The bull/bear arguments about China are evolving — or so we’d like to think — into a more nuanced debate about how the country’s leaders are going to respond to the pressing need for change (which they themselves have acknowledged), and how these responses might play out.
One of the key questions is how the large amounts of risky debt in China will be addressed. Read more
A little update on China’s growing debt-to-GDP ratio, which has caused much alarm and puzzlement this year.
We’ve mentioned before a very interesting 2012 BIS paper on national debt servicing ratios, which found the following: Read more
That’s a big (click to enlarge) chart from Moody’s on how they define “shadow banking” in China, via a Q&A comment on the growth of the sector. Read more
After Chinese first quarter GDP missed expectations, there was some hope that the relatively strong manufacturing PMIs in March would point to a better second quarter.
Now that we know China’s April PMIs are definitely not supporting that notion, it is worth revisiting, again, the whole question of the country’s recent surging credit growth. The significance of the debt-to-GDP ratio can be argued over, and it’s impossible to say at what level it might become a big problem. But here are a couple of ideas to consider. Read more
These sorts of charts have been bothering a lot of people lately, including us:
This one, via UBS’ George Magnus, shows China’s debt back near a 2009, stimulus-era ratio. Only, this time, it’s without the stimulus-era boost to the economy. Read more
Following on from our post on Monday comparing China’s relatively low GDP growth and its relatively high levels of new credit…
Here are some updated charts from Michael Werner of Bernstein Research, which show that the total stock of non-government and non-financial debt to nominal GDP continued to climb to new levels in Q1 (it was 193 per cent at the end of 2012): Read more
The China Banking Regulatory Commission last week issued several strict-sounding new rules applying to the issuance of Wealth Management Products. The investment products have seen massive growth in the past year, with assets tripling to RMB10tn in the past two years, equivalent to 10 per cent of all China’s bank deposits.
Apart from upsetting share prices of mainland Chinese banks, what are the new rules actually going to achieve — if anything? Read more
First, a reminder of the degree to which China’s growth has been increasingly fuelled by credit over the past few years:
The chart above doesn’t quite show it, but non-bank credit growth outpaced bank loans last year. The rise of China’s shadow banking scene has happened very rapidly — much of the growth only happened since 2009. Read more
A new and scary note is out about China’s risk from GMO’s Edward Chancellor and Mike Monnelly, who make a good argument that China’s financial system is showing many of the hallmarks of a not-too-distant bubble:
China’s thriving shadow banking system has much in common with the American version, which thrived before Lehman’s collapse: trust loans that finance cash-strapped property developers have a whiff of the subprime about them; wealth management products that bundle together a miscellany of loans, enabling the banks to generate fees while keeping loans off balance sheet, bear a passing resemblance to the structured investment vehicles and collateralized debt obligations of yesteryear; while thinly capitalized providers of credit guarantees are reminiscent of past sellers of credit default insurance.
Friday’s announcement of new daily liquidity operations by the Peoples’ Bank of China has prompted a lot of speculation about what it means for monetary policy in China. The PBoC has historically set rates via tools such as reserve requirement ratios, and prescribing loan and deposit interest rates.*
Societe Generale’s economists believe this is a step towards interest rate liberalisation, and that the PBoC will increasingly use its liquidity operations and repo rates to guide policy rates, rather than prescribed RRR and deposit and lending rates. Read more
This post is not about another Chinese shadow financing innovation, or the possible or actual blowing up of said innovative products. Nope. Something even worse…
Although the new Chinese leadership seems so far unenthused about major reforms, a few strategists have detected signs in the past couple of weeks that the country’s authorities are preparing to crack down, somehow, on shadow financing. Read more