Category Archives: Uncategorized

The Trade War – Chinese Response

The trade war – the Chinese response Andrew Collier | Jun 07, 2019 Executive Summary We analyze the response of China to the trade war in four buckets: politics, macro-economy, global supply chains, and technology. Of the four, China’s technological development and global supply chains are likely to suffer the most. Xi’s political power is […]

Ant Financial’s Aggressive Strategy

Microsoft Word – Ant’s Aggressive Strategy.docx “Ant Financial has got just enough bullets to cause a small–scale financial crisis.” Economist with a State Owned Bank. l Growing Market Share. Ant Financial has quickly taken market share from traditional banks, trust companies and other financial firms. Eventually, the regulators may reduce Ant’s consumer lending business to […]

No QE for China

February 19, 2019 Executive Summary There is a widespread expectation among western investors that China will enact quantitative easing to counter the effects of the trade war and the slowing economy. This is highly unlikely. Although there is substantial data indicating signiDcant pain in the economy, including defaulting SMEs, unemployment, and general declining economic activity, […]

China’s Winners and Losers

Summary China has instituted several targeted stimulus measures designed to improve GDP growth and provide capital for small businesses, the country’s largest employment sector. These measures, however, are likely to be inadequate compared with the decline in capital due to the restrictions imposed on shadow lending. The results are likely to be: Difficulty maintaining land […]

ChinaChem/Syngenta Deal – How Will it Be Funded?

In August, the U.S. approved China National Chemical Corp.’s proposed $43 billion takeover of Swiss seed company Syngenta AG, overcoming domestic opposition on security grounds. Given the history of Chinese foreign acquisitions, one of the concerns remains the ability of ChemChina to raise the funds for the proposed purchase. In this note, we analyze several sources of capital and the political implications of the financing behind the deal.

China’s Bond Swap – How to Price Risk

China’s Rmb 2 trillion bond swap program is designed to lower interest costs for provincial governments by exchanging bank debt for lower cost bonds. Beijing has not clearly defined the debt, leaving much responsibility to provincial governments. This will lead to difficult negotiations among all levels of government and financial institutions.
In addition, given total local debt at Rmb 17 trillion – and probably closer to Rmb 24 trillion – the current program will need to be radically expanded. The initial Rmb 2 trillion program only covers bank loans. But these cover just 20% of the total estimated Rmb 10 trillion. In addition, there is additional debt from Trusts and other institutions. As a result, the state banks could be responsible for up to Rmb 16 trillion of debt. Assuming default rates of 50%, we estimate in the worst-case scenario this could cause a 70% decline in combined bank equity and profits.

Macau Gaming Monthly – April 2015

Survey Results: Slowing Revenue Continues. Three-quarters of our survey pool saw falling VIP revenue in March and expect further declines. However, most are “neutral” about the current state of the industry.

China’s New Shadow Banks – Insurance

China’s Insurance Shadow Banks
Insurance Firms Replace Trusts as Shadow Banking Channels as Local Governments Seek Capital
“Many LFGVs now consider the insurance funds as their life-saving straw to improve the debt structure as the whole country keeps a watchful eye on the risks related to local government debt.” – Chinese Insurance Executive.

China’s Local Debt Problem

China officially has 17 trillion yuan in local debt. Almost half of the debt has been incurred by off-balance sheet companies, known as Local Government Financing Vehicles (LGFVs). We visited a number of these local projects and collected data on a wider group. The objective was to understand their source of capital – banks, trusts, bonds, and whether this source of debt represents a systemic risk to the Chinese economy. In addition, we also analyzed the structure and history of local government financing, with the aim of predicting how the leadership will handle the debt burden under the circumstances of a slowing economy.