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Thread: Charting China's Imminent Implosion

  1. #331
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
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  3. #332
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  4. #333
    Late last week, we argued that one could ignore China's sinking retail sales, industrial production, capital expenditures, record low and declining sub-6% GDP and even its fading monthly credit injections and impotent credit impulse, and instead what matters most for the world's second biggest economy with the world's biggest financial system (at around $40 trillion, roughly double that of the US) is the following chart showing the market cap to total assets ratio for the four largest commercial banks in China, which as Saxo Bank found, hit a new all-time low of 5.8% in Q3 as total assets grew an annualized 8% in Q3 while market cap of the four banks declined.

    This means that Chinese investors - who happen to know best what is truly going on behind the scenes - are not valuing these new assets as high quality, and the dynamic in China right now is that the current credit expansion is just offsetting the surge in bad loans, whose real amount Beijing has been keeping under wraps ever since the great bank debt for equity swap of 1999, but which we know is far higher the propaganda number of around 1.5% The net effect is zero credit transmission to the real economy in China constraining economic growth, which in turn makes banks especially vulnerable to failure as a result of even modest capital outflows.
    Confirming that there is something fundamentally broken with China's debt transmission mechanism and that, by implication, Chinese bad loans are soaring, two weeks after we reported that there was a bank run at Henan Yichuan Rural Commercial Bank which brought the bank to the verge of collapse, the WSJ reported that Harbin Bank, a politically-linked midsize Chinese lender based in the capital of northeast Heilongjiang province, became the latest Chinese financial institution to get a state bailout after its key private shareholders were replaced by government investors.


    Harbin Bank, which is one of the biggest banks in China’s northeast with 622 billion yuan in assets as of June 30, 2019, and trades on Hong Kong’s stock exchange, becomes the fifth bank - after Baoshang Bank , Bank of Jinzhou, Heng Feng Bank, and Henan Yichuan Rural Commercial Bank - to be bailed out by the state, and will be 48%-controlled by two government entities after six private shareholders shed their stakes, according to a bank statement issued late on Friday.
    Total consideration for the shares involved came to almost 15 billion yuan, or around $2.1 billion, the bank said, though it described the transactions as transfers rather than stock sales, which is to be expected if the bank was being bailed out instead of actually selling a viable stake.
    As has been the customary case, the bank didn’t provide any reason for the transactions in the statement, and Chinese bank regulators made no comment on the action.
    And, as was the case with at least one previous bank "rescue", Harbin Bank was connected to a former oligarch who disappeared not that long ago amid allegations of massive fraud. Indeed, as the WSJ reports, the bank is among a handful of financial businesses in China linked to once-powerful tycoon named Xiao Jianhua who in early 2017 disappeared amid a wave of prosecutions of big private investors. Businesses owned by some of those people, including Wu Xiaohui’s Anbang Insurance Group Co., have also since become government-owned.


    Harbin Bank’s exiting shareholders are business entities owned by a number of individuals, according to the company’s latest annual report. The biggest holder among them, Heilongjiang Keruan Software Technologies owned a 6.55% stake and is identified in the annual report as the subsidiary of another business primarily owned by two individuals.
    Who are the bank's new owners?
    Under the transactions disclosed Friday, an entity controlled by Harbin city’s financial bureau, Harbin Economic Development & Investment, will control 29.63%, compared with 19.65% at the end of June. A second, new shareholder will have a 18.55% stake: Heilongjiang Financial Holdings Group Co., which was established in January by the province of Heilongjiang. Combined, these state-owned enterprises would own nearly 50% of the bailed out bank.
    Meanwhile, since the PBOC refuses to admit or acknowledge that it has an unprecedented bad loan problem, and thus nothing can be done to address the underlying cause at the heart of China's failing bank problem, expect more and ever bigger Chinese bank bailouts until eventually a bank fails and its depositors are impacted, sparking a furious scramble by Chinese depositors across the country to redeem their roughly $27 trillion (190 trillion yuan) in bank deposits, which as a reminder, is more than double the total amount of US commercial bank deposits.

    They are in for an unpleasant surprise.

    More at: https://www.zerohedge.com/economics/...her-major-bank
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  5. #334
    China's economy is quickly decelerating, and data last month shows GDP could slip under 6% in 2020.
    A structural decline, blended with a global synchronized slowdown, and accelerated by trade tensions with the US, have been blamed for China's deteriorating industrial sector.
    New evidence from research firm Antaike, via Reuters, shows China's aluminum consumption is likely to decline for the first time in 30 years as domestic demand plunges and exports slump.


    Antaike's senior analyst Shen Lingyan stated at a conference in China's Qingdao city on Wednesday that consumption of aluminum in China would be around 36.55 million tons this year, down 1.2% YoY.
    "The first reason is domestic consumption, which will decline by 0.9%. Exports will fall 3%," Shen said at the China Aluminium Week conference.
    October export data of China's unwrought aluminum fell to 431,000 tons, the lowest levels since February.
    The output of aluminum in China this year has recorded the sharpest decline on record, down 1.6% to 36 million tons, Shen told the conference.
    Shen forecasts a 3% increase in aluminum output in 2020 to 37.2 million tons -- though there are currently no signs the global economy is bottoming.
    Factory activity in China contracted for a sixth straight month in October. It's likely that in the coming quarters, GDP will dive under 6% as cooling in the manufacturing sector continues.

    More at: https://www.zerohedge.com/commoditie...-time-30-years
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  6. #335

    Michael Pettis has some words of wisdom for those who believe China will soon overtake the US as the world leader.
    "Having the smaller banks absorbed by the bigger ones, which seems to be Beijing's new strategy, will mean that China, like Japan in the 1990s, will be dominated by huge zombie banks," says Michael Pettis at China Financial Markets in a series of Tweets.

    The Tweets were in reference to the Wall Street Journal article Why China’s Smaller Banks Are Wobbling.
    China’s banks come in various flavors. There are a handful of giants, and a few more medium-size banks that can also operate nationally. Below that lies a bigger cohort of city commercial banks, and more than a thousand tiny rural commercial lenders. Both city and rural banks have their roots in local credit unions, and tend to have limited geographic reach. Cracks are emerging at some small and midsize banks after years of rapid growth.
    Smaller banks lent liberally to local governments and businesses, and bad debts are rising as China’s economy sputters. Poor governance probably created problems at some banks, too, such as Hengfeng Bank. In late 2017, the official Xinhua News Agency, citing a company statement, said Hengfeng Chairman Cai Guohua was being investigated for “alleged serious violation of discipline and law.”
    Possible state intervention depends on how large and important a bank is, and who is backing it. In May, national authorities seized Baoshang Bank, a lender in the northern province of Inner Mongolia that was linked to missing tycoon Xiao Jianhua, calling it a “severe credit risk.” This was the first such takeover in more than two decades. In contrast, a big bank and two bad-loan managers bought stakes in the struggling Bank of Jinzhou from existing shareholders. Industry-watchers expect capital injections to follow.
    Many banks aren’t profitable enough to boost capital through retained earnings. And existing stockholders may be reluctant to buy new shares, given questions over reporting and ownership.
    Zombification Four Point Synopsis




