China

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China's pile of foreign exchange reserves has long been touted as a bullish signal for the country's ability to weather economic storms. But China is now in a policy trap as it expands the domestic money supply in order to funnel liquidity into the banking system to roll over its bad debts. Data released in July throws into sharp relief the cost of Beijing's approach: a depleting war chest of foreign-exchange reserves relative to its expanding domestic money supply, which could prove insufficient in the looming battle against capital outflows. At first blush, this bearish projection sounds counterintuitive.

Why We Still Need to Worry About China's FX Reserves - Bloomberg

The good news is that the capital raises have begun. The bad news is that they need to continue. An analysis of 765 banks in China by UBS Group AG shows that efforts to clean up the country's debt-ridden financial system are well underway, with as much as 1.8 trillion yuan ($271 billion) of impaired loans shed between 2013 and 2015, and 620 billion yuan of capital raised in the same period. But the work is far from over, as to reach a more sustainable debt ratio the Chinese banking sector will still require up to 2 trillion yuan of additional capital as well as the disposal of 4.5 trillion yuan worth of bad loans, according to the Swiss bank's estimates.

UBS: China's Already Started Bailing Out its Banks - Bloomberg

China's total borrowing soared to an estimated 247 percent of GDP at the end of 2015 from 164 percent in 2008. That’s faster than the increase in the U.S. and U.K. in the run-up to the 2008 financial crisis. The problem could be bigger still because the frantic pace of new lending makes it hard to know how many loans aren't being repaid. Regulatory loopholes, banks' off-balance-sheet portfolios of wealth management products (likened by some to Western lenders' exposures in the subprime crisis),  and widespread shadow banking practices further complicate the picture — as does a system of implicit guarantees that obscures how much of the debt is backed by the government or who would be allowed to go bust. Local and provincial governments have borrowed about $4 trillion—the size of Germany's economy—and some used shorter-term, off-balance-sheet borrowing to fund dubious infrastructure and real estate projects.

China’s Debt Bomb - Bloomberg QuickTake

Concerns over the state of the Chinese economy have started to loom again as the country's shares hit a seven-month high Monday on speculation of more stimulus from the Chinese central bank. The country's blue-chip CSI 300 jumped 3.3 percent Monday, lifting sentiment across Asian stocks. While investors have heard nothing from the People's Bank of China (PBOC) officially, analysts are starting to predict that more easing could come soon.

China stimulus? Stocks hit 7-month high on PBOC easing hopes

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Think of the words shadow banking, and you'll probably conjure up an image of a slick-suited, smooth-talking mafia-esque character who will most likely be found in seedy bars or night clubs. But in China, sometimes it could be a 60-year-old woman running the show, and that may have serious consequences. This week, state media reported that a clampdown on shadow banking in China uncovered $30bn (£23bn) worth of illegal banking activity. It may seem a staggering figure, but analysts say this is just the tip of the iceberg. So what is shadow banking? Michael Pettis from Peking University has described it as "the financial activity that exists outside the formal banking sector". In its most basic form, it includes pawn-shops, the man on the street offering you ready credit at exorbitant rates, and attractive but risky investment schemes.

'Gangster grannies' and China's shadow banking world - BBC News

"On its face, RMB reform seemed to be a straightforward attempt to confront the deflationary pressures arising from the 30% increase in China’s real effective exchange rate over the past four years.  Rather than siphon demand from trading partners, RMB devaluation was an effort to ease domestic financial conditions, boost inflation, and create more space for domestic monetary policy. "  It appears that these efforts are paying off.

China got it right - Business Insider

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Louis Kuijs from Oxford Economics said credit expansion is achieving ever less “bang for the buck” as money floods into real estate speculation and financial assets -  a saga all too familiar in Anglo-Saxon economies. Mr Kuijs said it took 44 yuan to generate 100 yuan of gross fixed capital formation from 2002 to 2008. This rose to 62 last year. It is now running at 70.   Each time the authorities resort to credit to keep the boom going, the less traction they achieve and the greater the risks.

China caught in 'dead money' trap as central bank pleads for fiscal stimulus

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China’s banks, which dialed down fundraising efforts this year even as bad debts swelled, are making up for lost time.  Both lenders and the companies set up to acquire their delinquent assets are bolstering their finances. China Citic Bank Corp. last month announced plans to raise as much as 40 billion yuan ($6 billion), while Agricultural Bank of China Ltd., Industrial Bank Co. and China Zheshang Bank Co. are also boosting capital. China Cinda Asset Management Co. and China Huarong Asset Management Co. are poised to tap investors. "Chinese banks are preemptively raising capital while pricing remains favorable in order to tackle higher loan impairments,” said Nicholas Yap, a credit analyst at Mitsubishi UFJ Securities HK Ltd. in Hong Kong. “Additionally, the mid- and small-sized lenders also need to boost their capital levels as they have been growing their asset bases rapidly, largely through their investment receivables portfolios."

