Default looms in China's 'shadow banking' system

Jan 26, 2014 | Posted by: roboblogger | Full story: The China Post

A shockwave is looming in China's multitrillion dollar "shadow banking" system, with an unprecedented default only days away on a US$500 million investment product sold to hundreds of people.

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RESISTANCE IS FUTILE

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#44
Jan 30, 2014
 
CHINA in DECLINE wrote:
<quoted text>
You must be very busy washing dishes at that Dim Sum restaurant you work at in Richmond, now that it is New Year's.
Don't mind the laughter of the patrons you grovel before while cleaning up the garbage and bones from their tables! They laugh at you because they just can't help it....
I work online Miro...

you obviously dont... so it means you are not working right now...'

probably got sick of serving rich Chinese

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The difference between U.S. and China's credit booms
By Scott Cendrowski, writer January 30, 2014: 1:00 PM ET

China's shadow banking complex is worrisome. But it compares favorably to the most recent U.S. credit boom in one regard.

FORTUNE -- Just before China shuts down for the next week for the Chinese New Year, independent research firm GK Dragonomics has released a fascinating report for people worried about China's latest shadow banking product. We're talking about so-called wealth management products, retail investments that pay higher yields than deposits. One of them was named Credit Equals Gold No. 1 and needed a state bailout this month after failing to repay loans to wealthy investors.

What Dragonomics' Joyce Poon observes is that U.S. and Chinese banks are quite similar in how they schemed to push lending off their books and avoid loan-to-deposit limits. During the U.S. credit buildup of the mid-2000s, the product was CDOs. In China, it's wealth management products, or WMP, which grew 40% to $1.66 trillion from late 2012 to Sept. 2013, says Poon.

Poon writes the key contrast between the booms in U.S. and China is as follows:
"The big difference between the two economies is that China's non-bank lending does not involve genuine securitization. In the U.S., risk got fully dispersed from bank balance sheets and collateral was used multiple times further down the securitization chain for funding. Of course, during the 2008-09 crisis, U.S. banks were forced to take many non-performing assets back on balance sheet. The difference in China is perhaps that banks have no illusions about the ultimate recourse to them. Measured in these terms, China's systematic risk remains within reasonable limits."

You can judge those reasonable limits for yourself:

Poon goes on to say that private sector credit in China is fully funded by domestic savings, which continue to grow. Compared to the leverage U.S. banks built up during the 2000s via securitization, not backed by adequate capital, China looks better.

The conclusion is that WMPs won't bring down the Chinese economy. But it is true that they are a symptom of a bigger problem: Banks are skirting the Chinese government's intentions to reduce risky lending. It seems the government still has a long way to go.
RESISTANCE IS FUTILE

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#45
Jan 30, 2014
 
AAA wrote:
<quoted text>
My rule is as long as we have one in ten successful investment, we will be making money. Really, depending on the entry point, most individual investment is negligible, hence failure rate can be high but potential reward for a successful venture can be phenomenonal. Just look at ACER, it was started by a few friends taking out a few thousand dollars each to start with. Besides cash, guidance is also very important, it can greatly enhance the chance of success.
In London, I use two guys originally from Shanghai to help small budding chinese enterprise to raise money via IPO, but only when they are ready of course. One of the most satisfying aspect is to watch hardworking youngster becoming millionaires through the process.
nice :)
AAA