    More at: https://www.zerohedge.com/economics/...e-zombie-banks
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  7. #336
    China’s True Growth Could Be Half What You Think
    China’s GDP data release always generates great market excitement despite rarely straying more than 25bp below or above the government target. This stability has led a number of analysts to propose their own measures, typically based on a variety of Chinese proxy data but, in the end, not that different from the official numbers. In this article I argue that, based on the performance of countries comparable to China, the latter’s GDP growth could be as low as half the official number and that markets are likely overestimating China’s importance for the global economy. That being said, China has one of the highest levels of corporate debt in the world and slower growth implies greater risks of financial instability.
    China’s Amazing (Supposed) Productivity Miracle

    There is a strong relationship between a country’s level of development and its growth: poorer countries grow faster; richer countries grow more slowly (Chart 1). As countries get richer their population growth slows and productivity gains become more difficult. In the very early stages of development, productivity gains come primarily through workers moving from the low productivity agricultural sector to the higher productivity manufacturing sector. Once countries have reached their ‘Lewis point’ (where the surplus rural labor has disappeared), productivity gains slow. From that point onwards they largely depend on a country’s ability to absorb technology – and that is driven by the quality of its economic and political institutions.

    Past the Lewis point, most countries find it hard to continue catching advanced economies and instead get caught in the (in)famous middle-income trap. In 2018, only 24 countries (excluding oil economies) with more than 1 million inhabitants had income per capita above 60% of that of the US. Of these, only 6 had made it there from emerging market status: Hong Kong, Singapore, Taiwan, Japan, Korea, and Israel.
    China stands out as having as having a growth rate much above that of comparable middle-income countries. Yet China’s demographic growth is low, at about 0.5% a year, against 1% in countries in the same income range (Table 1). Most of China’s growth advantage therefore comes from productivity growth, which is three times as fast as its peers. China, however, crossed its Lewis point around 2010, making its official productivity growth truly extraordinary and somewhat difficult to take at face value.


    Has China Really Escaped the Middle Income Trap?
    I base my skepticism over Chinese growth on three things primarily. First, China’s government driven development model works well in the early stages of development but much less well when economies become more complex and growth becomes dependent on private sector innovations – the stage China is currently at. For instance, China’s property rights system, with its fluid delimitation of public and private spheres, is an impediment to the country’s integration into the global economic system.
    Second, studies of the middle income trap show that countries tend to get stuck at lower levels of income per capita when they have very high investment ratios because these tend to reflect pervasive distortions. China’s investment share of GDP was 45% in 2018, much higher than the 25% prevailing in comparable countries.
    Third, China’s share of global manufactured exports has been falling or stagnant since 2015 and the country is struggling to rebuild it (Chart 2). This is inconsistent with superior productivity growth. China’s loss of global market share suggests productivity has failed to keep up with wage growth.

    China’s True Growth Could be Much Lower


    So we can reasonably doubt China’s own figures. But what, then, is a more likely growth rate? Assuming that, thanks to Chinese exceptionalism, the country’s productivity grows 1.5 times faster than in comparable countries, yearly trend growth in China would be about 3.5%. This growth rate would be commensurate with that of Korea after its financial crisis of the late 1990s.
    Countries that are on an unsustainable growth path typically move to a lower and more sustainable trend following a shock, as Korea did after its crisis. In China’s case, most of the transition to a slower trend growth could have happened in the down phase of the 2014-15 debt reflation. Chart 3 shows an example of an alternative growth trajectory based on a 3.5% trend in effect from 2015 onwards. Based on this path, China’s 2018 growth would have been about 4% against 6.6% officially, and global growth 3.1% instead of 3.6%.

    Bottom Line
    China’s lower trend growth has two key consequences going forward. First, global growth is probably more resilient to a Chinese slowdown than markets assume: most of China’s slowdown is likely behind us. In addition, as manufacturing capacity migrates from China to other EMs, those are likely to grow faster and make up for the Chinese slowdown. Second, China will find it difficult to grow out of its high corporate debt that, at 155% of official GDP, is one of the highest in the world. China’s middle income trap could still bring about financial instability.

    https://www.zerohedge.com/crypto/why...ower-you-think

    It's probably even lower than that.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment



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  9. #337
    In 2016, China admitted its economic data was fake, pointing out that "some local statistics are falsified, and fraud and deception happen from time to time."
    In 2017, China (again) admitted its economic data was fake, saying that a nationwide audit found some local governments inflated revenue levels and raised debt illegally, with some local GDP data as much as 20% "over-cooked."
    In 2018, we exposed China's "cooked" numbers in China's industrial profits growth data.
    And early in 2019, a team of researchers from the Brookings Institute published a carefully researched paper detailing the exact mechanism by which authorities in Beijing inflate the country's GDP figures, while estimating that China's economy is roughly 12% smaller than the official figures would suggest.

    And so here we are, nearing the end of 2019 and China's economic growth is lagging badly - at or near the lowest since record began over 30 years ago (and expected to grow at less than 6.0% next year for the first time) - we get new from China's National Nureau of Statistics that 2018's GDP data is to be adjusted...
    Can you guess which way the adjustment went?
    Based on China's gross domestic product (GDP) accounting system and the results of the fourth national economic census, the National Bureau of Statistics revised the preliminary accounting figures for 2018. The main results are as follows:
    In 2018, the gross domestic product was 91.93 trillion yuan, an increase of 1.8972 trillion yuan over the initial accounting, an increase of 2.1%.



    The revisions were almost entirely focused in the tertiary sector of the economy, whose growth was "adjusted" 4.29% higher while the primary sector barely moved and the output of the secondary sector was actually adjusted 0.32% lower.

    We look forward to 2019's goal-seeked adjustments... to ensure China's growth remains above the 'mandated' 6%.


    https://www.zerohedge.com/economics/...her-due-census
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  10. #338
    Investors typically concentrate on GDP growth, leading indicators, and other forms of macro data to determine a turning point in the economy, and or to determine when the window of vulnerability opens up that could shock the economy into the next recession.
    For years, we've cited some fascinating alternative forms of data, such as the Skyscraper Index, which was first elaborated by Andrew Lawrence in January 1999. The index is simple; the world's tallest buildings are often constructed or completed at economic turning points, right before or just as the downturn gets underway.

    The Burj Khalifa in Dubai, which is the world's tallest building, was completed in 2008. Shortly after, the global financial system crashed.

