing prices fall, “they’ll not get just a little angry, they’ll get tremendously angry,” Li Gan, an economics professor at Texas A&M University who oversaw the study, said in an interview over the weekend.

Ah all your savings in your house.... Only one slight problem China doesn't have the housing demand Britain has....

It's going to be interesting what happens in China when this bubble bursts, I can see China being at risk of breaking up.

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http://www.bloomberg.com/news/2014-03-05/chaori-s-default-may-be-china-s-bear-stearns-moment-bofa-says.html

The growing risk of default by Shanghai Chaori Solar Energy Science & Technology Co. may become China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.

“We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start,” Hong Kong-based strategists David Cui, Tracy Tian and Katherine Tai wrote in a note yesterday. During the U.S. financial crisis, it took a year “to reach the Lehman stage” when investors began to panic and shadow banking froze, the strategists added.

The maker of solar cells said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow. As sub-prime mortgages fell amid the 2008 U.S. financial crisis, banks began hoarding cash, causing two Bear Stearns Co. hedge funds to seek bankruptcy protection. The troubled bank was sold to JPMorgan Chase & Co. in March of that year in a deal facilitated by the U.S. Federal Reserve. Six months later, Lehman Brothers Holdings Inc. collapsed in the biggest bankruptcy in U.S. history.

O dear.

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http://www.bbc.co.uk/news/business-26464901

Solar panel maker Shanghai Chaori Solar Energy Science & Technology has defaulted on interest payments owed on its bond, say media reports quoting the firm.

It is the first Chinese firm ever to default on its onshore corporate bonds.

On Tuesday, the firm warned it would be unable to make a 89.8 million yuan ($14.6m; £8.7m) interest payment on a one billion yuan bond issued in 2012.

The default is seen as a test case for the Chinese government.

Investors have assumed in the past that the Chinese government would bail out any Chinese corporation in danger of defaulting.

I wonder what this will mean for the banking system? Not big enough to bailout?

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http://www.bbc.co.uk...siness-26464901

I wonder what this will mean for the banking system? Not big enough to bailout?

Worthy of a thread on it's own shurely?

Zombies Spreading Shows Chaori Default Just Start: China Credit Bloomberg 7/3/14

'''The number of Chinese companies with debt double equity has surged since the global financial crisis, suggesting the first onshore bond default won’t be the last. Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates. The yield on five-year AA- notes leapt 13 basis points in two days to 7.82 percent on March 6, the most in almost four months, after Shanghai Chaori Solar Energy Science & Technology Co. (002506) said it won’t be able to fully pay an 89.8 million yuan ($14.7 million) coupon due today on its March 2017 bonds. Chaori Vice President Liu Tielong said in an interview today the company still can't make the payment.

Some “zombie” companies in China that have cash shortages will fail as authorities end an overly loose monetary policy, Xia Bin, an adviser to the State Council and former central bank board member, said on Feb. 10. Chaori may become China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.

After the first one, there may be more defaults,” said Zhang Yingjie, Beijing-based deputy general manager in the research department of China Chengxin International Credit Rating Co., Moody’s Investors Service’s joint venture in China. “The domestic economy is slowing, liquidity is tightening globally and more bonds are maturing this year with greater refinancing pressure, so there may be more defaults.”

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Worthy of a thread on it's own shurely?

Zombies Spreading Shows Chaori Default Just Start: China Credit Bloomberg 7/3/14

'''The number of Chinese companies with debt double equity has surged since the global financial crisis, suggesting the first onshore bond default won’t be the last. Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates. The yield on five-year AA- notes leapt 13 basis points in two days to 7.82 percent on March 6, the most in almost four months, after Shanghai Chaori Solar Energy Science & Technology Co. (002506) said it won’t be able to fully pay an 89.8 million yuan ($14.7 million) coupon due today on its March 2017 bonds. Chaori Vice President Liu Tielong said in an interview today the company still can't make the payment.

Some “zombie” companies in China that have cash shortages will fail as authorities end an overly loose monetary policy, Xia Bin, an adviser to the State Council and former central bank board member, said on Feb. 10. Chaori may become China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.

After the first one, there may be more defaults,” said Zhang Yingjie, Beijing-based deputy general manager in the research department of China Chengxin International Credit Rating Co., Moody’s Investors Service’s joint venture in China. “The domestic economy is slowing, liquidity is tightening globally and more bonds are maturing this year with greater refinancing pressure, so there may be more defaults.”

The first of many....