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#46
Jan 30, 2014
 
RESISTANCE IS FUTILE wrote:
<quoted text>
I work online Miro...
you obviously dont... so it means you are not working right now...'
probably got sick of serving rich Chinese
.
.
The difference between U.S. and China's credit booms
By Scott Cendrowski, writer January 30, 2014: 1:00 PM ET
China's shadow banking complex is worrisome. But it compares favorably to the most recent U.S. credit boom in one regard.
FORTUNE -- Just before China shuts down for the next week for the Chinese New Year, independent research firm GK Dragonomics has released a fascinating report for people worried about China's latest shadow banking product. We're talking about so-called wealth management products, retail investments that pay higher yields than deposits. One of them was named Credit Equals Gold No. 1 and needed a state bailout this month after failing to repay loans to wealthy investors.
What Dragonomics' Joyce Poon observes is that U.S. and Chinese banks are quite similar in how they schemed to push lending off their books and avoid loan-to-deposit limits. During the U.S. credit buildup of the mid-2000s, the product was CDOs. In China, it's wealth management products, or WMP, which grew 40% to $1.66 trillion from late 2012 to Sept. 2013, says Poon.
Poon writes the key contrast between the booms in U.S. and China is as follows:
"The big difference between the two economies is that China's non-bank lending does not involve genuine securitization. In the U.S., risk got fully dispersed from bank balance sheets and collateral was used multiple times further down the securitization chain for funding. Of course, during the 2008-09 crisis, U.S. banks were forced to take many non-performing assets back on balance sheet. The difference in China is perhaps that banks have no illusions about the ultimate recourse to them. Measured in these terms, China's systematic risk remains within reasonable limits."
You can judge those reasonable limits for yourself:
Poon goes on to say that private sector credit in China is fully funded by domestic savings, which continue to grow. Compared to the leverage U.S. banks built up during the 2000s via securitization, not backed by adequate capital, China looks better.
The conclusion is that WMPs won't bring down the Chinese economy. But it is true that they are a symptom of a bigger problem: Banks are skirting the Chinese government's intentions to reduce risky lending. It seems the government still has a long way to go.
One very important point about Chinese internal debt and shadow banking is that the debt is almost entirely denominated in RMB. Not that it will definitely happen, in worst case scenario, PBOC can pump liquidity into the system to bail out critical institutions, just like what European, Fed, BOJ and other central banks have done. For example, take the bad debt and shaft it to an entity, then all the failed institutions will be healthy again. Of course this is highly controversial, undesirable, encourage irresponsibility and undermine longer term competitive, but as an emergency it can put off fire in relatively short time. I think what the Chinese government will do is to selectively bail out certain institutions to prevent systematic failure, but allow some to go. In short, I am not worry about Chinese economy long term, up and down yes but general trend is up. The recent announcement of reform is good which is what I expected soon or later if China is to progress further.
RESISTANCE IS FUTILE

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#47
Jan 30, 2014
 
I feel bad for these folks who will lose their investments or their business...

but no one forced these people to do it...

especially some of these people still taking out loans for the export markets!!!

when we know the Chinese government is trying to move away from these low end labor intensive, pollution creating manufacturing factories

exports died in 2008... with Chinese governments plans to get rid of these low end types by 2018

I say if people are dumb enough to invest, or dumb enough to borrow?

then I have no sympathy when they lose their money

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BEIJING (Reuters)- China's crackdown on risky lending has driven borrowers into an even darker place in their search for capital - underground banking.

The domain of loan sharks, underground lending is the least regulated area of China's shadow banking, or non-banking, sector and for some it is seen as the biggest risk to China's financial stability.

It connects China's army of wealthy savers with mostly small borrowers unable to access normal lending and who can end up paying exorbitant annual interest rates of 100 percent or more.

At 8 percent of China's $9.4 trillion economy, according to IMF estimates, it is a surprisingly large niche.

As China intensifies its efforts to discipline risky lenders and calm exuberant credit growth, financial stress is building in the country and underground debt is becoming one of the biggest banking risks.

Analysts say the underground market is most vulnerable to worrying spikes in unpaid loans, especially since its borrowers are often small-time exporters hardest hit when the economy stutters.

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#49
Jan 30, 2014
 
AAA wrote:
<quoted text>
One very important point about Chinese internal debt and shadow banking is that the debt is almost entirely denominated in RMB. Not that it will definitely happen, in worst case scenario, PBOC can pump liquidity into the system to bail out critical institutions, just like what European, Fed, BOJ and other central banks have done. For example, take the bad debt and shaft it to an entity, then all the failed institutions will be healthy again. Of course this is highly controversial, undesirable, encourage irresponsibility and undermine longer term competitive, but as an emergency it can put off fire in relatively short time.
Your idea which General Motors used is only a great idea if the debt is not internal, if the debt was external its like telling your debtors to fcuk off and giving them crumbs because they can't do anything. But if the debt is internal it affects the individualís share of the GDP, as internal debt has subjected citizens to higher interest rates, which will hold back growth.

