Yes Virginia...It's a Bubble...

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

Apparently urban China property prices still going strong

Blow-off phase? Or just another normal year in the effervescent Chinese property markets because...well..."China is different"...

China Home-Price Gains Add to Dilemma on Cash Crunch: Economy

By Bloomberg News - Jun 17, 2013 10:57 PM MT

Chinese property prices rose at the fastest pace in more than two years in major cities, defying tougher government curbs and constraining the ability of policy makers to ease credit in response to weakening economic growth.

New home prices in Beijing, Shanghai and Guangzhou posted the biggest gains in May since at least January 2011, and 69 of the 70 cities tracked by the government showed increases, the most since August 2011, National Bureau of Statistics data showed today in Beijing. Inbound non-financial investment rose 0.3 percent in May from a year earlier, the weakest in four months, according to the Ministry of Commerce.

The property gains limit the ability of Premier Li Keqiang to counter an economic slowdown that showed signs of deepening in May. The central bank today refrained from adding cash to the financial system and money-market rates reached the highest level in seven years this month, a liquidity squeeze that Fitch Ratings says may accelerate a banking crisis.

“The government is in a dilemma right now,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., who previously worked at the International Monetary Fund.“It’s difficult for China to tighten the property market, while it also needs to bolster the economy, which has a strong reliance on property.”

China’s one-year interest-rate swaps rose to a 21-month high today. The yuan weakened 0.1 percent, the most since June 6, to 6.1291 per dollar, as of 11:25 a.m. in Shanghai. The MSCI Asia-Pacific Index of stocks fell 0.5 percent...

...Local governments are reluctant to enforce policies aimed at cooling the housing market, Zhang said. Former Premier Wen Jiabao in March ordered central bank branches to raise down-payment requirements for second mortgages in cities with excessive cost gains and told local governments with the biggest price pressures to tighten home-purchase limits and set price-control targets.

Today’s data showed the southern city of Guangzhou posted the biggest gain with prices rising 15 percent from a year earlier. Beijing prices climbed 12 percent, while they advanced 10 percent in Shanghai. All three cities had their biggest advance since the government changed its methodology for the data in January 2011.

The only decline in new home prices last month was in the eastern city of Wenzhou, where they fell 3.6 percent from a year earlier, according to the data.

Home prices in China had the biggest quarterly gain among 55 countries globally in the first three months of the year, based on Beijing and Shanghai prices, broker Knight Frank LLP said in an e-mailed report yesterday...

...Agricultural Development Bank of China Co. scaled back the size of two bond offerings today by 31 percent after the Finance Ministry failed to sell all of the debt offered at an auction for the first time in 23 months last week.

“We are starting to see some issues emerging” in liquidity, Charlene Chu, Fitch’s head of China financial institutions, said in an interview today with Zeb Eckert on Bloomberg Television in Hong Kong...

...Inbound non-financial investment increased to $9.26 billion, the Ministry of Commerce said today in Beijing, after a 0.4 percent gain in April. China’s outbound investment rose 20 percent in the first five months of the year to $34.3 billion, compared with a 27.4 percent pace in January-April.

The investment report follows data indicating capital inflows slowed last month while growth decelerated in exports,industrial production and lending. Confidence is fading in an economic rebound this quarter, with investment banks from Morgan Stanley to Barclays Plc cutting their 2013 expansion forecasts.

Shen Danyang, a Commerce Ministry spokesman, said at a briefing today that China’s economic situation is stable while the trade situation is “grim” for this year...

...China’s property market faces the risk of a “bubble,” and it isn’t “light,” Wang Shi, chairman of China Vanke Co., the nation’s biggest developer, said at a conference in Shanghai on June 6...

The dreaded "B" word rears its ugly head again...

A friend just took a train from the south of China to the North. He said "Imagine taking a train from Miami to Boston and along the entire route every phase of it, 20 story high condominiums being built."

[GRG55]

Re: Yes Virginia...It's a Bubble...

China Manufacturing Contraction Deepens Amid Cash Pinch: Economy


By Bloomberg News - Jun 19, 2013 9:52 PM MT

China’s manufacturing is shrinking at a faster pace this month, adding to stresses in the economy and financial system after interbank borrowing costs surged to the highest in seven years.

The preliminary reading of 48.3 for a Purchasing Managers’ Index (EC11FLAS) released today by HSBC Holdings Plc and Markit Economics compares with the 49.1 median estimate in a Bloomberg News survey of 15 economists. May’s final reading of 49.2 was the first below 50 since October, indicating contraction.

Manufacturing weakness, along with the money-market cash crunch, will further test how far Premier Li Keqiang is willing to go in sacrificing short-term expansion for more-sustainable long-term growth. After record credit in the first four months of the year failed to stoke growth, China’s State Council, led by Li, said last night that the financial system needs to do a better job of supporting the economy.

