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THE GREAT BIG CHINA THREAD


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http://www.bloomberg.com/news/2014-03-30/china-lake-saved-from-stink-leaves-fiscal-cleanup-for-li.html

Yueyang’s South Lake became so clean after the city built a sewage system that Qian Shuili can catch fish there to serve in his restaurant.

“My customers really love them,” said Qian, 38, as he stood lakeside in heavy rain, wearing a motorcycle helmet and a dark green raincoat and hoping to hook another catch. “The lake used to be very dirty with rubbish floating on the surface of it -- I didn’t even want to get close because of the stink.”

Qian’s hometown city in China’s southern Hunan province was a beneficiary of the record wave of credit unleashed by the nation’s leadership to combat the 2009 global recession. While the new infrastructure has cleaned up the lake, it’s the financing behind the project that’s murky.

iEmfoFifgjik.jpg

And no idea where the money came from...

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http://www.nytimes.com/2014/04/02/business/international/china-sees-first-domestic-junk-bond-default.html?ref=business&_r=0

China’s nascent market for domestic junk bonds has had its first default, a report in the state-run media said on Tuesday, just weeks after the country experienced its first default in the domestic corporate bond market.

In a fresh sign that China’s slowing economic growth is causing real pain for the country’s companies and investors, Xuzhou Zhongsen Tonghao, a manufacturer of construction materials, has been unable to meet the interest payments on 180 million renminbi, or $29 million, worth of bonds it sold to local investors last year, according to a report Tuesday in The 21st Century Business Herald, a financial newspaper based in Guangzhou.

Getting close to tipping point?

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http://www.independent.co.uk/news/business/comment/satyajit-das-growth-of-chinas-shadow-banking-sector-casts-light-on-fault-in-system-9226918.html

Chinese debt concerns are complicated by two structural issues – the rise in borrowing by local governments and the increase in the role of the shadow banking system. Both sectors are testament to Chinese entrepreneurial spirit, but also point to deep problems in the financial system.

Outside of security matters or foreign affairs, China’s provinces, regions and centrally controlled municipalities enjoy a degree of autonomy. After the global financial crisis in 2007/2008, the aggressive stimulus measures to boost economic activity required the central government to relax controls on local government spending programmes.

According to the World Bank, China’s local governments have responsibility for 80 per cent of total spending but receive only about 40 per cent of tax revenue. As local governments are not legally allowed to borrow, they created LGFV (local government financing vehicles), also known as UDICs (urban development and investment companies). These special purpose arm’s-length vehicles, which are separate from but owned or controlled by the local government, can borrow.

The LGFVs generally borrow funds predominantly from banks (as much as 80 per cent or more), with the remainder raised by issuing bonds or other equity-like instruments. In recent times, with pressure on banks to curtail loans, LGFVs have borrowed from the shadow banking system. There are now more than 10,000 LGFVs in China, whose exact level of borrowings remains in dispute.

Got the love the fact they aren't allowed to legally borrow so "borrow" in a way that's not borrowing but is!

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http://www.zerohedge.com/news/2014-04-05/how-much-bad-debt-can-china-absorb

China is coming under close scrutiny these days, as the leadership scurries to find new sources of economic growth and control its debt. Some analysts have reassured China watchers that the Chinese government can simply write off its bad debt, at least within the major banks, and pass it on to the asset management companies that handle that resale of distressed debt (or have it later purchased by the Ministry of Finance). Others have warned that some of the debt is serious, such as that incurred by local government financing vehicles, and are dubious about the sustainability of these entities.

..

It seems people are starting to listen, and not a moment too soon: as of December 31, China's corporate debt just hit a record $12 trillion. From Reuters:

China's corporate debt has hit record levels and is likely to accelerate a wave of domestic restructuring and trigger more defaults, as credit repayment problems rise.

Chinese non-financial companies held total outstanding bank borrowing and bond debt of about $12 trillion at the end of last year - equal to over 120 percent of GDP - according to Standard & Poor's estimates.

Growth in Chinese company debt has been unprecedented. A Thomson Reuters analysis of 945 listed medium and large non-financial firms showed total debt soared by more than 260 percent, from 1.82 trillion yuan ($298.4 billion) to 4.74 trillion yuan ($777.3 billion), between December 2008 and September 2013.