Oh lets not forget that the Shadow banking sector is estimated to be at $5 trillion so whole scale clearing would basically decapitate all of China's reserves, consume trillions in borrwed money and leave millions of industries bankrupt in China.

Here is another part you forgot, if the GM was to happen, China would need to choose between which sectors it thinks are profitable and which are not. The unprofitable sectors would be boxed together in entity together with the bad debt and sold as debt repayments while you will keep a small shadow of the SOE's, oh don't forget that if the entire Shadow banking were to crush it would cost more than $5 trillion.

Only one big problem with the GM plan, this is financial chain problems not vehcles and therefore government would need to liquidate some banks or have the credit-driven growth model fall apart. In the USA on the eve of the financial crisis in 2007, the size of the unregulated financial system ($27 trillion) dwarfed the volume of the official banking system. In the wake of the crisis in 2010, shadow banks in the USA still controlled about $12 trillion of assets.

The US has since pumped over $10 trillion into the financial system since 2007, it has gone throw over 8 years of mediocre growth and has shade a lot of jobs. With China the effects would be worse because debt is internal. Can China a 3rd world country afford this? How would China look like if its living standards dropped even a little from the level they are now? Somalia?

Massive Credit Bubble Fuelled By Shadow Banking would also crush, the financial crisis has demonstrated that shadow banking structures contribute to the fragility of credit chains and can crush individual banks, as in the cases of Lehman Brothers or Northern Rock.

Tight interconnectedness between official banks and shadow banking entities pose tremendous difficulties in terms of crisis management policies. Thus if Banks have no money, industries have no money to produce goods and services and hence the PRC's economy would crush if Government does not offer liquidity.

Offering liquidity would be a massive endeavour(remember round after round of Japanese stimulus packages in the 90's and 2000s?) and would consume most of China's GDP growth rate and all of her reserves, most likely leave China a highly indebted, poorer and uncompetive(or should I say more uncompetive) country.
RESISTANCE IS FUTILE

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#50
Jan 31, 2014
 
dreadman82 wrote:
<quoted text>
Your idea which General Motors used is only a great idea if the debt is not internal, if the debt was external its like telling your debtors to fcuk off and giving them crumbs because they can't do anything. But if the debt is internal it affects the individualís share of the GDP, as internal debt has subjected citizens to higher interest rates, which will hold back growth.
Oh lets not forget that the Shadow banking sector is estimated to be at $5 trillion so whole scale clearing would basically decapitate all of China's reserves, consume trillions in borrwed money and leave millions of industries bankrupt in China.
Here is another part you forgot, if the GM was to happen, China would need to choose between which sectors it thinks are profitable and which are not. The unprofitable sectors would be boxed together in entity together with the bad debt and sold as debt repayments while you will keep a small shadow of the SOE's, oh don't forget that if the entire Shadow banking were to crush it would cost more than $5 trillion.
Only one big problem with the GM plan, this is financial chain problems not vehcles and therefore government would need to liquidate some banks or have the credit-driven growth model fall apart. In the USA on the eve of the financial crisis in 2007, the size of the unregulated financial system ($27 trillion) dwarfed the volume of the official banking system. In the wake of the crisis in 2010, shadow banks in the USA still controlled about $12 trillion of assets.
The US has since pumped over $10 trillion into the financial system since 2007, it has gone throw over 8 years of mediocre growth and has shade a lot of jobs. With China the effects would be worse because debt is internal. Can China a 3rd world country afford this? How would China look like if its living standards dropped even a little from the level they are now? Somalia?
Massive Credit Bubble Fuelled By Shadow Banking would also crush, the financial crisis has demonstrated that shadow banking structures contribute to the fragility of credit chains and can crush individual banks, as in the cases of Lehman Brothers or Northern Rock.
Tight interconnectedness between official banks and shadow banking entities pose tremendous difficulties in terms of crisis management policies. Thus if Banks have no money, industries have no money to produce goods and services and hence the PRC's economy would crush if Government does not offer liquidity.
Offering liquidity would be a massive endeavour(remember round after round of Japanese stimulus packages in the 90's and 2000s?) and would consume most of China's GDP growth rate and all of her reserves, most likely leave China a highly indebted, poorer and uncompetive(or should I say more uncompetive) country.
5 trillion dollar Shadow Banking/Underground Economy... but YOUR assumption is 5 trillion will be defaulted on...while most are predicting just 30% default rate...