“If market rates remain at such high levels, the only scenario for the Chinese economy is a hard landing,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing. “That possibility is growing now -- it seems the leadership is deliberately taking a wait-and-see stance to see how low China growth can be.”...

[GRG55]

Broken China?

Where Will It End?

By JONATHAN R. LAING
China's credit growth to back lavish construction and infrastructure projects is similar to that of the U.S. and Japan before they faced financial calamities.

Of all the global economic powers, China would seem the most immune to the threat of a financial crisis.

It sailed through the post-2008 global credit implosion largely unscathed, by pumping up housing construction and infrastructure spending to compensate for slackening exports. First-quarter 2013 growth in gross domestic product, although the weakest in more than two years, rose at a rate the rest of the world would envy, 7.7%. Bad debts inside the Chinese banking system stand at a negligible 1%, compared with 3.4% in the U.S. and double-digit figures in much of the euro zone.

And Beijing seemingly has plenty of additional resources to employ to spur growth. China's economy boasts a debt-to-GDP ratio reckoned conservatively at about 30%, less than half the national debt rate of the U.S. In his recent summit talks with President Barack Obama, China's President Xi Jinping pointedly expressed his satisfaction with the Chinese economy.


But appearances can be deceiving, especially in China. Skeptics always have insisted that China's economic numbers paint too rosy a picture. Now those statistics show a worrisome downshift in growth for both exports and industrial production. Signs of trouble abound.

A post-2008 credit bubble in China seems to be yielding increasingly limp GDP growth, as spending on gaudy new infrastructure projects and housing no longer packs the same punch. Miles upon miles of empty apartment buildings rim hundreds of Chinese cities; industries suffer from rampant over-capacity; and largely empty new highways, bridges, shopping malls, railroad stations, and airports more than hint at problems.

A number of observers, including some former China bulls, see the country headed for a potentially serious economic downturn, or possibly a Japanese-style purgatory of anemic growth, with all the baleful side effects. These could include collapsing prices for assets like real estate (stocks already sell at big discounts), diminishing wealth, and, in extremis, frenzied capital flight by rich Chinese.

"I would say that China is now roughly at the stage [of indiscriminate credit growth] the U.S. was in March 2008, when Bear Stearns had to be rescued and the subprime market was unraveling," says David Cui, Bank of America Merrill Lynch China strategist, working out of Shanghai. "What will tip the scale will likely be a major event in China similar to Lehman's bankruptcy six months after the fall of Bear Stearns, which will be some bailout of a major player that Beijing will do everything it can to disguise so as not to shake confidence."

Echoes George Magnus, a London-based economist and independent advisor to UBS who has written extensively about China: "The financial situation in China has become quite alarming. Cracks are appearing all through its financial structure as a result of debt-fueled overinvestment in infrastructure, industrial capacity, housing, and commercial construction. There's likely to be big trouble coming in the next year or two."...

...THE PRIMARY FAULT LINE in the Chinese economy that worries many has been the explosion in the credit-to-GDP ratio since the onset of the 2008 global financial crisis and economic slowdown, as China sought to stimulate its economy in the face of a lag in its longtime growth engine, exports. This total societal debt load has followed a similar growth trajectory to that of the U.S. and British economies in the six years leading up to the 2008 crisis; Japan's credit orgy from 1985 to 1990, a prelude to two decades of stagnant growth punctuated by bouts of deflation, or Korea prior to the Asian financial crisis.

According to a report from analysts at Fitch, China's recent credit bubble has topped them all with total debt (a broad measure which includes business, household and local government debt but not central government debt) rising from 130% of GDP in 2007 to 210% in the first quarter of this year. In Japan, by comparison, during the fateful six-year credit bubble, the jump in the ratio was just 45 percentage points, from about 150% to just over 195%...

...The Chinese credit explosion, however, has sluiced funds into sectors that hold much peril. For example, money has been lavished on giant state-owned enterprises that dominate such key basic industries as steel, cement, electrolytic aluminum, plate glass, coking coal, solar panels, and wind-turbine production. This has created severe overcapacity in these industries that, ominously, has sent China's producer price index into negative territory in the last 12 months, slipping another 2.9% in May, and sharply curtailed corporate profitability.

There has also been a huge surge in infrastructure spending since 2008, primarily on the part of local-government financial vehicles, which are special investment platforms. Many of the projects -- roads, bridges, international ports, and airports -- don't seem to have a good economic rationale...

...In any event, many recent, debt-financed projects won't generate cash flow for years, if ever. They were merely big, splashy projects that temporarily boosted employment and economic growth during their construction phase before sinking into a moribund state. The New South China Mall, twice the size of the U.S.'s Mall of America in Minnesota, has been 99% vacant since its 2005 opening...