    Since the crisis, most of the world's tallest buildings have been constructed across Asia.
    The Financial Times (FT) is reporting that a subsidiary of China's largest construction company recently halted work on the nation's tallest skyscraper after the developer defaulted on a payment.
    The default comes at a time when China's economy is decelerating as Beijing conducts economic reforms to transition from an export-based economy to a more domestic, consumer-driven economy. Also, trade tensions and global debt saturation have been other leading causes for China's slowdown.
    FT obtained a copy of a letter that specified China Construction Third Engineering Bureau Co would halt construction on a 1,558 feet skyscraper in the central city of Wuhan. Details within the letter specified how Greenland Group, China's largest developer, had failed to make a "significant" payment to fund the project.

    "Unfinished super tall skyscrapers, which cost a huge amount of funds to build, are a typical sign of economic recession," said Yan Yuejin, an analyst at Shanghai-based E-house China Research and Development Institution. "They are financed by credit and will run into trouble when lenders begin to scale back."
    As China's economic growth slumps to three-decade lows, credit for property developers has been turned off. FT also learned that construction of more than a dozen skyscrapers, some more than 900 feet tall, have been postponed or behind schedule in 2019.

    More at: https://www.zerohedge.com/markets/ch...eloper-default
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  11. #339
    Several weeks ago, the People's Bank of China (PBOC) said it would "increase counter-cyclical adjustments" to prevent downward pressure on the economy. Now the PBOC is warning that it might not be able to ward off these downward pressures in the short term, reported Reuters.
    The PBOC's annual financial stability report said China would continue to deploy fiscal and monetary policies to support the economy but warned economic deceleration would continue through year-end.
    Policy maneuvering by the PBOC will be limited as it will likely need to cut rates and the amount of money banks put down as reserves to promote credit growth.
    The PBOC recognizes the rapid deterioration in the economy, along with the limitations of monetary policy to revive growth.

    Likely, credit creation via the PBOC won't be in magnitude seen in the last ten years used to save the world from escaping several deflationary crashes.
    The government will likely stabilize its economy or at least create a softer landing through tax cuts and infrastructure spending, the annual report said.

    More at: https://www.zerohedge.com/economics/...omy-increasing
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  12. #340
    Three weeks ago we reported that China's Henan Yichuan Rural Commercial Bank, just outside the central Chinese city of Luoyang, was the latest small-to-medium Chinese bank to suffer a vicious bank run as long lines of depositors filled out its branches demanding their money, amid a rumor that the bank was going under. The bank was at least the fourth to be on the verge of collapse after recent prior nationalizations of Baoshang Bank ,Bank of Jinzhou, and most recently, China's Heng Feng Bank.
    Now yet another Chinese bank has found itself scrambling to prevent a collapse: Yingkou Coastal Bank was forced to stack bundles of yuan notes high behind the counters of its branches earlier this month, as the northeast China lender fought off a run on deposits while onsite government officials battled rumors of a funding crunch.
    As Reuters reports, Yingkou was the latest small bank to have its deposit-reliant funding base undermined by a flash mob of "running" depositors, spooked by the funding crunch that led to the shock state-led rescue of regional lender Baoshang Bank first which in turn prompted a cascade of small bank bailouts.
    To avoid an almost instant death, Yingkou had no choice but to engage in what we have hence dubbed a self-destructive "doom loop: to help repair the damage and to keep the deposits from being pulled, the bank hiked its already high deposit interest rates to entice depositors. Alas by doing so, the bank - which can not possibly find investing opportunities to offset the higher deposit rates - has just accelerated its eventual insolvency.

    The run on Yingkou came just as small banks' reliance on deposits for funding shot up this year after Baoshang’s rescue sent interbank interest rates spiking, raising borrowing costs and making it virtually impossible for banks to fund themselves in the short-term funding market as we discussed in June.

    To be sure, bank funding was already under pressure for most but the biggest bank following government efforts to de-leverage the financial system starting in 2016. Meanwhile, small but deadly cuts in key lending rates since August to stimulate up a slowing economy have only exacerbated the pressure on banks.
    With less income from lending and without the full suite of funding options available to much larger peers, the interest rates that China’s legion of small banks may have to offer to attract deposits could further undermine their stability, analysts said. The irony is that to preserve their critical deposit base, small banks have to hike deposit rates even higher to stand out, in the process sapping their own lifeblood and ensuring their self-destruction. Hence "doom loop."
    Dai Zhifeng, a banking analyst with Zhongtai Securities, told Reuters the funding difficulties risked distorting small banks’ behavior, making failure even more likely: "Lacking core competitiveness, some of them have turned to high-risk, short-sighted operations," he said, adding that a liquidity crunch was possible at some institutions.
    Institutions such as Yingkou, where "untruthful rumors about the bank’s deep financial crisis spread online", the city police said, triggering a run on deposits on Nov. 6 when a Reuters witness saw piles of cash behind counters at six city-centre branches.
    Just like at Yichuan Rural Bank, the local government stepped in to allay concerns, placing officials at Yingkou’s biggest branch to help calm depositors, and hanging notices saying the bank had sufficient assets and that its operations and management were in good standing.
    Why the panic to avoid outflows? Because as of June-end deposits made up 58% of Yingkou’s funding. In the wake of the run, it raised its rate for one-year time deposits to 4.4% from 4.2% and kept the rate on its flagship three-month wealth management product above 5%. By comparison, the popular money market fund Yu’ebao backed by e-commerce giant Alibaba Group Holding Ltd offers a modest 2% annualized rate, while China’s benchmark rate for a one-year time deposit is 1.75%; this means that the troubled bank has to offer interest rates more than double the prevailing ones just to keep depositors from fleeing.
    "I thought about the risks of smaller lenders, but an interest rate of 4%-plus on deposits was too attractive for me," said Sun Wensheng, a perfect example of the gullible depositors the bank is desperately in need of, and a futures trader who deposited 420,000 yuan ($59,772.86) with Yingkou just before the bank run. Sun is in for a big surprise when in a few weeks that bank shuts down, this time for good, and his entire deposit is gone... all gone.
    * * *
    Though small, problems at China’s more than 4,500 local banks matter because of their close ties to larger lenders and huge base of mom-and-pop savers; put enough banks under and suddenly you have a "Lehman moment", as the interbank market freezes.
    Yingkou was the second bank run in less than two weeks, following the previously discussed panic at Yichuan Rural Commercial Bank in central Henan province amid a corruption investigation into a former boss. But in contrast to the May rescue of Inner Mongolia lender Baoshang Bank, when a takeover by the central government sent interbank lending rates sharply higher, local governments took the lead in managing both of the latest scares.


    More at: https://www.zerohedge.com/markets/se...tive-doom-loop
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  13. #341
    China Industrial Enterprises total profits collapsed in October to CNY427.5bn from CNY575.6bn in September - a 9.9% YoY plunge, the biggest drop on record.
    In fact, China's Industrial sector has seen annual declines in its profits for 4 of the last 6 months.