China Is About to Get Serious With Bad Debt - Bloomberg

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China’s total debt is now about two and a half times the size of its economy. It takes almost a third of gross domestic product just to service it. Corporations are by far the biggest debtors, especially state-owned enterprises.

China’s Growing Debt Problem Isn’t Quite What It Seems

China’s surging credit in August boosted property sales while barely moving the dial on private investment, underscoring the challenge for policy makers striving to support growth while reining in debt risks. Aggregate financing jumped to 1.47 trillion yuan in August ($220 billion), helping fuel a 39 percent jump in property sales by value in the first eight months. Medium and long-term new loans, mostly mortgages, climbed 528.6 billion yuan. Private investment in fixed assets, meanwhile, stalled at 2.1 percent for a second straight month in the January through August period, matching a record low.

China’s Credit Surge Shows Growth Imperative Trumping Debt Risks - Bloomberg

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China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog. A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late. The Bank for International Settlements warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia's speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.

BIS flashes red alert for a banking crisis in China

China's problem is internal credit. The risk is that a fresh spate of capital outflows will force the central bank to sell foreign exchange reserves to defend the yuan, automatically tightening monetary policy. In extremis, this could feed a vicious circle as credit woes set off further outflows. The Chinese banking system is an arm of the Communist Party so any denouement will probably take the form of perpetual roll-overs, sapping the vitality of economy gradually.

BIS flashes red alert for a banking crisis in China

Confidence among Chinese entrepreneurs has picked up for the second quarter running, according to the country's central bank. People's Bank of China surveys showed the business confidence index rising to 51.2% in the third quarter. That was 2.2 percentage points higher than in the second quarter. China's factory output and retail sales grew faster than expected in August, on the back of a strong housing market and government infrastructure spending.

China business confidence rises again - BBC News

Weaker economic growth in China can be traced to the way it deployed fiscal stimulus to fight the financial crisis, an approach that enabled local governments to misallocate capital, new research says. China’s fiscal stimulus in the years following the 2008 collapse of Lehman Brothers was implemented by local governments and mostly financed by the relaxation of financial constraints, according to the paper, “The Long Shadow of a Fiscal Expansion,” to be presented Friday at a Brookings Institution conference. Local governments were allowed to create off-balance-sheet companies known as local financial vehicles in 2009 and 2010 to fund the stimulus spending. Off-balance-sheet liabilities can be a source of uncertainty as they potentially obscure debt loads that aren’t included in officially reported numbers.

How China’s Past Stimulus Is Dogging Its Growth Prospects - Real Time Economics - WSJ

China’s biggest banks are stepping up their sales of securities backed by bad loans. Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and China Merchants Bank Co. will sell a total of about 4 billion yuan ($600 million) of the securities from Tuesday through next Monday, according to statements from the lenders over the past week.

China’s Biggest Banks Quicken Pace of Bad-Loan Security Sales - Bloomberg

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A slowdown in China is the greatest threat to the global economy, Kenneth Rogoff, a professor of economics at Harvard University, told the BBC in an interview published on Monday. "I think the economy is slowing down much more than the official figures show," Rogoff, who is a former chief economist of the International Monetary Fund (IMF), told the U.K. broadcaster. He added that China is going through a "big political revolution," hinting at Beijing's high-profile campaign to tackle corruption and transition its economy to being more consumer led.

Rogoff: China is the biggest threat to the global economy right now

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Chinese billionaire Wang Jianlin is worried about the country's real estate market. The tycoon who made his fortune in the real estate market and owns China's largest real estate developer, Dalian Wanda Group, appeared on CNNMoney Wednesday to warn that China's overheated real estate market is the "biggest bubble in history." China has a love-hate relationship with the real estate market. Recently it  tried to cool the overheated market in large cities with restrictions on home sales, even punishing property agents who hype the market. Still, the government's efforts haven't slowed the market much, with property sales growing 31.8% in August compared to a year ago.

China’s richest man Chinese real estate 'biggest bubble in history' - Business Insider

Bad debts in the Chinese banking system are ten times higher than officially admitted, and rescue costs could reach a third of GDP within two years if the authorities let the crisis fester, Fitch Ratings has warned. The agency said the rate of non-performing loans (NPLs) has reached between 15pc and 21pc and is rising fast as the country delays serious reform, relying instead on a fresh burst of credit to put off the day of reckoning.

