New PBOC Hong Kong Appointment Key to Renminbi

It is being overlooked in the noise about China but a key appointment was announced this week by the PBOC. Bao Mingyou was named a senior advisor to the Hong Kong Monetary Authority and is likely to be a forceful advocate for regulations regarding foreign trading of the renminbi.

China’s Burden – Corporate Debt

China’s corporate debt has skyrocketed from Rmb 25 trillion in 2000 to Rmb 202 trillion in 2014, an annual increase of 16%. Of greater concern is that nearly 40% of this debt is owed to other corporates. This type of “triangular debt” could lead to a debt-deflation trap whereby business comes to a standstill as corporates have a liquidity shortfall due to interlocking unpaid loans. This occurred in the 1990s before the economy was restructured.

China’s “Hidden” Stimulus

China’s leaders in Beijing are struggling between the poles of new liquidity injections to stimulate the economy and forceful crackdown on debt. Political scientist Susan Shirk calls this the battle between the “spenders” and the “savers.” The spenders generally are in the State Council and in the provincial and lower level government. They depend on fiscal revenue for growth and career advancement. The savers are allied with the Ministry of Finance, the People’s Bank of China, and the China Banking Regulatory Commission. Their careers rely on preventing inflation and halting asset bubbles.
The current policy is a clear compromise between the two poles. Instead of issuing more government bonds, and increasing explicit government debt, the leadership prefers to use less obvious sources of growth — – what I call a “hidden stimulus. The latest “hidden” stimulus is coming from the banks themselves. They are moving capital from the lending side of the balance sheet to asset purchases called “investments.”. As of the end of October, banking assets stood at roughly 285% of GDP, up from 270% at the end of 2014. But this form of stimulus has less transparency and regulatory oversight, and is forestalling an inevitable collapse in the property bubble.

Could China Face a Banking Crisis? – Financial Times Comment

Could a banking crisis erupt in China? The commonly accepted answer among western analysts is no, for the simple reason that China has huge State owned banks that dominate the country’s banking industry. But dig a little deeper and a different picture emerges.

It turns out that within China’s smaller cities, the market share of the big banks fades away. Instead, local banks take over. With few national branches, these local banks will have a much more difficult time spreading risk geographically, and are thus more prone to failure.

Thoughts on China from Australia

I just finished a series of meetings with investors in Australia. They are a beleaguered lot. Between the collapsing commodity bubble and rising housing prices much due to Chinese capital many Australians are feeling squeezed. I was asked about capital flight, the property bubble, and whether China is facing a hard landing.

FT – Property Bubble Risks Popping in China’s Southwest

China’s property bubble has sagged in the big cities like Beijing and Shanghai – but it is on the verge of popping completely in the country’s heartland. After spending a week in Sichuan Province, it is clear that land sales, prices and transactions are all declining in double digits.