South China Morning Post, April 21, 2015.
High risk, low yield debt seen as tough sell, with total likely to be 30pc higher than last reported China’s proposed local government bond swap plan may end up being a reshuffling exercise between various state entities and suck liquidity out of the economy just when it’s needed most. A long mooted Ministry of Finance programme aims to swap 1 trillion yuan (HK$1.25 trillion) of local government debt into bonds this year in an effort to clarify and restrain local debt levels. Who will buy the bonds is the question people need to now ask, argues Orient Capital Research managing director Andrew Collier in a report.

China’s Ministry of Finance has announced program swap 1 trillion renminbi of local debt for bonds. The bonds will be tradable instruments and offer transparency to replace opaque forms of bank and other debt. This a piece of a broader policy to clarify the amount of debt held by local governments and try to restrain China’s growing 17 trillion renminbi in local debt. The plan is a step in the right direction. However, it falls significantly short of offering a remedy for China’s underfunded fiscal economy, fails to assign responsibility for the majority of debt and does not address the cross-collateral relationships in local debt. It also implicitly relies on banks as a backstop, which could be negative for their asset quality.These problems are not widely understood among investors and analysts.

Will China Bail Out Putin?
As Russia’s economy struggles, China has been making overtures.
By Andrew Collier, Arthur Peng and Abigail Collier
March 14, 2015
China has been increasingly willing to help countries experiencing financial distress. This is part of a larger attempt to follow President Xi Jinping’s desire to make China “more engaged with the world.” Stepping in to help Russia would be another notch in China’s bailout belt. However, despite China’s increased economic support for Russia, China’s support is likely to remain indirect and limited.

Financial Times, Beyond Brics. Chinese investors have discovered a new way to spirit money out of the country behind the backs of the country’s regulators.

Local government companies have pulled bond sales in recent weeks because of confusion over whether governments support the debt. A Beijing policy appears to ban local debt issuance by these quasi-state firms. This policy — if enforced — threatens the fragile house of cards of local financing. Ultimately, the state banks are likely to be forced to step in and pick up these obligations.

Professor Rod Macfarquhar spoke at Hong Kong University last month. He thinks Xi Jinping is the strongest leader since Mao — but worries the corruption campaign will destroy the Party.

President Xi Jinping in his continuing corruption campaign has turned his sites from the oil sector to the banks. The president of one of China’s larger banks, Minsheng, has resigned, due to a corruption scandal, and a relatively new board member of the Bank of Beijing is under investigation. Is this part of a broader attack on the financial sector? What does it mean for the banks at a time when they are facing the potential for massive write-downs to due to a declining property market and 18 trillion yuan in local debt?

Summary: The Shanxi Government has rescued 429 million of bonds near default
owned by Huatong Road and Bridge. At first glance, the last minute deal is another example of a government bailout. But the bigger question is who is really involved in these bonds? As defaults occur with more frequency among bonds, trust and wealth management products, assigning responsibility is going to get more difficult and will pose a systemic risk.

What caused Unilever’s 20% drop in third quarter earnings in China? Is this a systemic problem or another example of weak execution by multinationals in China? We think there are four reasons for slower growth by multinationals in China.