Category Archives: Research

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 […]

China Oceanwide: Synergies with Genworth Financial

China Oceanwide Holdings Group Co., Ltd. (715 HK) announced in October it plans to acquire 100% of the outstanding shares of Genworth Financial Inc. (GNW NYSE). The purchase will be made through its affiliated company, Asia- Pacific Universe Investment, for US$5.43 per share in cash, 4.2% more than the closing price of the date of […]

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 […]

The Politics of the Syngenta Deal

Will Chem China Get its Money? We’ve been doing some work recently on the proposed Chem China acquisition of Syngenta. The documents submitted so far are woefully inadequate, forcing investors to rely on press reports from Caixin Magazine in Beijing. That has left many investors scratching their heads figuring out if the financing is solid. […]

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.

China’s “New Normal” – Quiet Policies for Slower Growth

Summary. In 2015, Premier Li Keqiang broke new ground when he said China is preparing for a “new normal” as the result of slower economic growth. However, he focused his speech on the shining glory of new industries – rather than a realistic appraisal of the nuts and bolts of deleveraging. This has given rise to a debate about what China’s policies will be as GDP growth winds down. Will stimulus continue? Will there be reduced growth in bank loans and the money supply?

We believe that China is acknowledging the “new normal” in a series of policies that are designed to adjust the economy to slower growth, a kind of unofficial reform. Chinese policymakers have been busy designing and implementing significant changes in China’s economy – but they have not been announcing these as part of a major change in policy. There are two reasons for this. First, there is significant opposition to any retrenchment from pro-growth stimulus among senior leaders, including Premier Li Keqiang himself. And second, senior leaders do not want to hint at a slowdown for fear of losing political support among the Chinese people.

We believe, however, there is a significant change underway. These policies could help pave the way for a manageable decline in growth – although it’s too early to tell how effective they will be. They could also offer opportunities for foreign investors to acquire distressed assets.

Coming Clean on China’s “Hidden” Bank Debt

May 24, 2016 By Andrew Collier Borrowing, which has fueled many infrastructure and housing projects like this one in Shanghai, may be much higher than reported. (Qilai Shen/Bloomberg)   The IMF’s new “Global Financial Stability Report,” with a comprehensive overview of China’s credit outlook, suggests that 5.5 percent of all loans, or $641 billion, are […]