Fitch reveals the $2trillion black hole in China's economy that heralds a lost decade

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China's long battle with industrial deflation turned a corner last month as a gauge of prices for factory output turned positive for the first time in more than four years. China's producer price index edged up 0.1% in September from a year ago, the government reported Friday, marking the first time the index was positive in 54 months. The index had fallen by 0.8% in August.

China producer prices end multiyear negative run - MarketWatch

China’s factories may be on the cusp of delivering a new shock to the global economy after years of undercutting rivals with cheaper costs. This time, increases in prices could reverberate around the world. To understand why, consider the dilemma facing Jiangmen Luck Tissue Mfy Ltd., now caught in a squeeze between surging wages and tepid demand. The company has already slashed staff by half, shaved prices and automated production to survive. Now, with margins razor thin, it’s weighing the first price increases since 2010.

China’s Factory to the World Mulls the Unthinkable: Price Hikes - Bloomberg

Lue-Fong boldly claims China is less of an investor concern today than a year ago. He writes: “People have stopped caring about China. Last year they worried that Beijing would trigger a hard landing and renminbi collapse … So investors started shorting China. But as growth deteriorated and problems emerged, from the woodwork, the Chinese government backtracked. Failing state owned enterprises were folded into stronger ones. And although the renminbi has weakened recently, the economy has stabilised.”

Emerging Markets: Why Inflation, Not China, Is Bigger Risk - Emerging Markets Daily - Barrons.com

Market turmoil at the start of the year was linked to fears of an imminent hard landing in China, as equities tanked and concerns about yuan depreciation mounted in light of sizable capital outflows. But as the year has progressed, worries about the state of the world's second-largest economy have abated as economic data have firmed. There's a bevy of evidence from domestic figures and other metrics sensitive to the state of the Chinese economy now showing that the nation isn't in the midst of a disruptive downturn.

Nine Charts that Show China's Economy Is On Fire - Bloomberg

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China's foreign exchange reserves fell the most in nine months in October and by far more than expected to the lowest since March 2011, indicating further capital outflows despite recent signs the world's second-largest economy is stabilizing. Reserves fell $45.7 billion last month to $3.121 trillion, the biggest monthly decline since January, compared with a near $19 billion fall in September, central bank data showed on Monday.

China October forex reserves fall most in nine months, lowest since early 2011

Further weakness in China’s currency and investors’ concerns over the outlook for the nation’s property market may spur gold demand in Asia’s top economy, according to Goldman Sachs Group Inc., which made the forecast as the offshore yuan sank to a record. “The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls,” analysts including Jeffrey Currie and Max Layton, wrote in a report dated Oct. 24. Bullion consumption in China may also rise “as a way of diversifying away from the property market,” they said.

As Yuan Retreats, Goldman Flags Scope for Gold Demand in China - Bloomberg

The yuan dropped the most in a month after the central bank weakened the currency’s reference rate and the dollar rebounded. The yuan declined 0.3 percent to 6.7738 a dollar as of 10:25 a.m. local time, the most since Oct. 10. The currency rallied 0.4 percent last week, its best performance since July, as a tightening race for the U.S. elections dragged down the greenback. The yuan weakened to a record low against a basket of currencies.

Yuan Slumps Most in a Month After Central Bank Weakens Fixing - Bloomberg

It heralds the start of trading, in China, of credit-default swaps (CDS), or derivatives used by investors to protect against default by companies and other entities. It says that 10 institutions, including China's four biggest banks, have on Oct. 31 conducted 15 CDS transactions totaling 300 million yuan ($44.4 million) of notional principal across a bevy of companies related to gas, electricity, coal, and aviation, among others. The introduction of credit default swaps comes as Chinese Premier Li Keqiang promises to weed out zombie companies in an effort to improve confidence in China's economy. With corporate defaults in the country beginning to rise — albeit from ultra-low levels — the use of CDS can help investors protect their portfolios from soured bond deals.

Why China's Latest 'Financial Innovation' Might Not Work - Bloomberg

The yuan slipped to a six-year low as concern about China’s trade relationship with a more protectionist U.S. provided a new reason to sell the currency that’s heading for a third annual loss. The yuan fell 0.2 percent to 6.7907 per dollar at 11:35 a.m. in Shanghai, its lowest level since September 2010, and extending its drop this year to 4.4 percent. Declines versus the greenback were minor compared with peers after the central bank barely weakened the fixing, following a 1.4 percent surge by the Bloomberg Dollar Index on Wednesday.

Yuan Falls to Six-Year Low Amid Concern Trump Will Target China - Bloomberg