    What is perhaps even more disturbing is that seasonally, this is a period where profits typically begin to accelerate. This year, they are collapsing to the lowest since July 2013 (and lowest for an October on record)



    Additionally, Industrial firms' liabilities increased 4.9% from a year earlier to 66.74 trillion yuan at end-October, compared with a 5.4% increase at end-September.

    More at: https://www.zerohedge.com/economics/...se-most-record
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  14. #342
    In our latest look at the turmoil among China's small and medium banks, which included not only the recent bailouts and nationalizations of Baoshang Bank , Bank of Jinzhou, China's Heng Feng Bank, but also the two very troubling bank runs at China's Henan Yichuan Rural Commercial Bank at the start of the month, and then more recently at Yingkou Coastal Bank.
    As we further explained, the reason why so many (for now) smaller Chinese banks have found themselves either getting bailed out or hit by bank runs, is that in a time when China's interbank/repo rates have surged amid growing counterparty concerns, increasingly more banks have been forced to rely almost entirely on deposits to fund themselves, forcing them to hike their deposit rates to keep their funding levels stable.

    Meanwhile, cuts in key lending rates since August to stimulate up a slowing economy have only exacerbated net interest margin pressures on banks.

    In other words, with less income from lending and without the full suite of funding options available to much larger peers, the interest rates that China’s legion of small banks may have to offer to attract deposits could further undermine their stability. The irony is that to preserve their critical deposit base, small banks have to hike deposit rates even higher to stand out, in the process sapping their own lifeblood and ensuring their self-destruction, or as we dubbed it earlier, China's own version of Europe's "doom loop."
    Dai Zhifeng, a banking analyst with Zhongtai Securities, told Reuters the funding difficulties risked distorting small banks’ behavior, making failure even more likely: "Lacking core competitiveness, some of them have turned to high-risk, short-sighted operations," he said, adding that a liquidity crunch was possible at some institutions.
    But for a nation with a $40 trillion financial system, double the size of US banks, and well over 4,000 small, medium and massive, state-owned banks, here please recall that the 4 largest banks in the world are now Chinese:

    • ICBC: $4TN
    • China Construction: $3.4TN
    • Agri Bank of China: $3.3TN
    • Bank of China: $3.1TN

    ... the question how many banks will fail in the near future, is especially relevant not only for China but for the entire world.
    Luckily, we got an answer from none other than China's central bank, which on Monday said that China’s banking sector is "showing signs of strain", with more than 13% of 4,379 lenders now considered “high risk” by the central bank.

    In other words, take the 5 banks listed above which either suffered a bank run and/or were bailed out or nationalized, and add to them over 500 which are about to suffer the same fate.
    As Bloomberg reports, in the PBOC's its 2019 China Financial Stability Report, the high risk category contains 586 banks and financing firms, most of which are smaller rural institutions. The report also comically noted that one bank got a "D" grade this year, meaning it went bankrupt, was taken over or lost its license. No banks were named in the report.
    And here is why the next global financial crisis will likely start in some backward Chinese province best known for its massively polluting coal plants, ghost cities and made up GDP data: while foreign and private banks are seen as relatively safe, more than one third of rural lenders were rated "high risk," or those which are near failure.
    Additionally, some medium- and small-sized financial institutions received poor ratings because of the slowing economy, with small lenders more sensitive to swings in the economy.
    What did the PBOC do with this doomsday list? As Bloomberg reports, the central bank notified each bank of its rating, and required some to increase capital, reduce bad loans, limit dividends and even change management. In short, trillions in Chinese bank (non performing) assets are about to mysteriously disappear off the books while hundreds of local banks scramble to inject liquidity in their balance sheets, effectively removing free liquidity from the interbank market.


    Separately, the PBOC also stress tested 30 medium- and large-sized banks in the first half of 2019. In the base-case scenario, assuming GDP growth dropped to 5.3% - or well above where China's real GDP is now - nine out of 30 major banks failed and saw their capital adequacy ratio drop to 13.47% from 14.43%. In the worst-case scenario, assuming GDP growth of 4.15%, or less than 2% below the latest official GDP print, more than half of China's banks, or 17 out of the 30 major banks failed the test. So with the entire Chinese financial system roughly $40 trillion, this suggests that China now has a rather insurmountable $20 trillion problem on its hands.
    Separately, a liquidity stress test at 1,171 banks, representing nearly three-quarters of China’s banking sector by assets, showed that 90 failed in the base-case and 159 in the worst-case scenario.
    * * *

    More at: https://www.zerohedge.com/economics/...oc-stress-test
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

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    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

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    Those who fail to learn from the past are condemned to repeat it.
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    A Zero Hedge comment

  15. #343
    Did I overestimate the mainland Chinese?

    The island people want democracy, and they riot and destroy property for their glorious cause...

    Maybe they should consider that the non-democratic arrangement has made them one of the richest places in the world.

    Do they really want to sink into bolshevism like us?
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  16. #344
    Quote Originally Posted by r3volution 3.0 View Post

    Maybe they should consider that the non-democratic arrangement has made them one of the richest places in the world.
    LOL
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment



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  18. #345
    Quote Originally Posted by Swordsmyth View Post
    LOL
    roflmao

    You would prefer that they revert to the early iron age?

    Well, of course, foreigners and so forth.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  19. #346
    Quote Originally Posted by r3volution 3.0 View Post
    roflmao

    You would prefer that they revert to the early iron age?

    Well, of course, foreigners and so forth.
    China is not one of the richest places on the planet.

    It's the most debt laden and about to collapse place on the planet.
    It is the ChiComs who are going to be responsible for a reversion to the early iron age, they allow almost no immigration so foreigners have nothing to do with their problems, they did it all to themselves.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  20. #347
    Quote Originally Posted by Swordsmyth View Post
    China is not one of the richest places on the planet.
    China is the richest place on the planet.

    If you have chilluns, you might want to seriously consider expatriation.

    ..words, other words

    It's the most debt laden and about to collapse place on the planet.
    LOL, this doesn't remind you of anything?

    It is the ChiComs who are going to be responsible for a reversion to the early iron age, they allow almost no immigration so foreigners have nothing to do with their problems, they did it all to themselves.
    Primitive, no immigration, dick about with a personality cult of a leader.

    Yea, nothing like our system...

    lulz
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  21. #348
    Quote Originally Posted by r3volution 3.0 View Post
    China is the richest place on the planet.

    If you have chilluns, you might want to seriously consider expatriation.

    ..words, other words
    China is the biggest bubble in the world and it's about to pop.
    Did you move there perhaps?



    Quote Originally Posted by r3volution 3.0 View Post
    LOL, this doesn't remind you of anything?
    We have problems but theirs are far worse, we will recover and be stronger, they will collapse.