...BUT NO CHINA CREDIT STORY would be complete without mention of the real-estate construction boom that has pumped up perhaps the biggest bubble of all. For example, nine times the commercial space sold last year is under construction now. Residential construction has been in a white heat for some time and has attracted much notice in the financial press and elsewhere. Stories about the "ghost city" of Ordos in Inner Mongolia have become a staple, showing the eerie empty streets and deserted modern, high-rise apartment buildings, stores, and public buildings of a megapolis expected to attract more than one million people. It has been empty for the six years since its construction...

...Word came last month that Broad Group, a Chinese maker of central air-conditioning systems, had been green-lighted to break ground this month on the tallest building in the world, near the unprepossessing capital of Hunan Province, Changsha. Sky City, as the project has been dubbed, will include a hospital, school, hotel, and retail and office space in addition to living quarters. And new modular construction techniques pioneered by Broad will enable the company to build the project in just months.

Yet even with the overbuilding, market prices of apartments haven't cracked, at least according to government reports. Developers can still borrow money for new projects even while trying to roll over and carry debt on their inventory of unsold apartments.

Faith remains undiminished that continued migration from the countryside to the cities will cure all housing oversupply. Besides, apartment purchasing has become the No. 1 investment game in China after the stock market crapped out in 2007, with the Shanghai Index falling nearly 70% since.

Apartments are now more than living space -- they have become a store of value and an insurance policy against penury in old age. Living in them or even renting them out is deemed to diminish property value should someone ever show up to lease one. So they remain vacant. Press reports recently said a party official was busted for, among other things, secretly owning some 50 apartments...

...The past five years has seen the explosion of China's shadow banking system that largely operates in a regulatory realm outside the direct control of Beijing, and yet last year was estimated to have accounted for more than 45% of China's credit creation...

...A credit crisis would likely begin somewhere in the shadow banking system with a large credit default or the bankruptcy of a major player, observes Charlene Chu, Fitch's senior banking analyst in Beijing. "In China, trouble starts on the fringes of the system and then moves into the core," she says.

Signs of financial trouble abound even in China's official numbers, which many say are designed to obscure problems. The post-2008 credit surge, for example, seems to be losing its ability to generate actual growth. During the boom period of 2005 up to early 2008, statistics show that one yuan of credit yielded nearly one yuan of GDP growth. But no more. Last year, it took four yuan to generate just a single yuan of increased GDP, according to government-based figures.

This collapse in capital efficiency indicates several things to China watchers. Much of the money was being wasted, going into projects that weren't generating sufficient ongoing revenues or, possibly, any revenues at all. Likewise, many suspect that much of the new credit went to "evergreen," or roll over, old loans gone bad, or at least coverage of the debt service and operating expenses of debtors with cash-flow problems...

...Debt is building up with particular speed in the corporate sector just as revenue growth is flagging. According to GK Dragonomics researcher Andrew Batson, corporate debt jumped from 108% of GDP to 122% just between 2011 and 2012.

Much of that rise is occurring in accounts receivable, or unpaid bills by customers, that reside on the asset side of corporate balance sheets. Official numbers put that total at CNY8.5 trillion in April, up 13% from a year ago. Yet many private estimates claim that the increase may be as high as 20% or more. Zoomlion, China's biggest heavy-construction-equipment maker, has seen its accounts receivable leap to CNY2.7 billion in 2012 from CNY912 million the year before and just CNY106 million in 2008.

At a minimum, the surge in receivables indicates growing liquidity problems in Corporate China. A lot of companies aren't generating enough cash to meet their financial obligations, no matter the degree to which uncollectible receivables might artificially inflate corporate revenues and profits on paper...

...How much debt will go bad is anybody's guess, but the total is much higher than the 1% that Beijing officially reports in the Chinese banking system. Some estimate the eventual total, including sources outside the banks, could be as high as 20% of 2012 year-end total debt of about CNY100 trillion. Losses of just CNY6-7 trillion would wipe out the capital of the state banking system...

...China doesn't have to look too far for a cautionary tale. Japan in the late '80s and early '90s faced a similar slowdown in economic growth. Like China today, it sought to compensate by first unleashing a flood of credit, creating a real-estate bubble, and then engaging in infrastructure spending on the proverbial bridges to nowhere.

"But it didn't work, despite the fact that Japan, like China today, boasted a high savings rate, plenty of fiscal capacity, and little foreign debt," says Patrick Chovanec, who spent a decade doing private-equity deals in China and teaching business at Tsinghua University in Beijing, before becoming a strategist at Silvercrest Asset Management, a New York money manager. "The flaw is that sometimes it takes so much capital to fill an existing hole that there's not enough money left to promote growth."

That could be the case for China and its flawed economic model. It is fast running out of effective responses to the iron law of diminishing returns.