a default rate not any worse than SMEs defaults for other countries... I would argue China has a better default rate...

the way I look it...it is Chinese savers with money to lend and risk... are lending it to people willing to take a risk and go into business (the Chinese government shouldnt even step into this to bail out people who went around rules and regulations to make more money than if they played it safe)

its seems like your side expects 100% of the businesses to succeed in China...

or the Chinese economy to crash because there are some defaults on loans...

assumption that the Chinese will stop lending out money because there were defaults on loans as if that has never happened before..

of course no one is going to convince you otherwise...
RESISTANCE IS FUTILE

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#51
Jan 31, 2014
 
China's clampdown on shadow banking begins to bite

The mainland's clampdown on the lending market is beginning to bite as interest rates rise sharply, funds dwindle and default worries mount

Regulators are ambivalent about the shadow banking market. The State Council last month issued a circular calling for more regulation of this market. But it also said shadow banking was a "beneficial" and "inevitable" market development.

"The large part of this reason the parallel market (shadow banking) exists is because the government cannot let go of its growth targets. If we see an economic slowdown, will the government continue to pull back on the parallel market, which is an important source of investment?" said Dorris Chen, the head of China financials research at Standard Chartered.

The hope is that the government would slowly roll back the market, to keep it viable while containing some of its excesses.

Analysts talk of deleveraging that is under way.

Fitch estimates that total credit will drop slightly this year, largely thanks to regulators' clampdown on trust loans and the wealth management products that back them.

The impact for firms outside the China' formal banking market is clear: higher funding costs.
CHINA in DECLINE

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#52
Jan 31, 2014
 
RESISTANCE IS FUTILE wrote:
<quoted text>
I work online Miro...
Yeah, right.

So, do you still spend HOURS in line at the "payday loan" store arguing with the Filipina maids sending money back home?

Are you going to claim you possess great wealth and in the next breath tell us about your hours waiting at the payday loan lineup?

You funny, naughty little dishwasher! You are too dumb to see the GLARING IMPLAUSIBILITY of that, and we do so enjoy laughing at your stupidity!

Do it again, CLOWN!

And how is it living in your parent's basement?

Do you still watch "Star Trek" episodes over and over again, even though you are 38 years old? Your name hear positively SCREAMS that you are a socially-retarded virgin still obsessed with Star Trek like a child.......

HA HA HA HA HA HA HA HA HA!

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#53
Jan 31, 2014
 
RESISTANCE IS FUTILE wrote:
<quoted text>
5 trillion dollar Shadow Banking/Underground Economy... but YOUR assumption is 5 trillion will be defaulted on...while most are predicting just 30% default rate...
a default rate not any worse than SMEs defaults for other countries... I would argue China has a better default rate...
the way I look it...it is Chinese savers with money to lend and risk... are lending it to people willing to take a risk and go into business (the Chinese government shouldnt even step into this to bail out people who went around rules and regulations to make more money than if they played it safe)
its seems like your side expects 100% of the businesses to succeed in China...
or the Chinese economy to crash because there are some defaults on loans...
assumption that the Chinese will stop lending out money because there were defaults on loans as if that has never happened before..
of course no one is going to convince you otherwise...
Don't be foolish, you do realize that all Financial institutions are very interconnected right. Remember Lehman brothers and the mess their collapse caused? Think butterfly effect, the collapse of one small Bank/lending entity may lead to a financial shiet storm or complete collapse if the financial lending system. Their collapse leads to sections of the economy, be itin manufacturing or services that relay on these lenders to keep the production chain going, before long everyone is affected and you are in Japanese style shiet storm of useless bailouts, lost generations and stimulus packages. Today your government in order to keep the financial system from crushing because of the clump down on Shadow Banking.