While a credit crisis isn't expected anytime soon, analysts say companies in China's most leveraged sectors, such as machinery, shipping, construction and steel, are selling assets and undertaking mergers to avoid defaulting on their borrowings.

Just a matter of time before this hits the fan?

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http://uk.reuters.com/article/2014/04/06/us-china-shipping-refunds-insight-idUKBREA350MZ20140406

Chinese banks are stuck in a lose-lose legal battle between domestic shipyards and foreign buyers over billions of dollars in refund guarantees that are supposed to be paid out if shipbuilders fail to deliver on time.

One in three ships ordered from Chinese builders was behind schedule in 2013, according to data from Clarksons Research, a UK-based shipping intelligence firm. Although that was an improvement from 36 percent a year earlier, it was well behind rival South Korea, where shipyards routinely delivered ahead of schedule the same year.

That means Chinese banks may be on the hook to pay large sums to buyers if the yards can't come through per contract, with little hope of recouping the cash from the yards. China is the world's biggest shipbuilder, with $37 billion in new orders received last year alone. Buyers pay as much as 80 percent of the purchase price upfront.

Chinese bankers rushed to finance shipbuilding after the 2008 global financial crisis as Beijing pushed easy credit and tax incentives to lift the industry and sustain industrial employment levels in the face of collapsing exports.

Fees generated by offering such guarantees looked like easy money until massive oversupply and falling demand started taking a toll on the yards around 2010. Shipyards fell behind schedule and buyers demanded their money back. But behind or not, the builders, keen to keep orders on the books and prepaid money in their pockets, have submitted injunctions against banks in Chinese courts to prevent them from paying out.

Still all fixed by a little printy printy. Everyone can have their money.

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http://www.zerohedge.com/news/2014-04-07/chinese-ponzi-continues-property-developers-buy-banks

"Whatever it takes," appears to have become the new mantra across global financial systems and with Chinese shadow banks under increasing pressure (as cash-for-commodity deal financing dries up and "hedge" losses mount on 'surprise' Yuan weakness), property developers are increasingly desperate for liquidity. The solution, as The FT reports, Chinese property companies are buying stakes in banks and raising fears that the country’s already stretched developers are trying to cosy up to their lenders. 10 Chinese developers, who have been active in recent bank IPOs, have invested an 'unprecedented' $3bn in their potential lifeline lenders.

As The FT reports, Chinese property developers are buying themselves a piggy bank:

Ten Chinese property companies have invested Rmb18.4bn ($3bn) in banks, according to the Financial News, an official newspaper published under the aegis of China’s central bank.

GOOOOOOOOO PONZI.

This is certainly one way to become feckadoodle doooo too big to fail!

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http://www.bloomberg.com/news/2014-04-07/china-s-smog-splits-families-as-toxic-pollution-extracts-costs.html

As a thick smog hung over Beijing last year, Stephanie Giambruno and her husband decided it was time for her and their two girls to return to the U.S.

Giambruno’s husband stayed back in China for his job as general manager of a global technology company. He now skypes with the family twice a day and lives with “constant jet lag” as he travels to Florida once a month to see them, she says.

While it’s hard to be apart, Giambruno says Beijing’s record air pollution left them no choice. She saw friends’ children develop asthma. Their own daughters, at age 6 and 21 months, were often forced to remain indoors.

...

“We are seeing some companies reverting to 1980s and 1990s hardship packages for executive-level candidates in cities that are hard hit with pollution,” said Angie Eagan, managing director for China at recruitment firm MRIC, in an e-mail. “These packages are shaped around executives leaving their families in their home country and receiving an allowance for frequent home trips.”

Japan’s Panasonic Corp. is considering increasing a living allowance for overseas workers in China by an undisclosed amount based on environmental factors, including air pollution.

Hard to see how this is going to continue, China must be starting to choke.

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http://www.theguardian.com/world/2014/apr/11/drinking-water-lanzhou-china-unsafe

China's western city of Lanzhou saw a rush for supermarket bottled water on Friday after authorities said the city's drinking water contained levels of benzene, a cancer-inducing chemical, at 20 times above national safety levels.

With Beijing having identified the environment as one of its top priorities after years of unfettered economic growth, the government has struggled to make local governments and industries comply with laws.

Lanzhou, a heavily-industrialised city of 3.6 million people in Gansu province, ranks among China's most polluted cities.