[goadam1]

Re: Broken China?

China is crossing the dreaded median age of around 37, which seems to be a tipping point for economies to be able to stimulate and grow out of debt.

Where Will It End?

By JONATHAN R. LAING
China's credit growth to back lavish construction and infrastructure projects is similar to that of the U.S. and Japan before they faced financial calamities.

Of all the global economic powers, China would seem the most immune to the threat of a financial crisis.

It sailed through the post-2008 global credit implosion largely unscathed, by pumping up housing construction and infrastructure spending to compensate for slackening exports. First-quarter 2013 growth in gross domestic product, although the weakest in more than two years, rose at a rate the rest of the world would envy, 7.7%. Bad debts inside the Chinese banking system stand at a negligible 1%, compared with 3.4% in the U.S. and double-digit figures in much of the euro zone.

And Beijing seemingly has plenty of additional resources to employ to spur growth. China's economy boasts a debt-to-GDP ratio reckoned conservatively at about 30%, less than half the national debt rate of the U.S. In his recent summit talks with President Barack Obama, China's President Xi Jinping pointedly expressed his satisfaction with the Chinese economy.


But appearances can be deceiving, especially in China. Skeptics always have insisted that China's economic numbers paint too rosy a picture. Now those statistics show a worrisome downshift in growth for both exports and industrial production. Signs of trouble abound.

A post-2008 credit bubble in China seems to be yielding increasingly limp GDP growth, as spending on gaudy new infrastructure projects and housing no longer packs the same punch. Miles upon miles of empty apartment buildings rim hundreds of Chinese cities; industries suffer from rampant over-capacity; and largely empty new highways, bridges, shopping malls, railroad stations, and airports more than hint at problems.

A number of observers, including some former China bulls, see the country headed for a potentially serious economic downturn, or possibly a Japanese-style purgatory of anemic growth, with all the baleful side effects. These could include collapsing prices for assets like real estate (stocks already sell at big discounts), diminishing wealth, and, in extremis, frenzied capital flight by rich Chinese.

"I would say that China is now roughly at the stage [of indiscriminate credit growth] the U.S. was in March 2008, when Bear Stearns had to be rescued and the subprime market was unraveling," says David Cui, Bank of America Merrill Lynch China strategist, working out of Shanghai. "What will tip the scale will likely be a major event in China similar to Lehman's bankruptcy six months after the fall of Bear Stearns, which will be some bailout of a major player that Beijing will do everything it can to disguise so as not to shake confidence."

Echoes George Magnus, a London-based economist and independent advisor to UBS who has written extensively about China: "The financial situation in China has become quite alarming. Cracks are appearing all through its financial structure as a result of debt-fueled overinvestment in infrastructure, industrial capacity, housing, and commercial construction. There's likely to be big trouble coming in the next year or two."...

...THE PRIMARY FAULT LINE in the Chinese economy that worries many has been the explosion in the credit-to-GDP ratio since the onset of the 2008 global financial crisis and economic slowdown, as China sought to stimulate its economy in the face of a lag in its longtime growth engine, exports. This total societal debt load has followed a similar growth trajectory to that of the U.S. and British economies in the six years leading up to the 2008 crisis; Japan's credit orgy from 1985 to 1990, a prelude to two decades of stagnant growth punctuated by bouts of deflation, or Korea prior to the Asian financial crisis.

According to a report from analysts at Fitch, China's recent credit bubble has topped them all with total debt (a broad measure which includes business, household and local government debt but not central government debt) rising from 130% of GDP in 2007 to 210% in the first quarter of this year. In Japan, by comparison, during the fateful six-year credit bubble, the jump in the ratio was just 45 percentage points, from about 150% to just over 195%...

...The Chinese credit explosion, however, has sluiced funds into sectors that hold much peril. For example, money has been lavished on giant state-owned enterprises that dominate such key basic industries as steel, cement, electrolytic aluminum, plate glass, coking coal, solar panels, and wind-turbine production. This has created severe overcapacity in these industries that, ominously, has sent China's producer price index into negative territory in the last 12 months, slipping another 2.9% in May, and sharply curtailed corporate profitability.

There has also been a huge surge in infrastructure spending since 2008, primarily on the part of local-government financial vehicles, which are special investment platforms. Many of the projects -- roads, bridges, international ports, and airports -- don't seem to have a good economic rationale...

...In any event, many recent, debt-financed projects won't generate cash flow for years, if ever. They were merely big, splashy projects that temporarily boosted employment and economic growth during their construction phase before sinking into a moribund state. The New South China Mall, twice the size of the U.S.'s Mall of America in Minnesota, has been 99% vacant since its 2005 opening...

