Category Archives: Macro

False Dawn in China’s Economy

False Dawn in China’s Economy Analysts Jump too Quickly on News out of the National People’s Congress The economic news out of China recently has drawn glowingChina’s industrial output in January and February rose 6.3 per cent compared with the same period a year ago and fixed-asset investment strengthened to 8.9 per cent in the […]

SOE Reform: Liaoning’s Struggle for Capital

Summary

One of the likely outcomes of China’s rising debt will be a shortage of liquidity for more remote geographic regions, along with corporates with little access to the power centers in Beijing. One short-term solution is the debt-for-equity swap program, which is allowing local SOEs to place the debt in the banks in the form of equity, and permitting these firms to continue to borrow from the banks. This is one tool that is keeping local governments — and their ailing state firms – alive.

However, although this program has come from Beijing, the leadership has been reluctant to allow local governments full control over the swap as it encourages continued waste of capital in inefficient, older industries. It may use political methods – the anti-corruption campaign – for fiscal ends.

China’s New Forex Strategy

The PBOC’s New Forex Strategy Tapping Foreign Loans to Reduce Capital Flight Chances of Success are Slim As China’s economy slows, the country’s economic leaders have been cycling through stimulative policies, finding creative ways to generate additional leverage in a system already over-leveraged. In 2015, the stock market was view as an easy source of […]

Funding Crisis in China’s Property Market

Summary Based on our interviews, we believe the property sector will face a liquidity crisis when the peak of debts come due in the second half of 2017 and beginning of 2018. According to the Centaline Group, China’s property developers raised Rmb1.14trn in 2016 through privately raised company bonds, corporate bonds, medium term notes and […]

China’s Bond Rout and the Shadow Market

Summary Chinese banks have been relying on two sources of credit for liquidity – interbank loans and private loans through the Shadow Banking market. Interbank loans are controlled by bank policies and by the central bank (PBOC). Shadow loans are issued by private creditors. The liquidity crunch over the past week has been blamed by […]

Quick Thoughts on Timing of China’s Debt Crisis

China’s Crisis Timing? I’ve been getting questions recently on when China may hit the crisis point.Timing for a crisis is always tricky. The short answer — no catalyst yet. I see three parameters: 1) The amount and type of credit at risk. 2) The state of the fundamental economy. 3) General “perception” among individuals. On […]

Notes from China: Privatizing Debt

We just returned from a trip interviewing banks and local lenders in Fujian Province and Shanghai. These local lenders include pawn shops, private families, and small businesses. They provide short and medium-term loans to consumers. Two points jumped out: 1) Consumers are leveraging up by withdrawing equity from their assets, mainly property and autos. This […]

Debt-Equity Swaps – Slow Progress is Good for the Banks

The leadership in Beijing has made debt-for-equity swaps an important part of restructuring of the state firms. However, opposition from other groups, including the banks, has slowed the program. We estimate only Rmb322 billion of swaps is under discussion, far less than the Rmb1 trillion targeted. As a result, it is unlikely the banks will incur significant losses in the near term due to political constraints.