It seems China is slowly killing it's own people.

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http://www.bloomberg.com/news/2014-04-11/china-s-march-inflation-accelerates-producer-prices-extend-fall.html

Consumer inflation in China remained below the government’s target in March while factory-gate deflation deepened, giving Premier Li Keqiang more scope to roll out measures to support growth.

The consumer price index rose 2.4 percent from a year earlier, the National Bureau of Statistics said today in Beijing, matching the median estimate of economists in a Bloomberg News survey. The producer price index fell 2.3 percent, after a 2 percent drop in February, extending the decline to 25 months.

While inflation below the government’s full-year target of 3.5 percent points to room for more stimulus to support a slowing economy, Li has indicated he wants to limit such measures. The nation is next week set to report the weakest quarterly growth since 2009, according to a Bloomberg News survey of analysts.

Falling prices I can feel the terror growing in the worlds central banks. All hands to the pump to boost inflation.

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http://www.zerohedge.com/news/2014-04-16/special-forces-confront-chinese-investors-demanding-failed-trust-pay-back-our-money

"We have been cheated by CCB," exclaimed one Chinese investor who invested 1 million yuan ($160k) in China Construction Bank's Songhuajing River No.77 Trust (which offered returns of 9.8 to 12% per annum). It appears that a 12% yielding financial instrument was not hint enough of the risk to the dozens of investors who confronted police in troubled Sanhxi province yesterday demanding their money back from the trust which has missed 6 monthly payments in a row. People wearing white masks with the words "despicable bank" and "pay back our money" were among at least 30 investors facing special-forces officers in dark uniforms and the group dispersed soon after the bank had asked for more time, adding "the bank said they wouldn't risk their reputation."

"Investors" are not happy that their high-yielding incredibly risky asset has the potential for loss...

Chinese investors demanding their money back from a troubled 973 million-yuan ($156 million) high-yield product in Shanxi province were confronted by police in front of a China Construction Bank Corp. branch.

People wearing white masks with the words “despicable bank” and “pay back our money” were among at least 30 investors facing special-forces officers in dark uniforms in Taiyuan city, about 521 kilometers (324 miles) southwest of Beijing. The nation’s second-largest bank is the custodian of the Songhuajiang River No. 77 trust, which missed six payments as of last month, according to the Economic Observer.

“We have been cheated by CCB,” said Wang Fengying, 60, a Shanxi resident who said her husband had invested 1 million yuan.

And here is the product...

State-backed Jilin Province Trust Co. created the Songhuajiang River No. 77 product to raise funds to finance mining projects for Shanxi Liansheng Energy Co., the biggest private coal miner in the province, according to a contract for the product obtained from Li Taishan, the leader of the investors gathering in Taiyuan.

The trust offered investors an annual return of 9.8 percent to 12 percent, depending on the investment amount, with a minimum of 1 million yuan, the product contract showed. Construction Bank currently pays 3.25 percent on one-year time deposits, according to its website.

“They told us the interest rate is three times the bank saving rate,” Wang, the woman whose husband had invested in the Songhuajiang River trust, said. “They said they wouldn’t risk the bank’s reputation. It’s our hard-earned money.”

But as Bloomberg notes...

The unrest underscores the stress in China’s $1.75 trillion trust industry as loans sour in an economy that grew at the slowest pace in six quarters.

The Chinese it appears discovering the dilemma of risk.

Still modern capitalism is investing without risk it's not surprising they want their money back.

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http://finance.yahoo.com/news/chinas-cooling-property-market-risk-084339588.html?l=1

'

BEIJING (Reuters) - China's property market could threaten Beijing's plan to manage a slowdown in growth, as evidence mounts of a rapid cooling in what had been one of the few strong spots in the world's second-largest economy.

So far, the economic story is going to script, with growth of 7.4 percent in the first quarter from a year earlier. While the slowest pace in 18 months, it was just ahead of market expectations and seemed to soothe fears of a sharp downturn.

But marked decelerations in property investment and sales, and a contraction in housing starts in the first quarter, point to weakness in a sector that supports some 40 other industries, ranging from cement to furniture, and plays an important role in underpinning consumer confidence.

"We think weaker property activity poses a key downside risk to GDP growth this year," Tao Wang, economist at UBS said in a note to clients.

Home price data on Friday is expected to show a further moderation in March after gains fell to a six-month low in February.