...BUT NO CHINA CREDIT STORY would be complete without mention of the real-estate construction boom that has pumped up perhaps the biggest bubble of all. For example, nine times the commercial space sold last year is under construction now. Residential construction has been in a white heat for some time and has attracted much notice in the financial press and elsewhere. Stories about the "ghost city" of Ordos in Inner Mongolia have become a staple, showing the eerie empty streets and deserted modern, high-rise apartment buildings, stores, and public buildings of a megapolis expected to attract more than one million people. It has been empty for the six years since its construction...

...Word came last month that Broad Group, a Chinese maker of central air-conditioning systems, had been green-lighted to break ground this month on the tallest building in the world, near the unprepossessing capital of Hunan Province, Changsha. Sky City, as the project has been dubbed, will include a hospital, school, hotel, and retail and office space in addition to living quarters. And new modular construction techniques pioneered by Broad will enable the company to build the project in just months.

Yet even with the overbuilding, market prices of apartments haven't cracked, at least according to government reports. Developers can still borrow money for new projects even while trying to roll over and carry debt on their inventory of unsold apartments.

Faith remains undiminished that continued migration from the countryside to the cities will cure all housing oversupply. Besides, apartment purchasing has become the No. 1 investment game in China after the stock market crapped out in 2007, with the Shanghai Index falling nearly 70% since.

Apartments are now more than living space -- they have become a store of value and an insurance policy against penury in old age. Living in them or even renting them out is deemed to diminish property value should someone ever show up to lease one. So they remain vacant. Press reports recently said a party official was busted for, among other things, secretly owning some 50 apartments...

...The past five years has seen the explosion of China's shadow banking system that largely operates in a regulatory realm outside the direct control of Beijing, and yet last year was estimated to have accounted for more than 45% of China's credit creation...

...A credit crisis would likely begin somewhere in the shadow banking system with a large credit default or the bankruptcy of a major player, observes Charlene Chu, Fitch's senior banking analyst in Beijing. "In China, trouble starts on the fringes of the system and then moves into the core," she says.

Signs of financial trouble abound even in China's official numbers, which many say are designed to obscure problems. The post-2008 credit surge, for example, seems to be losing its ability to generate actual growth. During the boom period of 2005 up to early 2008, statistics show that one yuan of credit yielded nearly one yuan of GDP growth. But no more. Last year, it took four yuan to generate just a single yuan of increased GDP, according to government-based figures.

This collapse in capital efficiency indicates several things to China watchers. Much of the money was being wasted, going into projects that weren't generating sufficient ongoing revenues or, possibly, any revenues at all. Likewise, many suspect that much of the new credit went to "evergreen," or roll over, old loans gone bad, or at least coverage of the debt service and operating expenses of debtors with cash-flow problems...

...Debt is building up with particular speed in the corporate sector just as revenue growth is flagging. According to GK Dragonomics researcher Andrew Batson, corporate debt jumped from 108% of GDP to 122% just between 2011 and 2012.

Much of that rise is occurring in accounts receivable, or unpaid bills by customers, that reside on the asset side of corporate balance sheets. Official numbers put that total at CNY8.5 trillion in April, up 13% from a year ago. Yet many private estimates claim that the increase may be as high as 20% or more. Zoomlion, China's biggest heavy-construction-equipment maker, has seen its accounts receivable leap to CNY2.7 billion in 2012 from CNY912 million the year before and just CNY106 million in 2008.

At a minimum, the surge in receivables indicates growing liquidity problems in Corporate China. A lot of companies aren't generating enough cash to meet their financial obligations, no matter the degree to which uncollectible receivables might artificially inflate corporate revenues and profits on paper...

...How much debt will go bad is anybody's guess, but the total is much higher than the 1% that Beijing officially reports in the Chinese banking system. Some estimate the eventual total, including sources outside the banks, could be as high as 20% of 2012 year-end total debt of about CNY100 trillion. Losses of just CNY6-7 trillion would wipe out the capital of the state banking system...

...China doesn't have to look too far for a cautionary tale. Japan in the late '80s and early '90s faced a similar slowdown in economic growth. Like China today, it sought to compensate by first unleashing a flood of credit, creating a real-estate bubble, and then engaging in infrastructure spending on the proverbial bridges to nowhere.

"But it didn't work, despite the fact that Japan, like China today, boasted a high savings rate, plenty of fiscal capacity, and little foreign debt," says Patrick Chovanec, who spent a decade doing private-equity deals in China and teaching business at Tsinghua University in Beijing, before becoming a strategist at Silvercrest Asset Management, a New York money manager. "The flaw is that sometimes it takes so much capital to fill an existing hole that there's not enough money left to promote growth."

That could be the case for China and its flawed economic model. It is fast running out of effective responses to the iron law of diminishing returns.

[GRG55]

Re: Broken China?

Oooops.