    Quote Originally Posted by r3volution 3.0 View Post
    Primitive, no immigration, dick about with a personality cult of a leader.

    Yea, nothing like our system...

    lulz
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  22. #349
    Quote Originally Posted by Swordsmyth View Post
    China is the biggest bubble in the world and it's about to pop.
    China doesn't exist regarding exportation of inflation.

    How long do you think a society can live on cheap money and low interest rates

    ...clowntime
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  23. #350
    Something is seriously starting to break in China's financial system.
    Three days after we described the self-destructive doom loop that is tearing apart China's smaller banks, where a second bank run took place in just two weeks - an unprecedented event for a country where until earlier this year not a single bank was allowed to fail publicly and has now had no less than five bank high profile nationalizations/bailouts/runs so far this year - the Chinese bond market is bracing itself for an unprecedented shock: a major, Fortune 500 Chinese commodity trader is poised to become the biggest and highest profile state-owned enterprise to default in the dollar bond market in over two decades.
    In what Bloomberg dubbed the latest sign that Beijing is more willing to allow failures in the politically sensitive SOE sector - either that, or China is simply no longer able to control the spillovers from its cracking $40 trillion financial system - commodity trader Tewoo Group - the largest state-owned enterprise in China's Tianjin province - has offered an "unprecedented" debt restructuring plan that entails deep losses for investors or a swap for new bonds with significantly lower returns.
    Tewoo Group is a SOE conglomerate, owned by the local government and operates in a number of industries including infrastructure, logistics, mining, autos and ports, according to its website. It also operates in multiples countries including the U.S., Germany, Japan and Singapore. The company ranked 132 in 2018’s Fortune Global 500 list, higher than many other Chinese conglomerates including service carrier China Telecommunications and financial titan Citic Group. Even more notable are the company's financials: it had an annual revenue of $66.6 billion, profits of about $122 million, assets worth $38.3 billion, and more than 17,000 employees as of 2017, according to Fortune’s website.

    The state-owned company is neither publicly listed nor rated by the top three international ratings companies, although it does have publicly traded bonds whose performance in recent months has been nothing short of terrifying for anyone who thought purchasing a company explicitly backed by Beijing can never fail.

    As one can deduce from the above chart, the first time Tewoo Group’s financial difficulties emerged was in April when it sought debt extension from its lenders on its offshore, dollar bonds and sold copper below market rates amid a cash crunch. At that time, Fitch Ratings - the only rating agency to appraise the company's credit standing - slashed the company’s credit score first from BBB to BBB- on April 18, and then by a whopping six notches, from BBB - to B- on April 29, to reflect its weak liquidity and higher-than-expected leverage.
    According to Bloomberg the company has proposed an exchange/tender offer on the three dollar bonds due to mature over the next three years, as well as a perpetual note. What makes what would otherwise be a mundane exchange offer in the US, is that this is the first ever distressed plan of its kind from a state-owned Chinese firm.
    What is just as striking is that the Tewoo Group - with its $66 billion in revenues and $38 billion in assets - is likely to default on its $300 million dollar bond due Dec. 16, a Bloomberg source said, unless the exchange is consummated. This means that the company's bondholders have just a few weeks to decide between either taking as much as 64% in losses or accepting delayed repayment with sharply reduced coupons on $1.25 billion of dollar bonds, something which the rating agencies will describe as an event of default.
    A de facto default by Tewoo would be considered a “landmark case,” said Cindy Huang, an analyst at S&P Global Ratings. Central government support for SOEs is likely to be selective in the future, while local government aid will be limited by the slowing economy and weaker fiscal position, she said.
    The "distressed exchange offer" comes after Tewoo Group said last week it would be unable to pay interest on a $500 million bond, prompting Industrial & Commercial Bank of China to transfer $7.875 million to bondholders on its behalf. ICBC provided a standby letter of credit on the note - a pledge to repay if the borrower can’t. However, the firm’s remaining $1.6 billion of dollar bonds lack such protection.
    Worse, Tewoo Group is already in effective default after some of its units previously missed local debt payments - in July, Tianjin Hopetone missed a coupon payment on its 1.21 billion yuan note sending the company's dollar bonds tumbling below 50 cents on the dollar, while Tianjin Haoying Industry & Trade missed a loan interest payment due in June. Also in July, rating agency Fitch - which somehow missed all of this when it was rating the company investment grade - withdrew its rating on Tewoo Group due to insufficient information to maintain the ratings. It last rated the issuer at B-.
    And as furious bondholders scramble to demand an explanation how a state-owned enterprise can default, Beijing is already bracing for the inevitable next steps: earlier this month, Tianjin State-owned Capital Investment and Management, an entity wholly-owned by the Tianjin municipal government, was appointed to manage the company’s offshore debt. For now, the entity has no plan to hold controlling stakes in Tewoo Group, although that will likely change as soon as the company's financial situation fails to improve. Meanwhile, Tewoo Group said it plans to take a series of debt management measures, by which we assume it means it will restructure its debt.
    The fact that a state owned enterprise such as Tewoo has just days before it defaults, in either a prepack or "freefall" form, suggests that Beijing will no longer bail out troubled SOEs, let alone private firms, perhaps due to the strains imposed by the economy which is slowing the most in three decades. It also raises concerns over Tianjin, where it’s based, following a series of rating downgrades and financing difficulties suffered by some of the city’s state-run firms. The metropolis near Beijing also has the highest ratio of local government financing vehicle bonds to GDP in China.
    In short, if there a glitch with Tewoo's default, the Chinese dominoes could start really falling.
    Since the first SOE bond default emerged in China’s domestic market four years ago, 22 such firms have failed to make good on a combined 48.4 billion yuan ($6.9 billion) onshore bonds as of the end of October, according to Guosheng Securities. However, as Bloomberg adds, despite periodic scares such as late repayment, Chinese SOEs have yet to suffer any high-profile default in the dollar bond market since the collapse of Guangdong International Trust and Investment Corp. in 1998.
    Tewoo would be precisely that high-profile default.
    * * *

    More at: https://www.zerohedge.com/economics/...ned-enterprise
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  24. #351
    When the Chinese economy is booming, Mainlanders head to Macau to wager some of their disposable income at casinos. When the economy decelerates, sort of like what's happening at the moment, gamblers stay home because of economic pessimism.
    New data from the Gaming Inspection & Coordination Bureau, first reported by Bloomberg, shows gross gaming revenue for Nov. was $2.8 billion, down 8.5% YoY.
    Year to date, gross gaming revenue sagged 2.4%, comes at a time when the Chinese government has told its citizens to embrace lower-economic growth.
    Macau's gross gaming revenue is expected to record its first yearly decline since 2016, as several headwinds have developed.