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http://soberlook.com/2014/03/chinas-credit-markets-under-pressure.html

'China's corporate sector has been hit with escalating credit problems. Here is the latest:

1. Shanghai Chaori Energy Science and Technology is about to miss a coupon payment on its bond (see story).

2. As a result, Suining Chuanzhong Economic Technology Development and 2 other companies scrapped their bond offerings - demand for new issue corporate bonds has dried up.

3. Secondary corporate bond trading has also slowed materially. This is fairly new for China since it has never really experienced large scale credit problems in its nascent bond markets.

4. There are indications that banks are cutting back lending as a result. In particular lines have been cut to natural resource wholesalers, traders, and importers (iron ore, steel, cement, etc.). These borrowers in turn are forced to sell inventory that is ofren used as collateral for these loans. Inventory sales depress prices of some of the raw materials, generating further losses for these businesses. This is compounded by the nation's slack industrial demand, with steel mills now running at 50-70% of capacity.

5. With banks cutting back on lending, demand for interbank funding fell materially, sharply lowering China's money market rates. Both 7-day repo and the 1-week SHIBOR are at lows not seen in quite some time. While lower money market rates are good for banks, at this point there is ample liquidity in the system with far less demand.'

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4. There are indications that banks are cutting back lending as a result. In particular lines have been cut to natural resource wholesalers, traders, and importers (iron ore, steel, cement, etc.).

That would be the biggie wouldn't it.

A commods collapse.

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http://www.theguardian.com/environment/2014/mar/12/china-smog-pollution-beijing

Photographs of a smog-wreathed Tiananmen Square and the iconic headquarters of China Central Television dominated reports of Chinese pollution last year, but analysis shows nine other Chinese cities suffered more days of severe smog than the capital in 2013.

The worst was Xingtai, a city of more than 7 million people south-west of Beijing, which was hit by 129 days of "unhealthy air" or worse – the threshold at which pollution is considered at emergency levels – and more than twice as many days as the capital experienced.

Beijing suffered 60 days of pollution above emergency levels, sparking reports of an "airpocalypse", a boom in sales of air purifiers and masks and measures to tackle the problem including the destruction of open-air barbecues and a crackdown on fireworks for Chinese new year.

Banning open-air barbecues should sort out the problem!

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http://www.bloomberg.com/news/2014-03-13/china-s-growth-target-flexible-li-says.html

Chinese Premier Li Keqiang said there’s some flexibility around the nation’s target of 7.5 percent growth this year without specifying how much of a slowdown leaders would tolerate.

“Since we say the GDP growth target is about 7.5 percent, ‘about’ means it has a certain degree of flexibility,” Li said at a press briefing in Beijing today, adding that the government’s key concerns are jobs and livelihoods. “A bit higher or a bit lower, we have a level of tolerance here.”

http://www.bloomberg.com/news/2014-03-13/china-must-ensure-risks-don-t-become-systemic-li-says.html

China must ensure that financial risks don’t threaten the entire system even as some defaults are unavoidable, Premier Li Keqiang said.

China pays great attention to financial risk and is monitoring dangers from shadow banking, Li said at a briefing today in Beijing after the end of the legislature’s annual meeting. The ratio of government debt to the size of the economy is below an internationally-recognized danger level, Li said without specifying the level.

I'm guessing it's a bit late for that!

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http://www.bloomberg.com/news/2014-03-14/china-bond-risk-exceeds-ireland-as-defaults-unavoidable.html

China’s default risk has risen beyond that of Ireland, having been on par with France and Japan a year ago, as Premier Li Keqiang said financial leverage is making the economy’s outlook more complex.

Five-year contracts protecting against non-payment on government debt climbed to 99 from 63 a year earlier, almost double the 49 for Japan and 51 for France, CMA credit-default swap data show. That compares with 88 for lower-rated Ireland, which exited a bailout in December. The yuan has lost 1.3 percent in the past month, the most in Asia, while the Shanghai Stock Exchange Composite Index has declined 5.2 percent.

No not more complex just fecked!

http://www.bloomberg.com/news/2014-03-13/china-stimulus-decision-looms-as-investment-slows.html

China’s weakest start to a year for investment growth since 2001 and unexpectedly slow industrial production add pressure for economic stimulus, just as Premier Li Keqiang signals he wants to avoid such a move.

Li, at his annual press briefing in Beijing yesterday, indicated he’s confident that economic goals for 2014 are within reach. Two hours later, data showed factory output rose in January and February from a year earlier by the least since the global financial crisis, while retail sales grew at the slowest rate for the period since 2004.

