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Mega Default In China Scheduled For January 31

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Forbes - link

On Friday, Chinese state media reported that China Credit Trust Co. warned investors that they may not be repaid when one of its wealth management products matures on January 31, the first day of the Year of the Horse.

The Industrial and Commercial Bank of China sold the China Credit Trust product to its customers in inland Shanxi province. This bank, the world’s largest by assets, on Thursday suggested it will not compensate investors, stating in a phone interview with Reuters that “a situation completely does not exist in which ICBC will assume the main responsibility.”

There should be no mystery why this investment, known as “2010 China Credit-Credit Equals Gold #1 Collective Trust Product,” is on the verge of default. China Credit Trust loaned the proceeds from sales of the 3.03 billion-yuan ($496.2 million) product to unlisted Shanxi Zhenfu Energy Group, a coal miner. The coal company probably is paying something like 12% for the money because Credit Equals Gold promised a 10% annual return to investors—more than three times current bank deposit rates—and China Credit Trust undoubtedly took a hefty cut of the interest.

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:blink:

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http://www.bloomberg.com/news/2014-01-19/cash-crunch-seen-complicated-as-money-funds-double-china-credit.html

via

http://www.prudentbear.com/

'A doubling in China’s money-market funds in the past six months is draining bank deposits and raising the risk of financial failures during cash crunches, according to Fitch Ratings. The assets under management of such plans surged to a record 737 billion yuan ($122 billion) on Dec. 31 from 304 billion yuan on June 30, said Roger Schneider, senior director at Fitch’s Fund and Asset Manager Rating Group. Yu’E Bao, managed by Tianhong Asset Management Co. and sold online by Alibaba Group Holding Ltd., offers an annualized return of 6.7 percent, compared with the 3 percent official one-year savings rate. Some funds are offering higher rates, with news portal Eastmoney.com marketing a product that targets 10 percent.

“Clearly, yields of 8-10 percent are not sustainable,” Schneider said in a Jan. 10 interview from Frankfurt. “They will definitely come with the risk, and the premium includes both credit risk and liquidity risk in what they buy. There are strong refinancing needs among corporate issuers this year and the credit profile is to some extent deteriorating.”

Funds investing in interbank deposits and short-term corporate paper have benefited from record money-market costs as the central bank engineered a cash crunch to stop excessive lending. Banks are selling more wealth-management products to stem the savings exodus, swelling the less-regulated shadow banking industry. Industrial & Commercial Bank of China Ltd. last week rejected calls to bail out a 3 billion yuan trust product it marketed to savers seeking high returns.

Trust Concern

State-controlled banks have for decades benefited as rates set by the government created a 3 percent spread between what they earn from loans and what they pay on one-year deposits. While lending rates have been liberalized, savings rates are still under state control, encouraging banks to market so-called WMPs and trust funds that offer higher returns as well as higher risk. Assets managed by China’s 67 trusts soared 60 percent to $1.67 trillion in the 12 months ended September, dwarfing the scale of money-market funds.

The State Council has tightened control on shadow banking with rules targeting off-the-books loans and enforcement of current regulations. While aggregate financing, the broadest measure of new credit, fell to 1.23 trillion yuan in December from 1.63 trillion yuan a year earlier, it held steady from November even as commercial bank loans slumped to 482.5 billion yuan from 624.6 billion yuan the previous month.'

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What's going to happen ?

Are we facing the a "cledit clunch" ?

I've mentioned before that Mervo the Clown's last act of treachery before retiring was to open up a swap line between the BoE and PBoC, clearly for such an eventuality.

Renminbi swap line

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I've mentioned before that Mervo the Clown's last act of treachery before retiring was to open up a swap line between the BoE and PBoC, clearly for such an eventuality.

Renminbi swap line

I'm not trained in these things but this sounds like a disaster waiting to happen.

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All depends how many connected/senior party kids have invested in the fund. If none, it will be allowed to fail.

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All depends how many connected/senior party kids have invested in the fund. If none, it will be allowed to fail.

From the Forbes article:

Because Chinese leaders have the power to prevent corrections, they do so. Because they do so, the underlying imbalances become larger. Because the underlying imbalances become larger, the inevitable corrections are severe. Downturns, which Beijing hates, are essential, allowing adjustments to be made while they are still relatively minor. The last year-on-year contraction in China’s gross domestic product, according to the official National Bureau of Statistics, occurred in 1976, the year Mao Zedong died.

Why will China’s next correction be historic in its severity? Because Chinese leaders will prevent adjustments until they no longer have the ability to do so. When they no longer have that ability, their system will simply fail. Then, there will be nothing they can do to prevent the freefall.

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The Chinese super rich have been using Cayman Islands etc with $4Trns. London.Vancouver/Paris/Melbourne property - chicken feed.

If it's in the press (the 31 Jan event) it probably won't happen. Axiomatic and HPCers should get this by now.

True Chinese stock market not healthy but not indicating what the press is pushing. On verra. It could be a first I suppose. It's different this time...

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The Chinese public were born into the spring of free markets in China- then spring changed to glorious summer. No one told them about autumn- and as for winter- well they don't do winter- the party has forbidden it.

I recall a story a while back about the office of a property developer being razed to the ground when some flats he had sold lost some value- I don't think the average chinese has quite got the hang of this 'risk/reward idea- their idea seems to be that to be a 'property investor' is a one way ticket to ever increasing asset appreciation for ever.

But then again- isn't that what just about every central bank on the planet is desperately trying to make real? So perhaps we can't blame them for assuming it must be so.

If there is a major meltdown in China-in particular the housing sector- this will, I think, represent a genuine cultural as well as financial crisis as the unofficial deal between the people and the state will be seen as having been broken by the state- it was the states primary role to keep property prices rising- and any failure to do this will seriously test their ability to hold on to power.

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“2010 China Credit-Credit Equals Gold #1 Collective Trust Product”

Any Chinese speakers on here that can comment as to whether that's a standard sort of name for a run of the mill investment product in China?

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Any Chinese speakers on here that can comment as to whether that's a standard sort of name for a run of the mill investment product in China?

I would think they are usually called things like the Great Wall Investment Fund or the Long March Trust. Everything in China is.

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Any Chinese speakers on here that can comment as to whether that's a standard sort of name for a run of the mill investment product in China?

No names like

Fortune Chan Million Rich

Great Eagle Makee Money

Sexyee Easy Moneyee

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China manufacturing sees contraction

'

China's manufacturing sector, a key driver of its economic growth, contracted in January, an initial survey by HSBC has indicated.

The bank's Purchasing Managers' Index (PMI), a gauge of the sector's health, fell to 49.6 from 50.5 in December.

A reading below 50 shows contraction. It is the first time in six months the reading has fallen below that level.

The data highlights the challenge policymakers face as they look to the sustain China's high growth rate.

Qu Hongbin, chief economist for China at HSBC, said the contraction was "mainly dragged by cooling domestic demand conditions".

"This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth," he added.

Growth concerns The reading comes just days after data showed that China's growth rate slowed in the last three months of 2013.

The world's second-largest economy expanded 7.7% in the October-to-December quarter, from a year ago. That was slightly down from 7.8% growth in the previous three months.

However, China's full-year growth in 2013 matched that for 2012 as its economy expanded at an annual rate of 7.7% during the year.

Despite that some analysts have warned that its pace of expansion may slow this year.

They have said that China's efforts to control rising debt levels and the shadow banking sector are likely to have an impact on its growth.'

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