Also consider that Chinese local governments have already built up a mountain of debt to the sum of $3 trillion from local government debt alone while national debt is at $14.5 trillion, there wont be any money left to sort out any loss of liquidity in the Chinese Shadow banking system and the whole thing will collapse.

Hence I say if/when the Shadow Banking system fails or if/when the credit bubble the Shadow Banking system has created in China pops, your PRC government would have no choice but clear house. Kill a few Hedge funds but in China as everywhere Shadow Banking can not be entirely exterminated because of Shadow Banks importance, Shadow banks provide credit and generally increase the liquidity of the financial sector, in China especially where credit is normally out of reach for SME with no guanxi.

Clumping down on Shadow Banking is very dangerous and Xi needs to trend carefully.

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#54
Jan 31, 2014
 
AAA wrote:
<quoted text>
One very important point about Chinese internal debt and shadow banking is that the debt is almost entirely denominated in RMB. Not that it will definitely happen, in worst case scenario, PBOC can pump liquidity into the system to bail out critical institutions, just like what European, Fed, BOJ and other central banks have done. For example, take the bad debt and shaft it to an entity, then all the failed institutions will be healthy again. Of course this is highly controversial, undesirable, encourage irresponsibility and undermine longer term competitive, but as an emergency it can put off fire in relatively short time. I think what the Chinese government will do is to selectively bail out certain institutions to prevent systematic failure, but allow some to go. In short, I am not worry about Chinese economy long term, up and down yes but general trend is up. The recent announcement of reform is good which is what I expected soon or later if China is to progress further.
INTERNAL DEBT IS MORE DANGEROUS THAN EXTERNAL DEBT YOU IMBECILE, it doesn't matter that the debt is mostly in RMB. You can't just print money and be all willy nilly about it thinking everything will be fine unless you are like the US whose currency is both money and a commodity with limitless demand on its own.

Chinese imports would become very expensive while competivity would drop due to workers demanding more and China's infrusture projects like the Highspeed trains needing maintainance which eat up imports. It would be amagadon.

You think the Japanese government which has all its debt in Yen thinks internal debt doesn't matter? Bad Chinese education.
RESISTANCE IS FUTILE

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#56
Jan 31, 2014
 
what ever retard...it figures you would side with Chinese rich

who had money to invest and hide from the Chinese government...

all these guys making risky loans... now expect the Chinese banks to and guarantee their risky investments

sounds a lot like what happened in the USA

you have no shame at all...

trying to pretend Chinese internal debt.... mostly funded by rich Chinese investors trying to get around the Chinese central government tightening rules and regulations

is anything compared to US Sovereign external debt...

but then you cant do simple math western economist
RESISTANCE IS FUTILE

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#57
Jan 31, 2014
 
CHINA in DECLINE wrote:
<quoted text>
Yeah, right.
So, do you still spend HOURS in line at the "payday loan" store arguing with the Filipina maids sending money back home?
Are you going to claim you possess great wealth and in the next breath tell us about your hours waiting at the payday loan lineup?
You funny, naughty little dishwasher! You are too dumb to see the GLARING IMPLAUSIBILITY of that, and we do so enjoy laughing at your stupidity!
Do it again, CLOWN!
And how is it living in your parent's basement?
Do you still watch "Star Trek" episodes over and over again, even though you are 38 years old? Your name hear positively SCREAMS that you are a socially-retarded virgin still obsessed with Star Trek like a child.......
HA HA HA HA HA HA HA HA HA!
yeah what ever now get me my slippers and newspaper

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#60
Feb 1, 2014
 
RESISTANCE IS FUTILE wrote:
what ever retard...it figures you would side with Chinese rich
who had money to invest and hide from the Chinese government...
all these guys making risky loans... now expect the Chinese banks to and guarantee their risky investments
sounds a lot like what happened in the USA
you have no shame at all...
trying to pretend Chinese internal debt.... mostly funded by rich Chinese investors trying to get around the Chinese central government tightening rules and regulations
is anything compared to US Sovereign external debt...
but then you cant do simple math western economist
Look if you can not read please say something, I have already posted information on this. China's internal debt after the audit of 2013 was found to have a debt problem larger than the US, equal to the Greek one and approaching the size of the Japanese internal debt. That is why when the government tried to raise money by auctioning out bonds in July last year almost nobody wanted them.

