China banks under pressure as loans turn sour

Discussion in 'Markets & Economies' started by AgH20, Aug 27, 2012.

  1. AgH20

    AgH20 New Member

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    Could this be the Black Swan Event from China?

    Below is an excerpt-the "Yes, minister" moment in this article is the quote "A bad debt isn't bad unless you insist on being repaid" from Patrick Chovanec associate professor of business at Tsinghua University, Beijing. :lol:

    http://www.bbc.co.uk/news/business-19373895

    And this bit makes for more interesting reading!

    By Katie Hunt Business reporter, BBC News, Hong Kong
     
  2. Dogmatix

    Dogmatix Active Member

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    "It's different there" ;)
     
  3. GoldenEgg

    GoldenEgg Member

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    China just announced an 800billion USD stimulus.
     
  4. jpanggy

    jpanggy Active Member

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    Source please, this is massive news. but heard nothing.
     
  5. rbaggio

    rbaggio Active Member Silver Stacker

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    http://www.telegraph.co.uk/finance/...unces-800bn-stimulus-to-boost-confidence.html

    China announces 800bn stimulus to boost confidence
    China has announced a total of 8 trillion yuan (800bn) of "stimulus projects" to try to boost confidence in an economy that appears to be cooling faster than expected.
     
  6. jpanggy

    jpanggy Active Member

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    ok .... surprisingly little reaction from market.
     
  7. Dogmatix

    Dogmatix Active Member

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    I thought the same.

    I'm asking myself (and I guess SS members too) some questions, like:

    - Does this mean PMs up or down? Does it mean inflation in other commodities? Me thinks silver might go berserk (gold not so much).

    - If China spends $800B dollars or pounds or whatever extremely large converted currency figure it is, what exactly are they spending? Are they spending US Treasuries? Or just printed Yuan?

    - If they're spending US Treasuries, then what? US hyperinflation?

    - If they're spending printed Yuan, is this just to match the Fed's expected QE3, to maintain some kind of currency peg? Or just to match exhorbitant spending? Or does it mean out-of-control inflation in China?

    - How do they think that spending such a large amount on stimulus will actually help their economy? Will they have much in the way of reserves left after this spending? Will any country actually have a freakin surplus anymore?
     
  8. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    ^^^ Surplus? Pfff a barbarous relic!
     
  9. Dogmatix

    Dogmatix Active Member

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    Another thing to ponder - what would be the effect of China's stimulus on the USA?

    Is it possible China will force the USA into QE3? Perhaps by driving up the costs of commodities (due to Chinese demand), increasing manufacturing supply (hurting manufacturing in other countries), etc?

    Maybe this is their economic death stroke to the USD...
     
  10. jpanggy

    jpanggy Active Member

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    China will force usa into qe3 if china devalues their currency too much.

    I think in some article, china is controlling their currency devaluation in fear of retaliation (QE3) from usa.
     
  11. Dogmatix

    Dogmatix Active Member

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    ^ yes I agree, China is walking a currency devaluation tightrope...although they're doing the absolute minimum they can get away with.

    I think they're supposed to be letting the yuan appreciate against the USD though.

    Something else to think about though, is what will Chinese stimulus do for Australia? Some argue that Rudds stimulus did nothing and it was Chinese stimulus that did the most for Australia.

    House prices to the moon? BHP to $100 a share? Many possibilities. Maybe AUD to the moon.
     
  12. jpanggy

    jpanggy Active Member

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    An immediate effect is boost in construction projects which will boost iron ore and coal prices.

    However, since it has done nothing so far .... the situation is very dire.
     
  13. Dogmatix

    Dogmatix Active Member

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    Very true, they have waited too long I think.

    Boosted construction will also mean wealth for some, and those people may want to invest that wealth, or holiday in Australia perhaps. There are a lot of flow-on effects.

    (not that I agree with the premise of stimulus, but if it's coming it's coming)
     
  14. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    With a centrally planned economy who the heck knows. Everything is a guess I think. My thinking is to attack these questions by looking at the real economy rather than the nominal economy. A very rough start is below. Hopefully others can flesh it out.

    In terms of the real economy they have been producing ship-loads of cheap manufactured goods that they were largely exchanging for worthless US/EU/etc IOUs. IOUs that are now significantly harder for the average US/EU/etc citizen to swap for the Chinese goods. Does the US/EU/etc Govt's &/or financial institutions who can (sort-of) still produce new IOUs actually want the same ship-loads of things? I can't imagine that they do.

    Hence the current stuff that is being produced needs to fundamentally shift to either:
    (a) produce the same stuff but somehow pass it on internally to the Chinese citizens
    (b) change substantially to produce what the current IOUs printers actually want (whatever that is)
    (c) there's no doubt an (c) option as well (there should always be 3 options) but I can't think of it at the moment.

