Western analysts tend to use western economic categories for an economy that functions differently from the west. Much of what appears to be monetary stimulus in China is actually fiscal stimulus — and ineffective stimulus, at that. This has significant impact on how we view China’s growth.
I’ve just completed a number of conversations with investors globally who expressed interest about the impact of China’s 1 trillion Renminbi bond swap program on China’s economy and its banks. It’s a quickly changing scenario. It’s clear the PBOC threw the bond swap out as a massive policy measure to solve the local debt problem and is now letting all the parties fight it out.
Egged on by provincial leaders desperate to keep the wheels of GDP growth rolling forward and cash-strapped property developers, other institutions have jumped into Shadow Banking. And one of the biggest are Chinese insurance companies.
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.
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.
Slowing Revenue. Our interviews with gaming employees in Macau suggests that the February holiday month over Chinese New Year delivered continuing declines
in line with poor results over the past six months. In most Chinese New Years, revenue rises 20% to 30% as mainland Chinese take advantage of the holiday period to travel to Macau. However, our interview group witnessed this increase halving to 5% to 10%. Some interview subjects suggested there has been a bottoming out in overall revenue but it’s probably too early to tell.
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 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.