Yeah more stimulus, more malinvestment and an even guaranteed bigger crash when it all fails.

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Companies like Wanxiang have been using cash to buy up assets just in the last two years this one has bought up a major battery tech company (A123) and Fisker, a niche electric car company. Both of those companies received $100m's in government subsidy and probably $100m's more in capital. As much as there is misallocation of capital in China it is nothign compared to the housing and cost sink in the West which has been nurtured to the extent it has destroyed the prospects of other sections of the economy..

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http://www.zerohedge.com/news/2014-03-17/second-chinese-corporate-default-real-estate-developer-cny35-billion-debt-collapses

A few days ago, copper prices and the Chinese stock market were roiled by speculation that another - the second in a row - Chinese bond default may be imminent, in the shape of Baoding Tianwei Baobian Electric (TBE) a maker of electrical equipment and solar panels, whose bonds and stock were suspended from trading a week ago after reporting massive losses. A few days later, TBE "promised" not to default when its next interest payment is due in July (although how the insolvent company can see that far into the future is just a little confusing). And yet the market shrugged and contrary to its recent idiotic euphoria to surge on even the tiniest of non-horrible news, barely saw a rise. Today we may know the reason: overnight Bloomberg reports that second Chinese corporate bond default may be imminent after the collapse and arrest of the largest shareholder of closely held Chinese real estate developer Zhejiang Xingrun Real Estate Co, which just happens to be saddled with 3.5 billion yuan ($566.6 million) of debt.

China getting close to a financial collapse?

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http://www.telegraph.co.uk/finance/china-business/10703990/Looming-property-default-in-China-raises-fears-of-broader-crisis.html

China faces the biggest property default on record as credit curbs threaten to break the housing boom, leaving a string of “ghost towns” across the country.

The Chinese newspaper Economic Daily News said Xingrun Properties, in the coastal city of Ningbo, is on the brink of collapse with debts of $570m, mostly owed to banks. The local government has set up a working group to contain the crisis.

“As far as we know, this is the largest property developer in recent years at risk of bankruptcy,” said Zhiwei Zhang, from Nomura.

“We believe that a sharp property market correction could lead to a systemic crisis in China, and is the biggest risk China faces in 2014. The risk is particularly high in third and fourth-tier cities, which accounted for 67pc of housing under construction in 2013,” he said.

AEP on China.

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http://soberlook.com/2014/03/latest-data-confirm-china-slowdown.html

'As a confirmation of a significant downward adjustment to China's growth (discussed here), a battery of economic reports this morning all came in materially below expectations.

1. Fixed asset investment:

Fixed+Asset+Investments.PNG Source: Investing.com

2. Industrial production:

Industrial+Production.PNG Source: Investing.com

3. Retail sales:

Retail+Sales.PNG Source: Investing.com

Clearly there is a seasonal component to these indicators, which may have been impacted by the New Year's holiday. But on a year-over-year basis much of that should have been reflected in the forecasts.

: - “The fairly dramatic slowdown is unusual in Chinese economic history of the last decade” and
the figures were “shockingly weak
,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “It points to a major deceleration of momentum in the beginning of 2014,” wrote Kowalczyk in a research note.

Not surprisingly, over the past few days the equity market has been reflecting these worsening fundamentals.

FXI+China+large+cap+ETF.PNG Large cap PRC equities ETF (ticker: FXI) - down 6% in 5 days'

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http://www.zerohedge.com/news/2014-03-20/dropping-flies-largest-steel-maker-chinas-shanxi-province-defaults-cny-3-billion-deb

When we started discussing the upcoming onslaught of corporate defaults in "Minsky Moment" China, now that the bankruptcy seal has been broken, we warned that the worst is about to come.

BAC%20Trust%202.jpg

Well, it's coming.

Overnight, Hong Kong's The Standard reported that in addition to the solar, coal and real-estate developer companies that are on everyone's radar as potential future bankruptcy candidates, one can also add steel makers to the list, with its report that Highsee Group, the largest private steel makers in Shanxi province has defaulted on CNY3 billion of debt, unable to repay its bonds on time.

Global Credit Crisis part II about to kick off?

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http://www.bloomberg.com/news/2014-03-19/chinese-dollar-bond-spreads-at-august-high-as-default-risk-grows.html

'Investors are demanding the highest premium to hold Chinese dollar notes in almost seven months as the collapse of a developer and the first onshore bond default fuel speculation missed payments will spread.

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