"Exit strategy", "Taper", "Austerity", "Inverted Wealth Creation"...whatever.

As EJ has pointed out, the stock market adjusts immediately. Property markets take a bit longer.

June 24, 2013, 10:37 p.m. ET

Asian Shares Mostly Up; Shanghai Under Pressure

Shanghai stocks continued to fall on Tuesday, at one point pushing Chinese stocks into bear market territory, while rest of Asia was mostly higher after choppy early trading.

The Shanghai Composite Index was down 0.7% at 1950.35 after earlier falling to 1936.77, its lowest level since Jan. 16, 2009. Chinese companies listed outside the mainland were more resilient, with Hong Kong's Hang Seng Index climbing 0.8%.

The focus remained on the liquidity squeeze in China following Monday's 5.3% nosedive in Shanghai. The sharp move was sparked by sustained fears over the banking system, as interbank lending rates remained elevated, pushing down local banking stocks. Market sentiment has been hit by the People's Bank of China's lack of action to relieve funding pressures...

...Banks were weighed, with the China Shanghai Financials index down 1.2%. Medium sized banks were the worst affected: China Minsheng Banking Corp. was down another 4.3% in Shanghai and Industrial Bank Co. lost 2.5%. China Minsheng's Hong Kong listing however, was up 1.9%.

China is the latest market in Asia to suffer from a perilous decline, putting it in the company of regional markets like Japan and the Philippines that have fallen sharply in recent weeks. The Shanghai Composite Index has fallen 15% month to date, the Nikkei Stock Average has slipped 4.1%, and the Philippines has dropped 15.9% over the same period.

[Southernguy]

Re: Broken China?

Nothing to do with "bubbles"...well maybe yes maybe not.
Certainly an interesting fellow.
Are there "boulders of shame" in other corporations over the world? Ferrari-Beating Great Wall Shows Wei Forging Next Hyundai

By Bloomberg News - Jul 5, 2013 7:23 AM GMT-0300



Wang Jiangwei recalls spending last summer sweating through a month of military drills conducted by Chinese People’s Liberation Army instructors. Wang isn’t a soldier; he’s a researcher at Great Wall Motor Co.
His Baoding, China-based employer is so profitable, it generates a fatter margin than any listed carmaker in the world. Behind the success is Chairman Wei Jianjun, who has built China’s biggest SUV maker with a leadership style that stands out for its emphasis on discipline and frugality.
Enlarge image

Great Wall Motor Co. represents a rare breed of Chinese automakers independent of foreign partners and government, sparing it from having to split profits and endure extra bureaucracy. Photographer: Nelson Ching/Bloomberg

5:16


July 2 (Bloomberg) -- Erwin Sanft, head of China and Hong Kong equity research at Standard Chartered Bank, talks about the region's stock markets. He speaks with Rishaad Salamat on Bloomberg Television's "First Up." (Source: Bloomberg)



Wei Jianjun, chairman of Great Wall Motor Co., has become Asia’s wealthiest car executive, with an estimated fortune of $6.6 billion as he strives to create China’s first global automotive brand. Photographer: Jerome Favre/Bloomberg



Employees work on the production line of Hover H6 (SUV) at Great Wall Motor Co.'s factory in Tianjin, China. Source: ChinaFotoPress/Getty Images



“The military training is pretty serious and tough,” said Wang. “Not only new hires but people who get promoted, even those becoming department heads, need to redo training.”
Great Wall represents a rare breed of Chinese automakers independent of foreign partners and government, sparing it from having to split profits and endure extra bureaucracy. With the stock surging more than 60-fold (2333) since its 2008 low, Wei has become Asia’s wealthiest car executive, with a fortune of $6.5 billion as he strives to create China’s first global automotive brand.
“Wei is a real professional, a real entrepreneur,” said Bill Russo, formerly vice president of Chrysler Northeast Asia and now president of automotive consultant Synergistics Ltd. in Beijing. “If there’s one or two automakers able to survive all the competition with foreign rivals in the next decades or so, Great Wall will definitely be one of them.”
Next Hyundai

Great Wall could become the next Hyundai Motor Co (005380)., the Seoul, South Korea-based automaker, he said.
The stock rose 6.2 percent to close at HK$34.25 in Hong Kong today after Janet Lewis, a Hong Kong-based analyst at Macquarie Group Ltd., raised her 12 month target price by 37 percent to HK$45.30.
Wei, who’s $1 billion wealthier than Hyundai Chairman Chung Mong Koo on the Bloomberg Billionaires Index, has signaled Great Wall will eventually outsell Chrysler’s Jeep globally and is targeting sales to double over three years to 1.3 million vehicles by 2015.
Though lagging behind major automakers in scale, low costs help its operating margin beat everyone -- even Fiat SpA (F)’s Ferrari. It will probably top the industry this year at 16.4 percent, according to Max Warburton, an analyst at Sanford C. Bernstein.
Asbestos Recall

