It was bound to happen, and now it becomes clear how this happened. In late 2013 the PBOC directed state banks to stop lending to areas with excess capacity, in heavy industry and in real estate. Companies that resisted immediate failure played for time by borrowing in deregulated financial markets at higher and higher rates.
This process explains much of what we have seen: the surge in non-bank credit, the surge in bank credit once a new annual credit limit came into effect, and finally, the shock waves that are now developing as bank and bond credits begin to fail.
Collapsing activity and raw materials prices are probably linked to an additional problem: a sudden stop in real estate construction. Builders are overweight with very expensive land plots for which they have been bidding madly. Some smaller builders in smaller cities are under enough financing pressure that they have cut prices, sometimes aggressively, to repay userous loans.
Reports of distress sales down 30 percent are pervasive.
What to do?...Can the Chinese government engineer a soft landing as it aims to "rebalance"?
Macrobits
China’s Credit Cycle Comes Unwrapped
Marshall Auerback
2 comments:
Too bad the Chinese loaned all those Yuan renmibi to us so we could be in sovereign debt denominated in U$D ( ??? )
The funny part is that these people presuppose that if the government isn't spending, then the money will be in the system for the private sector to use. They have no clue where money comes from. OK, I might expect that from some dumbbell that got elected from a rural district in the Bible belt, but when the chairman of the Joint Chiefs says it, then I think, WTF? This is the guy we are depending on to defend the country? Same with the president when he says that we are running out of money. How did we elect such stupid people?
Post a Comment