    Several months ago, JP Morgan analyst DS Kim told Reuters that the casino slump in Macau is due to "social unrest in Hong Kong, tough year-on-year comparison, negative headlines around junkets, and macro headwinds."
    Credit Suisse Group analyst Kenneth Fong said Visa policies to Macau had been tightened ahead of President Xi Jinping's visit this month. These restrictions, Fong said, are hurting visitation numbers into the late year.
    The Bloomberg Intelligence index of Macau casino operators slipped 3.4% in November. Though the index is still up for the year, it has dropped 20% from a peak in Apr.
    Wynn Macau Ltd.HK is down more than 42% since 2Q18 highs.

    With no turn up in the China Momentum Indicator, there's a high probability that Macau's gaming industry will continue decelerating into 2020.




    More at: https://www.zerohedge.com/markets/ma...inese-slowdown
    Last edited by Swordsmyth; 12-02-2019 at 09:37 PM.
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  25. #352
    Hong Kong's retail industry crashed again in October, as the city spirals lower into a recession that could lead to a collapse of the economy, reported Reuters.
    Retail sales in October plunged 24.3% YoY, according to government data published on Monday. This was by far the worst print on record as the tourism industry in the last six months has evaporated.

    Retail sales fell to $3.85 billion in October, a ninth consecutive month of declines, following violent clashes between pro-democracy protesters and police around shopping districts, malls, and eateries. Many Mainlanders now view Hong Kong as far too dangerous for travel, one of the main reasons why the retail industry has tanked.

    "The local social incidents with increasing violence depressed consumption sentiment and severely disrupted tourism- and consumption-related activities," a government spokesman said.
    Financial Secretary Paul Chan Mo-po said retail sales decline will continue to be “very enormous” heading into the new year.
    Last month, it was confirmed that Hong Kong stumbled into a recession for the first time in a decade in 3Q.
    More than six months of protests and nearly 17 months of a trade war between the US and China dampened economic activity in the city.
    With no end in sight to neither the protests and trade war, Hong Kong's economy is expected to continue decelerating through 1Q20, will likely face a deeper slump than what was seen in the 2008 financial crisis.
    "Domestic demand worsened significantly in the third quarter, as the local social incidents took a heavy toll on consumption-related activities and subdued economic prospects weighed on consumption and investment sentiment," the government said last month.
    GDP data was revised lower for full-year growth to -1.3%. That marked the first annual decline since 2009.

    Chinese Mainlanders and tourists from across the world have canceled bookings, as retailers have been severely damaged from crashing sales, and the stock market continues to trend lower, which has been compounded by the ongoing trade war between the US and China.
    Tourism numbers for October arrivals plunged 43.7% YoY to 3.31 million, according to the Hong Kong Tourism Board. September figures showed a 34.2% drop.
    We've noted that luxury retailers have been hit the hardest, also putting pressure on the global diamond industry.

    More at: https://www.zerohedge.com/markets/ho...rism-collapses
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment



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  27. #353
    While China is bracing for what may be a historic D-Day event on December 9, when the "unprecedented" default of state-owned, commodity-trading conglomerate Tewoo with $38 billion in assets may take place, it has already been a banner year for Chinese bankruptcies.
    According to Bloomberg data, China is set to hit another dismal milestone in 2019 when a record amount of onshore bonds are set to default, confirming that something is indeed cracking in China's financial system and "testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to cope with unprecedented levels of debt."
    After a brief lull in the third quarter, a burst of at least 15 new defaults since the start of November have sent the year’s total to 120.4 billion yuan ($17.1 billion), and set to eclipse the 121.9 billion yuan annual record in 2018.


    The good news is that this number still represents a tiny fraction of China’s $4.4 trillion onshore corporate bond market; the bad news is that the rapidly rising number is approaching a tipping point that could unleash a default cascade, and in the process fueling concerns of potential contagion as investors struggle to gauge which companies have Beijing’s support. As Bloomberg notes, policy makers have been walking a tightrope as they try to roll back the implicit guarantees that have long distorted Chinese debt markets, without dragging down an economy already weakened by the trade war and tepid global growth.
    "The authorities have found it hard to rescue all the companies," said Wang Ying, a Shanghai-based analyst at Fitch Ratings, perhaps envisioning at least two banks that have experienced depositor runs in the month of November in the aftermath of an unprecedented succession of bank failures earlier in the year.
    It's not just banks however: this year’s debt woes have spread to a broad array of industries, from property developers and steelmakers to new-energy firms and software makers. The types of borrowers facing repayment difficulties has also expanded from private companies and local state-run firms to business arms of universities, an obscure and loosely regulated corner of China’s corporate world.
    China's two latest defaults involved just such a company; on Monday Peking University Founder Group shocked investors after failing to repay a 2 billion yuan bond. The same day, Tunghsu Optoelectronic Technology, a maker of photoelectric display components, also failed to deliver early repayment on both interest and principal for a 1.7 billion yuan note.
    Meanwhile, as we reported last week, the signs of stress have ominously spread to China’s offshore market, which has so far been more insulated from defaults: next week, Tewoo Group, a Fortune 500 company and major commodities trader from the northern city of Tianjin, is set to become the most high profile state-owned enterprise to default in the dollar bond market in more than two decades.

    The company has recently offered a debt restructuring plan that entails deep losses for investors or a swap for new bonds with significantly lower returns, the first of its kind for an offshore SOE issuer. On December 9, Tweoo bondholders need to decide if they accept a distressed exchange offer on a $300 millionbond that is likely to default on Dec. 16.


    More at: https://www.zerohedge.com/economics/...-defaults-2019
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  28. #354
    On Wednesday, a Chinese IPO closed below its listing price for the first time since 2012, signaling that the public's former unquestionable love affair with risk and equities is fading as the economy continues to decelerate,.

    • LUOYANG JALON MICRO-NANO NEW MATERIALS SAYS TRADING IN SHARES TO DEBUT ON DEC 4 IN SHANGHAI

    Luoyang Jianlong Micro-Nano New Materials shares debuted on the Shanghai Stock Exchange on Wednesday. The stock immediately dropped 7% in the first hour of trading, closing down 2% on the session.


    Luoyang Jianlong's disastrous IPO debut was the first time a mainland Chinese stock closed below its listing price since 2012. The last time this happened, Haixin Foods plunged 8% below its first day listing price in 4Q12.


    For at least a decade, China's IPO market has been one of the strongest in the world, with every newly public stock closing at or near limit-up. Though now it seems large-cap IPOs are showing signs of waning interest from investors as the economy continues to decelerate through year-end, and likely to continue slowing into 1H20. To counter the IPO market bust, China has tried to calm markets by increasing domestic firms with more access to credit to keep equity markets humming along.
    State-run media outlets have published frontpage stories telling investors not to worry about the IPO market, and enough liquidity will be provided through 2020.
    China's economy is growing at the weakest point in nearly three decades.

