Tuesday, January 12, 2010

"Enron-Esque Characteristics" Hiding An Even More Explosive Credit Growth In China

Ob boy......Looks like the Chinese have learnt quite a bit from their western rivals....;-) All this confirms my "sceptical" view on the sustainability of the recent recovery in China...... Nice to see that this kind of creative accounting is rewarded with a big valuation premium.... You really cannot make this up..... For an up to date inside view on China i highly recommend the blog China Financial Markets from Michael Pettis. A must read.

Sieht so aus als wenn die Chinesen in Sachen Bankenbilanzierung schnell vom Westen gelernt haben.....;-) All das bestätigt mich in meiner "skeptischen" Sichtweise das was momentan in China abgeht nachhaltig ist.... Immerhin ist es nett zu sehen das solch "Kreativität" momentan mit einem gewaltigen Bewertungsaufschlag gehandelt wird..... Paßt hervorragend zum sonstigen Marktgeschehen.... ;-)Wer einen erstklassigen und vor allem zeitnahen Blick auf das Geschehen in China haben möchte für den sollte China Financial Markets von Michael Pettis Pflichtlektüre sein....

Then and now: Banks and their book value Graph FT Alphaville

China Cracks Down on Banks' Loan-Sale Practice WSJ
BEIJING—China's banking regulator has quietly cracked down on banks selling their loans to trust companies, taking aim at a little-understood category of transactions that had fueled concerns about transparency in the banking system.

The transactions at issue had enabled banks to move loans off their balance sheets by temporarily selling them to Chinese trusts, lightly regulated companies that then repackaged the loans into financial instruments for clients.

The banks promised to repurchase the loans any time between a few weeks and a few years later.

The China Banking Regulatory Commission issued a notice banning banks that sell loans to trusts from removing the loans from their balance sheets, said an executive in the risk management department of a Chinese bank who has seen the document. The notice was issue Dec. 24, but wasn't made public.

Banks have been unwilling to discuss the trust deals publicly, but analysts who had studied the transactions say the banks were using them to report lower loan totals at a time when China's government was indicating concern about credit expansion and pushing lenders to increase their capital ratios as a precaution against bad loans.


While no official data on the loan-sale practice is publicly available, Shanghai Benefit Investment Consulting, a research company, estimates that 734 billion yuan ($107.53 billion) of bank loans were packaged into trust products in 2009.

About 80% of that was issued in the second half of the year, as Beijing's concern about loan growth mounted

The volume of new bank loans more than doubled in 2009, as Chinese lenders-almost all of which are majority owned by the state—assisted government efforts to stimulate the economy.

Not all the loans sold to trusts fall into the category barred by the CBRC notice, but the order appears to have nearly halted such transactions. According to Shanghai Benefit, only seven new trust products backed by banks loans have gone on sale this month, compared with 465 for the whole of December.
The regulatory change could add to difficulties for some Chinese banks that were already facing constraints on their lending this year by the declines in their capital-to-loan ratios as a result of last year's credit explosion.

Still, analysts say it's likely to be another banner year for bank lending in China, with many forecasting 2010's new loans will be between seven trillion and eight trillion yuan, down from around 9.5 trillion last year but far above the annual average for previous years.
> To put this number into perspective the loan figure for a booming 2008 was under 5 trillion Yuan......

> Um das in Verhältnis zu setzen muß man wissen das im Boomjahr 2008 unter unter 5 Billion Yuan an Krediten vergeben worden sind....


> Looks like they have already "achieved" almost 8% percent of their 2010 lending target ( 12% of the 2008 loans....) within the first week.... Second UPDATE: Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... Hey, but "Don´t Call It A Bubble"...... ;-)

> Sieht ganz so aus als wenn die chinesischen Banken bereits knapp 8% der für 2010 ( oder 12% der im Jahr 2008 ausgegebenen Kredite ) "vorgesehenen" Kreditvergaben in der ersten Januarwoche ausgekehrt hätten......"Don´t Call It A Bubble"...... ;-) Zweites UPDATE Chinese Banks Already Lend Out 20% Percent Of Targeted Loan Growth For 2010 Withing The First Two Weeks Of January & Visualizing "Froth" In China....... ....Bernanke würde jetzt sagen "Don´t Call It A Bubble"......

Between January 4 and 8, commercial banks issued loans worth 600 billion yuan, a new high in years. Caing.com

It seems that China's commercial banks have slowed the lending pace due to warnings from the People's Bank of China (PBOC) and banking regulator. However, new statistics showed that the pace actually accelerated during the first week of 2010.

New lending by banks reached 600 billion yuan, with the five biggest banks accounting for 280 billion yuan, according data obtained by Caixin Media.

> Let´s hope that at least a small part from the staggering amount is related to the reintegretaion from the "funny" off balance sheet structures.....

> Bleibt nur zu hoffen das zumindest ein kleiner Teil der unglaublichen Summe darauf zurückzuführen ist das einiges wieder in die Bilanz eingegliedert worden ist.....


China Hits Brakes on Economic Stimulus

China, which for more than a year has been pushing its banks to pump out cash to offset the global downturn, abruptly reversed course Tuesday, in the clearest sign yet that Beijing has turned its attention to controlling the repercussions of that credit explosion.