Chinese automakers are a decade away from delivering their first globally competitive vehicle, though that’s only one or two product cycles in the auto industry, Warburton said. He hired specialists to tear apart and test a Great Wall H5 for a report in February and found the SUV’s gearbox had “truly awful” vibrations and braking was poor, though it drove well. Despite the H5’s shortfalls, it made a “massive leap forward” in quality with the newer H6, he wrote.
While the company has had its share of growing pains -- it recalled thousands of vehicles in Australia last year after regulators found asbestos in parts -- Wei said Great Wall’s ability to develop technology will determine its future.
“We have to own core technologies and make breakthroughs,” Wei said in an interview during a plant tour on May 31. “The biggest risk we’re facing is possible complacency.”
Net income will probably rise 24 percent to 7 billion yuan ($1.1 billion) this year after surging 66 percent in 2012, according to the average of 16 analyst estimates compiled by Bloomberg.
Wei, born in Baoding in 1964, said he was greatly influenced by his father, an artillery soldier who ventured out on his own to make boilers.
Great Deer

After several factory jobs, Wei branched out. At 26, he took over a small car-modification business and turned it into a van maker. He later shifted focus to pickup trucks after witnessing their popularity in Thailand. Small business owners and farmers turned Great Wall’s Deer into China’s most popular pickup brand by 1998.
Then anti-pollution laws restricted trucks in major cities, prompting Wei to switch to SUVs. Today, the company relies on SUVs for almost half its sales and is poised to lead the nation’s crowded SUV market, the fastest growing segment of China’s auto industry, for an 11th year.
The billionaire also knows when to wait, said Russo, recalling when Wei visited Chrysler LLC’s headquarters in 2008. Asked by Tom LaSorda, then CEO of the Auburn Hills, Michigan-based company, why Great Wall didn’t join Chinese carmakers in showcasing vehicles at the Detroit auto show, Wei replied they weren’t ready, Russo said.
“They don’t try to overreach,” he said.


’Boulders of Shame’

As Great Wall grew, Wei recruited Wang Fengying, 43, his top sales chief for the past two decades, who says she doesn’t shy away from telling her boss that he’s wrong.
“We argue all the time,” Wang said in an interview. “Our goals are the same, so we can always find common ground.”
Wang said five years ago she opposed the rollout of a Gwperi endorsed by Wei, who overruled her, only to see the subcompact flop. The debacle is engraved in red at Great Wall’s two “Boulders of Shame,” where one lists major failures in product development and the other identifies officials who have been jailed for accepting bribes from suppliers.
Donkey Burgers

Wei has more eccentricities, according to Zhang Yun, who has advised him for five years on strategy. The billionaire is so frugal he smokes 10 yuan-a-pack Zhongnanhai cigarettes and once scolded a group of dealers for leaving too much food on the table after a meal, Zhang said. He sleeps most nights in a room connected to his office and starts work at 7 a.m. in a gray uniform, Zhang said.
Then there’s the discipline.
In Baoding, famous for donkey burgers and home to the oldest military academy in modern Chinese history, Great Wall makes recruits endure foot drills and push-ups. The idea is for them to build endurance, increase willpower and understand the corporate culture, according its website.
“I have gone to other factories in China and when it’s time for lunch, everybody runs to the cafeteria at the same time,” said Russo. “They don’t do that at Great Wall.”
To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

[GRG55]

Re: Yes Virginia...It's a Bubble...

The use of the word "surprise" in (alleged) financial journalism is exceeded only by the use of the word "unexpected". And that should come as no surprise to any of us here...

"Surprise"?

Really?

China Posts Surprise Drop in Exports

By Dow Jones Business News, July 10, 2013, 06:05:00 AM EDT

BEIJING--China Premier Li Keqiang repeated his commitment to steer clear of stimulus for the world's second-largest economy, even as contracting exports added to fears of a slowdown.

China's export sector shrank 3.1% in June compared with a year earlier, down from 1% year-on-year growth in May and the first contraction in a non-holiday month since the height of the financial crisis in November 2009. Imports fell 0.7% year-on-year, pointing to weak demand at home as well as abroad.
Coming after a raft of disappointing data in April and May,

June's weak trade results add to fears that economic growth in the second quarter has continued to slow. The median forecast of 18 economists surveyed by The Wall Street Journal tips gross domestic product growth of 7.5% year-on-year in the second quarter, down from 7.7% in the first.

Financial markets appeared to shrug off the negative data, with stock indexes in Shanghai and Hong Kong up in trading through mid-afternoon.

Even as growth edges perilously close to the government's 7.5% target for the year, Mr. Li--who holds the reins on China's economic policy--reiterated his commitment to steer clear of any fresh stimulus.