China's debt is smaller than the US when you consider only the Chinese household and central government sectors where the debt-to-GDP ratios at present are only 30 percent and 15 percent, respectively. Comparable ratios in the United States are 80 percent and 70 percent, respectively. However, the debt-to-GDP ratio of the Chinese business sector is 140 percent, whereas its American counterpart stands at 80 percent.

Oh don't forget China's corporate debt is from non Banking entities that are money hungry and also have high debt service ratio of 38.6% of GDP and another 10% of GDP goes to interest payment (=6.3%◊145 % of GDP) and the rest principal(all together if the Shadow Banking system was to crush over 50% of China's GDP to stop it from crushing). Its a very hard situation because you small upstarter #1 economy obsessed countries never listen, Japan didn't listen, Thailand in 1990s didn't listen, India is not listening and China is now just starting to listen because already they are in damage control.

Am sure a low IQ monkey like you already missed this but the POBC has already just this month old year, had to capitalize the Banks twice. Hence why I say external debt is much better than internal debt, internal debt short circutes your financial system and leads to monetary shortages that lead to entire capital hungry economic sectors shutting down.
RESISTANCE IS FUTILE

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#63
Feb 1, 2014
 
dreadman82 wrote:
<quoted text>
Look if you can not read please say something, I have already posted information on this. China's internal debt after the audit of 2013 was found to have a debt problem larger than the US, equal to the Greek one and approaching the size of the Japanese internal debt. That is why when the government tried to raise money by auctioning out bonds in July last year almost nobody wanted them.
China's debt is smaller than the US when you consider only the Chinese household and central government sectors where the debt-to-GDP ratios at present are only 30 percent and 15 percent, respectively. Comparable ratios in the United States are 80 percent and 70 percent, respectively. However, the debt-to-GDP ratio of the Chinese business sector is 140 percent, whereas its American counterpart stands at 80 percent.
Oh don't forget China's corporate debt is from non Banking entities that are money hungry and also have high debt service ratio of 38.6% of GDP and another 10% of GDP goes to interest payment (=6.3%◊145 % of GDP) and the rest principal(all together if the Shadow Banking system was to crush over 50% of China's GDP to stop it from crushing). Its a very hard situation because you small upstarter #1 economy obsessed countries never listen, Japan didn't listen, Thailand in 1990s didn't listen, India is not listening and China is now just starting to listen because already they are in damage control.
Am sure a low IQ monkey like you already missed this but the POBC has already just this month old year, had to capitalize the Banks twice. Hence why I say external debt is much better than internal debt, internal debt short circutes your financial system and leads to monetary shortages that lead to entire capital hungry economic sectors shutting down.
please we have argued this over and over before like you said the Fed has purchased 4 to 5 trillion Treasury debt in the last 5 years alone...

no one gives a shiet about what the numbers really are... because that is internal debt

fricken Detroit city went bankrupt... and no one gives a shiet...

if they could go bankrupt most States in the USA probably would go into bankruptcy protection or be forced into it...

internal debt default may help speed along a External debt default...

but in Chinas case... they have low external debt and the money to pay it off...

unlike the USA

judging from your inability to do simple math or admit to it...

we will be arguing this again and again and again.... as China rises over your lifetime
RESISTANCE IS FUTILE

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#64
Feb 1, 2014
 
and yes you are right I have a hard time looking past the first few sentences, or in most cases the first sentence of your essays....

because I dont want to read anything else that is wrong in your write up....

and I have seen the same arguments before

lol

sorry
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#65
Feb 1, 2014
 
bottom line the way I look at it... this shadow banking is win win for China...

worst case is you have a transfer of wealth from the rich to the poor...

