had this link sent to me, interesting read. http://www.caseyresearch.com/cdd/the-beginnings-of-a-chinese-banking-crisis
http://economictimes.indiatimes.com/articleshow/21868825.cms Credit crisis begins to cripple Chinese cities By New York Times | 17 Aug, 2013, 04.39AM IST By Keith Bradsher As the Chinese economy boomed, few cities soared faster or higher than Shenmu, a community of nearly 500,000 in northwestern China. Top luxury clothing stores in this city's downtown were recording as much as $500,000 a day in sales. Tables at the best restaurants had to be reserved weeks in advance. The new Fortune Garden Club for the city's business elite made headlines by paying $1 million for a king-size mahogany bed, to be used by members and their companions. But a painful credit crisis is now spreading across Shenmu and cities nearby, as thousands of businesses have closed, fleets of BMWs and Audis have been repossessed and street protests have erupted. Now the leading purveyors of Western fashions are deserted, monthly sales at restaurants are down as much as 97 percent and the marble entrance to the Fortune Garden Club is shuttered. All but one of the city's car dealerships have failed. The owner of the city's largest jewelry store was detained by the authorities a week ago after creditors found him secretly packing millions of dollars' worth of gold and jewels into cases and accused him of preparing to flee the city without settling his debts. A top restaurant closed a day earlier, and its owner left town, as have the founder of the Fortune Garden and many other executives. "It's an economic crisis just like the United States has had; just like it," said Wang Ting, an operator of an illegal casino in Fugu, near Shenmu. "There's no cash, everyone stays home without a job, there's no way the economy can recover." Shenmu, and nearby cities like Ordos and Fugu, are at the leading edge of broader troubles that are beginning to afflict the entire Chinese economy. Across China, growth has slowed. With the slowdown have come rising defaults on loans made outside the conventional banking system, chronic overcapacity in many industries like coal mining and steel production and, in particularly troubled cities like Shenmu, a sharp decline in previously debt-fueled prices for real estate and other assets. The cracks are showing in many sizable cities like coastal Wenzhou, where informal lending, a big part of so-called shadow banking, has dominated for a quarter-century. Cities with economies linked to commodities with falling prices have also been affected, as more people have defaulted on loans. The biggest, most economically diverse metropolitan areas like Beijing and Shanghai seem considerably less affected, but also have many small and medium-size businesses that depend on informal lending. Lending has collapsed here in northern Shaanxi province, where it had been particularly speculative and frenzied, and where the local coal industry has also been crippled by steeply falling prices. As some borrowers began defaulting early this year, worried lenders in the informal sector raised interest rates for small and medium-size businesses, previously 25 to 40 percent a year, to as much as 125 percent a year. The increase set off a much broader wave of defaults in recent weeks, as owners found themselves unable to repay billions of dollars in bad debts, many of them handwritten and hard to enforce in court. "Almost no one will give you a loan," said a construction executive who gave only his surname, Xie, as he stood next to his white Toyota Land Cruiser outside a project that had been halted. Although changes are being slowly introduced, state-owned banks have long been allowed to lend only at low, regulated rates barely above the inflation rate, with the total value of loans controlled by quarterly quotas. All over China, these loans go overwhelmingly to large state-owned businesses, government officials and politically connected individuals, who then relend the money at much higher interest rates to small and medium-size businesses in the private sector that need money to grow. Liu Linfei, a government official from nearby Yulin, stood on a Shenmu street corner in a T-shirt and shorts on a recent weekend afternoon, outside two high-rise hotels where construction had been stopped just before the windows could be installed. He said he had borrowed 600,000 renminbi, almost $100,000, from a bank shortly before the collapse, at an interest rate of 4.1 percent a year. Liu then lent the cash to moneylenders here at an interest rate of 10.4 percent, planning to pocket the difference. The moneylenders who borrowed from Liu defaulted, and now he is struggling to repay the bank. "I'm not going to lose my house, because I'm repaying it little by little with money I borrow from my relatives," he said. The Chinese are finding it harder to repay loans because the economy is slowing. Most analyses of China's economy look only at the real economic growth rate, around 7.5 percent this year. But for companies' sales and profits, which determine their ability to repay debts, what really matters is the nominal growth rate, which is real economic growth plus inflation. Private sector businesses could afford to borrow at double-digit interest rates because nominal growth