    More at: https://www.zerohedge.com/markets/ch...lobal-ipo-bust
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  29. #355
    Capital investment by Chinese firms has ground to its slowest pace in three years, as a weakening economy, tight credit and prolonged trade war with the United States dent sales growth and cash reserves, a Reuters analysis showed.

    Companies are also spending more days to turn inventory into sales and eking out smaller profit gains, the analysis showed, in an economy growing at its weakest pace in nearly three decades, with many analysts expecting the slowdown to intensify.
    The outlook became even more uncertain on Tuesday after U.S. President Donald Trump said a trade deal with China might have to wait until after the U.S. presidential election in November 2020.
    “Things will get much worse before getting better,” economists at Macquarie said in a client note on Monday. Even positive economic data from China recently is volatile and vulnerable to one-off factors such as warm weather, they said.


    Chinese firms raised capital spending by 1.6% in the three months through September versus the same period a year prior, the weakest growth in three years, showed a Reuters analysis of about 2,900 firms with market capitalization above $100 million.
    For a graphic on China capex growth, click here

    “The weak appetite to invest is a problem in terms of generating a strong recovery in the Chinese economy,” said senior China economist Julian Evans-Pritchard at Capital Economics.
    “Overall credit conditions are still quite tight and credit growth is actually slowing ... because, in particular, the non-bank forms of credit access have become much more restrictive in the shadow banking sector.”
    Though the government has taken steps to encourage lending, bankers told Reuters they have little appetite to lend to small firms due to the trade war and uncertain economic outlook, as well as a years-long drive to cut risk in the financial system.
    Cash reserves at surveyed firms grew 5.6% on year in the September quarter, the weakest since the first quarter of 2018. Moreover, the average number of days a company holds inventory before sale was 108 in the first nine months of the year, topping an annual average of 100 or less in the last four years.
    Revenue grew 6.7%, the weakest in at least three years - the earliest period for which data from a comparable number of firms is available - while net profit rose 7.8% versus nearly 22% two years earlier.
    For a graphic on China sales and net profit growth, click here

    The consumer discretionary and communications services sectors were among the poorest performers, with revenue shrinking 1.4% and growing just 1% respectively.
    Companies’ financial reports indicate consumers have been cutting back spending on vacations and big-ticket items such as cars and home appliances, while falling smartphone sales have capped growth among telecommunications network providers.

    More at: https://www.reuters.com/article/us-c...-idUSKBN1Y809F
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  30. #356
    Over the past two decades, fears about China’s rapid economic and technological advancement have grown exponentially and culminated in the recent trade war unleashed by President Trump.
    But only supporters of government intervention could think of China’s market socialism as a redoubtable challenger to a market-oriented economy. But that’s not how it works. Murray Rothbard, for example, has clearly shown that government interventions result in more interventions to deal with the unintended negative consequences of the first ones.1 Moreover, interventions aimed at restoring initial market conditions further disrupts the market process. The case of China illustrates very well this cumulative nature of government interventions.
    After very high growth rates at the beginning of its transition to a market economy, China’s economic dynamism waned toward the end of the 1990s. Growth received renewed impetus only when China significantly lowered barriers to foreign trade and investment as a condition to join the WTO in 2001. An export-led economic boom followed, as exports of goods and services surged from around 20% of GDP in the late 1990s to 36% of GDP in 2006. Real GDP growth climbed to 14% y-o-y in 2007 (see graph 1).
    Foreign direct investment (FDI) inflows increased four-fold from about USD 40 billion in 2000 to USD 170 billion in 2008. This meant domestic investment, capital accumulation, and productivity took off at impressive growth rates (see graph 2). China truly became a manufacturing workshop for the rest of the world helped by the global economic boom in the early 2000s.
    Graph 1: Real GDP and Exports

    Graph 2: Investment and Productivity

    China’s trade liberalization was undermined by mercantilist policies designed to hoard a large amount of forex reserves. In the early 2000s, China ran a currency peg to the US dollar and the People’s Bank of China (PBoC) was obliged to buy or sell foreign currency at a fixed exchange rate. By purchasing forex inflows from growing FDI and surging exports, the PBC accumulated almost USD 2 trillion in reserves (more than 40% of GDP) until 2008 (see graph 3). Yet, simple exchange operations would not have resulted automatically in such a large accumulation of reserves. The equivalent amount of RMBs sold on the market would have increased the domestic money supply and price level, increasing imports and capital outflows. In turn, this would have drawn down the forex reserves and rebalanced the current account surplus which peaked at 10% of GDP in 2007 and 2008. However, PBoC sterilized the increase in the domestic money supply, initially via open market operations — sale of Central Bank Bills and drawing of government deposits — and later by increasing the banks’ reserve requirements from 6% in 2000 to 17.5% in 2008.2 It thus kept the real exchange rate undervalued and the latter depreciated by almost 20% from 2001 to 2004, instead of appreciating under the pressure of hefty financial inflows (see graph 4). Subsidies to state-owned enterprises boosted exports as well, in particular in sectors such as steel and solar panels. Meanwhile, high tariffs curtailed imports, especially for food and other consumer goods. At the same time, capital controls limited financial outflows and kept the foreign currency in the country.
    Graph 3: Foreign Exchange Reserves

    Graph 4: Exchange Rate Developments

    Mercantilist policies, including currency devaluations, have significant negative consequences, primarily in terms of welfare loss. According to Mises in Human Action “…citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption.” Indeed, private consumption declined markedly from 47% of GDP in 2000 to a rather low level of 36% of GDP in 2008. In addition, the households’ returns on their high savings were deliberately repressed in the financial sector dominated by state-owned banks and via strict controls of private investment in real estate and overseas.
    In addition, China developed a structure of production aligned to an artificially inflated external demand which collapsed when the credit boom stopped in the rest of the world. China’s mercantilist policy and the resulting very high current account surpluses would not have been possible without the monetary expansion of major developed economies. If imports are curtailed, exports should drop as well, unless foreign buyers are willing to significantly reduce their foreign asset balances. In China’s case, exports were largely purchased with money printed abroad as the Chinese government amassed a large amount of US Treasuries. It was hardly a safe or profitable investment and certainly not worth curtailing private consumption or distorting private investment.
    After the Great Recession