a 5 trillion dollar a year sector of the economy

China just needs to step in and regulate this underground sector
RESISTANCE IS FUTILE

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#66
Feb 1, 2014
 
of course dreadman who is a 1% stooge dosent like it...
AAA

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#67
Feb 1, 2014
 
dreadman82 wrote:
<quoted text>
INTERNAL DEBT IS MORE DANGEROUS THAN EXTERNAL DEBT YOU IMBECILE, it doesn't matter that the debt is mostly in RMB. You can't just print money and be all willy nilly about it thinking everything will be fine unless you are like the US whose currency is both money and a commodity with limitless demand on its own.
Chinese imports would become very expensive while competivity would drop due to workers demanding more and China's infrusture projects like the Highspeed trains needing maintainance which eat up imports. It would be amagadon.
You think the Japanese government which has all its debt in Yen thinks internal debt doesn't matter? Bad Chinese education.
I didn't say printing money was alright...and I thought it was you who said printing money by BOJ, ECB, BOE and Fed was OK, but apparently not China. Fed printing USD did bought time for USA, but yes I can agree with you on why that did screw up others more than Americans themselves. I always said BOJ printing money is not going to arrest long term decline...but it was you who said it was OK, but apparently you have changed your mind now. How convenient is that?

Printing money is not a long term solution, make no mistake about it, but it will buy time to sort things out without risking an abrupt collapse of the system and indeed an useful tool when it comes to jump start a stalled economy. The question is when to switch off the tap and where to channel the liquidity to avoid systemic failure. These are two very important questions. BOJ did switch on the tap every now and then, but now decided to go full blast, do you think it will finally solve its problems? Probably not if it intends to continue supporting all its failed institutions. US did allowed some like Lehman go under, and others like Merrill and Bear Stearn to be bought out, but was too soft on the unproductive motor industry; and now it still has to decide when to switch that tap off. Remember at the opposite end, even at state level ECB was contemplating ring fencing core EU members and let peripheral eurozone countries like Greece, Portugal, Ireland, Spain and Italy go under. Even in UK, BOE and UK government had to choose who to bail out or sink. Note in all the examples, they are to do with their respective common currency, so who say the denomination of the debt is not important. It is in fact fundamental because the buck stops at the central bank of the currency to decide the level of liquidity required, and not to be determined by external factors.

Now, the important factor is China recognised there is a problem (unlike the Japs for a long time) and indeed it has been working on the issue even before the announcement of the reform which basically just formalise the policy. It will be a fine balancing act but having the debts in RMB will give PBOC some degree of freedom and time without having to take drastic action like the other countries. Also with capital control, China is still very much a close system, which works in its favour under current circumstances. GDP figure will be affected, no doubt about it, and that is precisely why China has been saying 7.5% long before the announcement of the reform, which in layman term means they intend to pump enough liquidity to stabilise GDP around 7% to 8% as they carry out the reform, not more. And if you do remember, it was ignorant wannabe like yourself who scream Armageddon when China's growth decelerated to under 8%, can't fcuking see the rationale behind it at all.
AAA

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#68
Feb 1, 2014
 
dreadman82 wrote:
<quoted text>
China's debt is smaller than the US when you consider only the Chinese household and central government sectors where the debt-to-GDP ratios at present are only 30 percent and 15 percent, respectively. Comparable ratios in the United States are 80 percent and 70 percent, respectively.
What is America's government debt to GDP figure again? 70%? Do you want to double check that, Mr professional? We are in 2014 not 2009. Last chance to prove you are not an idiot.

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#69
Feb 1, 2014
 
AAA wrote:
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What is America's government debt to GDP figure again? 70%? Do you want to double check that, Mr professional? We are in 2014 not 2009. Last chance to prove you are not an idiot.
Thats for corperate debt alone, read the posts above that and you will unmistakably notice that I was comparing sectors of economies by their deb, the US debt-to-GDP ratio was just under 100% at the end of 2011, 9.5% goes to interest paid. And this includes bonds which are long term and is external means that the US is actually better off than the Chinese who don't want to sell their bonds to foreigners

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