Property investment generated about 12 percent of China's GDP in the first quarter, down from a 15 percent contribution in 2013, Reuters calculations based on official figures showed.

The sector has lost steam since late 2013 as authorities tightened controls on speculative buying, and as banks made it harder for home buyers and small developers to get loans.

Media have reported developers have cut home prices in the eastern cities of Hangzhou and Changzhou and in the western city of Chengdu, and some developers have missed loan repayments.

"We cannot continue to count on fast growth in the property industry to bring in strong sales of furniture and big revenues from land sales," said Lv Fengyong, a researcher at the Chinese Academy of Social Sciences (CASS), a government think-tank.'

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http://finance.yahoo.com/news/chinas-cooling-property-market-risk-084339588.html?l=1

'

BEIJING (Reuters) - China's property market could threaten Beijing's plan to manage a slowdown in growth, as evidence mounts of a rapid cooling in what had been one of the few strong spots in the world's second-largest economy.

So far, the economic story is going to script, with growth of 7.4 percent in the first quarter from a year earlier. While the slowest pace in 18 months, it was just ahead of market expectations and seemed to soothe fears of a sharp downturn.

But marked decelerations in property investment and sales, and a contraction in housing starts in the first quarter, point to weakness in a sector that supports some 40 other industries, ranging from cement to furniture, and plays an important role in underpinning consumer confidence.

"We think weaker property activity poses a key downside risk to GDP growth this year," Tao Wang, economist at UBS said in a note to clients.

Home price data on Friday is expected to show a further moderation in March after gains fell to a six-month low in February.

Property investment generated about 12 percent of China's GDP in the first quarter, down from a 15 percent contribution in 2013, Reuters calculations based on official figures showed.

The sector has lost steam since late 2013 as authorities tightened controls on speculative buying, and as banks made it harder for home buyers and small developers to get loans.

Media have reported developers have cut home prices in the eastern cities of Hangzhou and Changzhou and in the western city of Chengdu, and some developers have missed loan repayments.

"We cannot continue to count on fast growth in the property industry to bring in strong sales of furniture and big revenues from land sales," said Lv Fengyong, a researcher at the Chinese Academy of Social Sciences (CASS), a government think-tank.'

It's like the bankers all over the world are trying to profit from our need for shelter.

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It looks like the Chinese growth can no longer rely on making things cheaper and exporting them.

Exactly so. This is why they have an epic bubble economy.

Wages for your average chinese worker are very low so that cumulatively they didn't have the spending power to consume the goods that they made. When 2008 came it crushed western demand and significantly reduced china's ability to export what their workers could not afford to consume. Thus the elites induced stimulus in the chinese economy to keep it functioning (somewhat similar to what we are doing now), with all that stimulus flowing into infrastructure, housing, and similar. Of course the income problems still remain so none of the masses can actually afford any of what has been produced based on wage incomes, and without that there is no way the debt that's involved with this infrastructre can be paid back (sound familar?). The end result being a classic bubble economy.

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http://www.zerohedge.com/news/2014-04-21/furious-chinese-rioters-beat-corrupt-policemen-death

It appears, based on these extremely graphic images, that the Chinese people has a different way of dealing with corrupt officials. As Shanghaiist reports, a riot involving around 1,000 people broke out last Saturday in Cangnan county of Wenzhou city, Zhejiang province, resulting in the hospitalization of five chengguan, China's notoriously abusive and under-regulated urban enforcement officials. The alleged cause for the riots was the five's brutally killing a civilian. According to reports, the chengguan "hit the man with a hammer until he started to vomit blood, because he was trying to take pictures of their violence towards a woman, a street vendor." This man later died while being rushed to the hospital. Given the following images of civilian retribution; is it any wonder, the powers that be in China fear social unrest?

Very graphic pictures at the link. Read it all with caution.

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And a nice fine dining ad at the end, how nice.

It might not be so intentional with zerohedge but of course the mainstream media do that sort of stuff all the time.

For example following up and mixing up extremely serious and important news as well as tragic news with stuff like comedy and social items plus sports news etc. It gives them similar weight and importance and dilutes, distracts and relegates the importance, impact and emotion of the serious news. To some extent the variety is probably inevitable but sometimes the extremes and contrast are taken too far just to be a coincidence.

Edited by billybong
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