    My first thoughts are that (b) is unsustainable and potentially unattainable.

    Somehow moving to (a) will require a massive shift in who holds the economic and political power within China. Effectively they need to transition rapidly away from the centrally planned economy ideas to a real grass roots production structure meeting internal consumer desires/needs which can only happen by truly freeing up the ownership of capital. I'm fairly optimistic about the chance of this happening eventually but I really doubt this can happen quickly. China essentially needs a recession to wipe away all the malinvestments and misallocated resources to reset the economy and allow the next stage of growth to begin. As with all our Western socialist governments (including Australia), they don't want to let this happen.

    Hence, option (c) is the only path available (whatever that is :p ).
     
  15. Dogmatix

    Dogmatix Active Member

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    Ah, thy old 'consumption economie'.

    We already talked about that ;)

    http://forums.silverstackers.com/message-381089.html#p381089

    I found the Pettis article to be very convincing on the topic. I don't think China can do it. I think we'll look back on our "it's different there" comments (about China's red miracle economy) with as much shame as our "it's different here" comments regarding our own property bubble.
     
  16. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    ^^^ Thanks for reminding me. Due to my job almost everything in my brain is held in short-term RAM that gets dumped after a couple of weeks. So even though that thread was only a month ago I had forgotten about it.

    Good to see that my thinking hasn't changed in the past few weeks ;)

    So, Option (c) is clearly the only way for them to be able to sustain their historic growth without experiencing a bout of the flu some time soon. In my mind, whether it will be a minor flu or a 1918 Spanish flu will depend on how much the current power brokers are willing to send the army against their own people so that they can maintain their wealth/status/etc.
     
  17. Big A.D.

    Big A.D. Well-Known Member Silver Stacker

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    The rest of the world wants what China is making now, but for the same price with better quality (better long term value) or for the same quality at a cheaper price (because the West has devalued it's currencies and they can't buy as much stuff as they used to).

    Doing either of those things is going to take time which China probably doesn't have before a slow-down occurs, so China has to work towards that in the long term but encourage domestic consumption in the short term to pick up the excess supply capacity they have.

    One of the biggest problems they have is the Chinese domestic savings rate which (depending on the age bracket) is between 25% and 40% of earnings. Obviously they could drop interest rates, allow inflation to ramp up and "encourage" people to spend money before it's purchasing power gets eaten away but whenever things have gone that way in the past people have tended to get pretty pissed. Doing that tends to push money towards industrial sectors which means it gets sucked out of agriculture and food prices go up like a rocket. China still has a lot of poor people and lots of hungry poor people doesn't make for a harmonious, stable society.

    One of the few things I can see that China could do, and probably do reasonably well is introduce a proper socialised health care system. They have a centralised, planned economy so they already have the mechanisms in place to create the administration that will just "make it so". Providing a "safety net" grade basic health care system would mean the people who are saving so much of their income in anticipation of paying for health care would have that much extra cash available for spending.

    They certainly can't keep building empty cities.
     
  18. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    Yep. What I said, but probably in a clearer way :lol:

    Yes. Time to change is needed and hence a "problem".

    Disagree hugely. A high savings rate isn't a problem. Indeed it is one of the few freedoms left to the citizens. Deliberately creating inflation and manipulating interest rates IS what got them (and us) into much of the mess we are in. You don't make poor people rich by taking their savings away and giving it to the bankers or Govt bureaucrats. You do however, make them effective slaves for longer.

    They are already centrally planning too much. One of the potentially redeeming features of China that makes me hopeful that they can have real growth MkII in the future is that the people DON'T have the massive welfare system that has historically been part of the centrally planned economies. Hence, the people should hopefully naturally adjust to increased economic freedom faster. Besides, a Govt. run health scheme will just kick the savings can from the people to the Government.

    Agree (even though our terms of trade has been benefiting and will no doubt fall when they stop :( ).
     
  19. 1for1

    1for1 Well-Known Member

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    Inflation in China = Onflation in the ROTW

    In this WORLD Economy price inflationary effects are felt across borders... When Chinas COP increase and the costs are passed on to the end consumer, then we will start to pay extra for everything made in china.. oh wait.. that is everything!!

    So yes stimulus in China = price inflation on all fast moving consumer goods will bounce up.. at what point will domestic demand in China fill the deamnd of US and Can, Aus, GB and NZ etc.. At what point will we stop being able to afford China imports.. when they dont have all these NEW taxes and costs and a brutal gcvernment at war with private companies trying to employ and make revenue to pay taxes!

    haha.. there is no inflation *(they actually mean price inflation).. thats what they tell me on telly .. Dont you watch the news?

    1for1
     
  20. Dogmatix

    Dogmatix Active Member

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    ^ I thought the same for a minute, but then I wonder, is China really able to pass on supply costs so easily?

    They're internally competitive, and they're selling to depressed markets.
     

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