    When the global recession hit, China doubled down on its interventions. It not only continued piling up forex reserves which grew by another USD 1.9 trillion over 2008-2014, but also engaged in recurrent growth stimuli to prop-up domestic demand as well. China has implemented growth stimuli approximately every two years since the Great Recession. Each time macroeconomic policies were tightened to reduce domestic imbalances, growth slipped and the Chinese planners resorted to a new round of easing.
    Growth stimuli targeted primarily infrastructure and real estate projects, with a large part of the financing provided by local governments, either directly via sales of land and special bonds or, indirectly, via special financial vehicles (LGFVs). Although China’s annual budget deficit seemed benign at an average of 2.5% of GDP over 2008–2018, the “augmented fiscal deficit” calculated by the IMF, which includes off-budget spending, averaged an astounding 8.5% of GDP. At the same time, aggressive monetary easing was carried out via cuts in both policy rate and bank reserve requirements which dropped from 17.5% in 2008 to 10.5% in October 2019. While the bank credit multiplier (M2/M0) increased moderately from 10 in 2001 to 13 in 2008, it almost doubled to 25 by end-2018. As a result, the stock of domestic private credit surged to 210% of GDP by 2018 after being almost flat at about 120% of GDP over 2002-2008 (see graph 5). As a result, total domestic debt reached about 300% of GDP in 2018, one of the highest among developing economies.
    Graph 5: Credit and Total Debt-to-GDP

    Graph 6: Money Stock Growth (Jan 2000=100)

    As monetary expansion increased exponentially, it got out of sync with the one in the US, in particular when the Fed started to normalize interest rates (see graph 6). The RMB appreciated by almost 60% in real terms from 2005 to 2015. After the announcement of a new stimulus round in 2015, hefty capital outflows to the tune of USD 1.3 trillion occurred, as capital controls had been partially relaxed in the meantime. Eventually the PBC spent about USD 830 billion in reserves during 2015–2016 to ease the depreciation of the RMB.
    In addition to the balance of payments crisis of 2015–2016, the artificial credit expansion led to a considerable distortion in the allocation of factors of production. More and more resources got diverted into financial, real estate and construction activities, whose share in GDP went up significantly to the detriment of manufacturing. Overbuilding created the so-called “ghost cities” where an estimated 80 million of dwelling units, more than 20% of the total stock, are sitting empty. Such vacancy rates have been seen elsewhere only after the collapse of construction booms, like the one in Spain. In addition, surging mortgage credit inflated housing price bubbles which slumped on several occasions, most recently in 2012 and 2015 (Graph 7).
    Graph 7: Wages and Prices

    Graph 8: Wages and Labor Productivity

    The monetary expansion pushed up domestic prices and wages with the latter advancing much faster than labor productivity, which had not been the case prior to 2008 (see graphs 7 and 8). China’s price competitiveness deteriorated visibly and FDI inflows dwindled significantly in recent years (see graph 9). Moreover they were overtaken by FDI outflows since 2016, driven by the so-called Belt and Road Initiative, a new government strategy to diversify foreign assets away from US Treasuries. In addition to being misallocated, investment growth slumped, in particular in manufacturing, slowing labor productivity (see graph 2). Exports declined from 35% of GDP in 2007 to 21% of GDP in 2008 and the current account surplus nearly vanished by 2018 (Graph 10). Real GDP growth rates almost halved from about 10% of GDP in 2010 to 6% in Q3 2019. When President Trump decided to go against China in 2018, the latter’s economic prowess was already under siege from its own misdirected government interventions.
    Graph 9: FDI Flows

    Graph 10: Current Account Balance



    More at: https://www.infowars.com/chinas-merc...or-stagnation/
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  31. #357
    If China’s bad debts were written down, its economic growth rate would be half the recorded number, a US economist at a prominent Chinese university has warned.

    In a speech in Shanghai this week, Michael Pettis, professor of finance at Peking University, warned that China’s debt is closely linked to the government’s perceived overstatement of its gross domestic product (GDP).

    The government is accused of perpetuating the existence of “zombie companies”, by granting loss-making companies loans. Banks in turn treat these companies as creditworthy, whereas in reality they should be written off as bad debt, Pettis said.

    “If you believe there is bad debt that has not been sufficiently written down, you must believe that China’s GDP is overstated, relative to what it would be in any other country. That must be true,” Pettis said.





    “If we are able to calculate GDP correctly, it would probably be half of the recorded number.”

    Pettis is not alone seeing troubles with China’s official growth number.


    In December, Xiang Songzuo, an outspoken professor from the Renmin University of China, who previously served as chief economist for Agricultural Bank of China, cited unidentified internal reports as saying that said China’s GDP growth for 2018 could be 1.67 per cent or even negative, a far cry from the official figures.

    Furthermore, a group of four economists published a paper this week
    arguing that China might have overstated its annual growth rate by 2 percentage points on average from 2008 to 2016.

    China’s official statistics agency
    said the country’s economic growth rate was 6.6 per cent in 2018.

    The Chinese government said it would try to achieve an economic growth rate between 6.0 to 6.5 per cent in 2019, a moderate slowdown from previous years, but nevertheless a much faster rate compared with other major economies.

    Pettis is a renowned expert on China’s economy. For decades, he has been commenting on financial affairs in China and was among the early observers of the imbalances in the Chinese economy.

    He said in his speech on Wednesday that China’s growth will significantly decelerate as the country’s debt level rises.

    More at: https://www.scmp.com/economy/china-e...number-says-us
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

  32. #358
    China’s People’s Liberation Army Navy takes many of its cues from the U.S. Navy as it develops its carrier aviation branch. It is seeking similar flat-deck carriers to its U.S. counterpart, and has developed airborne early warning planes and electronic attack jets comparable to American E-2D Hawkeyes and EA-18 Growlers.

    But that tendency may have backfired for once. That’s because the U.S. Navy has been beset by major cost overruns and delays in deploying its new generation Gerald Ford-class supercarriers due to persistent flaws in their catapults, arresting gear, radars and weapons elevators. You can read more about these many problems in an earlier article.
    Similar problems apparently are affecting China’s carrier program. On November 28, Minnie Chan of the South China Morning Post reported that Beijing was scrapping plans for a fifth and sixth nuclear-powered carrier, once it finished construction of two new steam-powered vessels.
    The reason? “Technical challenges and high costs,” including issues particularly linked to development of the latter two vessel’s electromagnetic launch systems—the same system bedeviling the U.S. Navy.

    Beijing may also be having second thoughts on whether springing big bucks for big carriers is the best use of its defense budget. China’s carriers greatest value may lie more in prestige, power projection against weaker adversaries, and building experience for later capability growth, rather than as deterrence against the U.S. Navy.

    More at: https://nationalinterest.org/blog/bu...arriers-103187
    Never attempt to teach a pig to sing; it wastes your time and annoys the pig.

    Robert Heinlein

    Give a man an inch and right away he thinks he's a ruler

    Groucho Marx

    I love mankindÖitís people I canít stand.

    Linus, from the Peanuts comic

    You cannot have liberty without morality and morality without faith

    Alexis de Torqueville

    Those who fail to learn from the past are condemned to repeat it.
    Those who learn from the past are condemned to watch everybody else repeat it

    A Zero Hedge comment

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