at 16 to 23 percent a year from 2004 through 2011 exceeded the rates. But nominal growth slowed last year to 9.8 percent and then fell again in the first half of this year, to an annual pace of 8.8 percent. At the same time, overinvestment led to overcapacity. Dozens of new mines opened around Shenmu in the last decade and older mines expanded. But demand has grown much more slowly than expected for electricity and steel, the two main users of coal. Coal prices have dropped by half in the last three years as a result. Now, out of 90 mines near Shenmu, practically the only ones still operating are nine that are state-owned and do not need to show a profit. The popping of the real estate bubble has been the most serious blow to the local economy. Real estate prices had soared in cities across China. In Shenmu, 1,200-square-foot apartments that sold for less than $20,000 a decade ago reached $330,000 by last winter. Local real estate brokers say that they are advising sellers to avoid price cuts of more than 10 percent. But local business owners who buy and sell apartments say that deals are now being done for as little as $115,000 for a 1,200-square-foot apartment, a decline of 65 percent. Public discontent is fueling street protests. Several thousand residents turned out in mid-July for a demonstration in the expensively paved square across the street from city hall, demanding that municipal officials revive the stalled economy. More recently, a smaller group of migrant workers protested, demanding that the local government pay their back wages after construction was halted on a row of high-rise apartment buildings. Yet a Shenmu merchant who insisted on anonymity because of local tensions, said that he had a lot of sympathy for officials, who even put up banners on city streets last year warning residents of the dangers of participating in informal lending schemes. "It's a national problem, it's not a local issue," he said.
Why would anyone be surprised at this event.....It was ALWAYS going to end badly and now it is.....When the hell are those Chinese going to stop breeding anyways....theres gazillions too many of them using up the worlds fuel, and food reserves and burning mountains of coal filling the cities with pollutants......And they don't even have a carbon tax but us 23million in Oz do......I'm bloody over Labor they're not getting my vote ever again!
Wonder if this crisis will effect the world wide economy or at least Australias? Anyone know any stats or facts?
Australia is pretty much joined at the hip with China. This "downturn" is already flowing through to the mining industry. Successive Grubbymnet have insisted on putting all their eggs in 1 basket, allowing all other sectors to decline. I think we will most definately be affected by Chinas downturn, and i had to put a guess on it, we'll really be noticing how things have changed by Q4 2014.
O.k thanks for the article and insight mate.....I already think we are in a mild recession anyways...Bloody Ruddy wont admit it though cos he'll lose votes if he admits they've spent too much in the wrong places..... Theres business's closing down that have been around for years in Melbourne.
I'm in mining and the slowdaown is pretty obvious, lots of mates picking up bits and pieces as contractors, but nothing to write home about. No major projects in the pipeline either. I was at a meeting the other day, we shelved a lot of large projects the group was looking at for 2014, everyone is leaving their wallets in their pockets until after the election at the very least. Rio Tinto is going through another round of cuts and redundancies, FMG and BHP have already done it.
Yeh, no dramas, thanks for the concern mate. Unlike some Muppet miners I paid off my mortgage on a couple of acres and a couple of houses in the country, and... built/installed/bought most of the things on my self sufficiency list They are small houses, but the block is set up to provide a lot of my needs, as well as provide space to earn a local income, which i still do part time I still have a few little building projects to work through, more silver to stack, and another boat to buy but in general, i've got a grin on my face like a split in a watermelon, and I sleep well at night
Good on you mate.....I'm not so sure about stacking Silver though, I prefer Gold but even that's going to fall off a cliff it seems in the next two years....Might be a great second chance for me to buy cheap.......Good luck!
You know that China already has pilot Emission Trading Schemes running, right? That's the market based pricing model we're scheduled to move to in 2015 after the initial pricing was set via a tax. They're expected to have a national carbon market by 2015 too. And you know that that, per person, we emit five times more CO2 than the Chinese do? Vote for whoever you like, just make sure you're an informed voter.
And the Chinese system is rorted and abused to the point it is not worth investing in it. Yet another bubble to pop.
"I'm bloody over Labor they're not getting my vote ever again!" After voting for komrade gough in '72 and '74, I said exactly the same thing in 1975, but in a more crude manner. I will NEVER vote socialist again, they are simply incompetent, and as I often say, "could not run a chook raffle". OC