Starting Monday, most Chinese commercial banks will be required to put 16% of their deposits on reserve, an increase of a half percentage point.

The new rate will effectively lock up 300 billion yuan, or around $44 billion, that might otherwise have been lent, according to Tom Orlik, China analyst at Stone & McCarthy Research Associates.

Next to the 40 trillion yuan or more in loans outstanding and a 24 trillion yuan stock market, that is a small amount.

[China Hits Brakes on Stimulus]

> Sweet Babystep... Too little and definitely way too late.....

> Wie niedlich..... Bestenfalls ein Anfang und definitv erheblich zu spät.....

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Blogger jmf said...

Insight: Busting the myth of the Brics FT

The biggest distortion in the Chinese economy is the explosion in fixed asset investment to an eye-popping 50 per cent of GDP. By comparison, Japan in its miracle decade clocked up economic growth rates similar to China’s today by investing between 30 per cent and 35 per cent of its GDP.

Just as there has never been a bubble that hasn’t burst in the end, so there has never been an investment boom that hasn’t been followed by a bust. If China’s investment-to-GDP ratio were to drop to the levels of 1960s Japan – not an absurd idea, since that is also where it was in China ten years ago – the impact would be catastrophic. China itself would face slump and the mother of all banking crises. A domino reaction would hit the commodity exporters and other emerging economies. The deflationary impact of Chinese overcapacity would be felt everywhere, potentially putting the world trading system at risk. And investors would come to view the “Bric” acronym much as they do “TMT” today.

2:47 AM  
Blogger jmf said...

Too little too late......

China curbs more liquidity
FT Alphaville

Reserve requirements will increase by 50 basis points from Jan. 18, the central bank said on its Web site this evening. The existing levels are 15.5 percent for big banks and 13.5 percent for smaller ones.

4:25 AM  
Blogger jmf said...

Don´t call it a bubble......

Zero Hedge
But the real kicker was in iron-ore imports which was 62.16 million metric tons in December, 22% more than November, and an unbelievable 80% more than a year earlier, and the second highest ever recorded. For all of 2009 628 million tons of iron were imported, 41.6% higher than in 2008.

The simple observation is that instead of having to finance the US consumer's continued spending binge by buying hundreds of billions in Treasuries in 2009, China was let off the hook by the Federal Reserve, which did all of its mandated purchase instead. So with all the excess money China went and stockpiled, stockpiled, stockpiled

5:33 AM  
Blogger jmf said...

China's central bank raises reserve ratio MW

Economists at Barclays Capital estimate the move will freeze around 300 billion yuan ($43.9 billion) of funds at banks.

The moves, however, signify that leaders in Beijing aren't taking action to curb their much-criticized move of bolstering Chinese exports by keeping the yuan cheap relative to the dollar.

9:13 PM  
Blogger jmf said...

We sometimes forget that China ha snothing to do with democracy.....

Google, disturbed by attacks, considers pulling out of China MW

In a surprising move that could affect its presence in a coveted, fast-growing international market, Google Inc. said Tuesday that it's considering pulling out of China following what the company said was a series of cyber-attacks on its infrastructure and users.

Drummond wrote that the Mountain View, Calif.-based company was one of several large companies that were targeted by a "highly sophisticated" attack on its infrastructure in December, which originated in China.

In 2006, Google agreed to present Internet search results in China that excluded politically sensitive topics, such as the pro-democracy Tiananmen Square demonstrations in 1989.

9:17 PM  
Blogger jmf said...

Looking at the next chart you really can smell increased trade "tension"....

China's export prospects / Fear of the dragon Chart Economist

5:10 AM  
Blogger jmf said...

Nice slideshow.....

Why Shanghai Real Estate Is The Most Obvious Bubble Ever Clusterstock

7:44 AM  
Blogger jmf said...

China regulator directs banks to halt mortgage commissions MW

Chinese banking regulators have directed the nation's lenders to halt the practice of providing commissions to real estate agents for introducing mortgage customers

It has been common practice for agents to receive commission of between 1.2% and 1.5% of the total transaction value of a property purchase, according to the report, which cited data reported by the state-run Shanghai Securities News.

Chinese banks extended about 952 billion yuan ($139 billion) worth of individual mortgages in the first three quarters of 2009, a nearly four-fold rise over the value issued in the year-earlier period

9:55 PM  
Blogger jmf said...

China’s tweaks won’t cure financial excess Wei Gu / Reuters

Even the central bank is not expecting much from the reserve hike. An official said the monetary policy stance is still reasonably accommodative and described the move as an attempt to fine-tune flexibly

3:27 AM  
Blogger jmf said...

Here a much more optimistic view....

China's economy / Not just another fake Economist

6:47 AM  
Blogger jmf said...

Of Course Chinese Real Estate is a Bubble. Grow Up Reformed Broker

1:22 AM  
Blogger Ryann said...

This comment has been removed by a blog administrator.

10:55 PM  
Blogger jmf said...

China’s great central economy, and big local problems FT Alphaville

How to get a $295m loan from a Chinese bank:
1. Be a local government investment vehicle, or own one.
2. Say you will use the loan for a high-profile investment.
3. Proceed to use the money for something else.

4:46 AM  
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