"As long as the economic growth rate, employment and other indicators don't slip below our lower limit and inflation doesn't exceed our upper limit, [we'll] focus on restructuring and pushing reforms," Mr. Li said at a meeting of provincial chiefs on Tuesday...

...Despite the slowdown, China's labor markets appear robust as government data released Tuesday show demand for workers continues to healthily outstrip supply. For every 100 job seekers in the second quarter, there were 107 job opportunities, slightly lower than the 110 job opportunities in the first quarter.

Tight labor markets reflect continued expansion in the services sector, which is helping to offset the slack from contractions in manufacturing. A shift in China's demographics, with the working-age population now shrinking, is also a contributing factor.

Falling exports reflect a combination of strong wage growth and the yuan's strength, both of which dent the competitiveness of China's manufacturers relative to low cost rivals in countries like Vietnam. Average wages in China's manufacturing sector have risen 71% since 2008, and the yuan has gained 25.9% in real trade-weighted terms over the same period.

Sluggish demand in significant export markets compounds the problems of China's factory owners. Exports to a debt- ridden Europe slumped 8.3% year-on-year in June, and sales to the U.S. were down 5.4%. A crackdown by regulators on abuse of the trade system to bring illegal funds into the country also weighed on the results.

Signs that weakness in the export sector could persist might test the resilience of China's labor markets, and the government's bottom line on growth. Imports of parts for assembly in China's factories--a leading indicator of export growth--fell in June. "We can't be too optimistic about exports for the third quarter," said Customs spokesman Zheng Yuesheng.

[GRG55]

Re: Yes Virginia...It's a Bubble...

The "we-have-to-be-in-China-no-matter-what-it-costs" phase seems to be over...

Scotiabank walks away from China deal after deadlock

The Globe and Mail
Published

Friday, Jul. 12 2013, 8:10 AM EDT

Last updated

Friday, Jul. 12 2013, 7:30 PM EDT

Bank of Nova Scotia abandoned a China acquisition it once touted as having “strategic importance” as the deal stalled in the country’s approval process.

Nearly two years ago, Scotiabank announced its agreement to buy 19.99 per cent of Bank of Guangzhou in southern China for $719-million in a deal that would let the bank tap the third-largest urban market in China behind Shanghai and Beijing. “Asia is a region of strategic importance for Scotiabank and enhancing our investment in China supports our long-term growth strategy,” the bank said in its September, 2011, statement.

But Scotiabank walked away from the deal Friday, saying only that the partnership failed “in light of changing conditions.”...

[Milton Kuo]

Re: Yes Virginia...It's a Bubble...

The "we-have-to-be-in-China-no-matter-what-it-costs" phase seems to be over...

Scotiabank walks away from China deal after deadlock

The Globe and Mail
Published

Friday, Jul. 12 2013, 8:10 AM EDT

Last updated

Friday, Jul. 12 2013, 7:30 PM EDT

Bank of Nova Scotia abandoned a China acquisition it once touted as having “strategic importance” as the deal stalled in the country’s approval process.

Nearly two years ago, Scotiabank announced its agreement to buy 19.99 per cent of Bank of Guangzhou in southern China for $719-million in a deal that would let the bank tap the third-largest urban market in China behind Shanghai and Beijing. “Asia is a region of strategic importance for Scotiabank and enhancing our investment in China supports our long-term growth strategy,” the bank said in its September, 2011, statement.

But Scotiabank walked away from the deal Friday, saying only that the partnership failed “in light of changing conditions.”...

Either the Canadian banks are a lot smart than American banks or they've been duly chastened after seeing what happened in 2008. [If the music's playing, you *don't* have to get up and dance. ] Even if Scotiabank had bought into the China boondoggle and lost every penny of its investment, it's "only" $719 million (pocket change among banksters) and I'm assuming there would have been no additional liability unlike what happened with a bust Bank of America buying and assuming all liabilities of a bust Merrill Lynch and a superbust Countrywide Financial.

[GRG55]

Re: Yes Virginia...It's a Bubble...

Either the Canadian banks are a lot smart than American banks or they've been duly chastened after seeing what happened in 2008. [If the music's playing, you *don't* have to get up and dance. ] Even if Scotiabank had bought into the China boondoggle and lost every penny of its investment, it's "only" $719 million (pocket change among banksters) and I'm assuming there would have been no additional liability unlike what happened with a bust Bank of America buying and assuming all liabilities of a bust Merrill Lynch and a superbust Countrywide Financial.

Canada didn't have a Clinton/Rubin/Summers/Greenspan combo. The Canadian banking industry is highly concentrated in the hands of 6 institutions that have historically enjoyed high levels of official government protection within the regulatory framework within which they are expected to operate.

Back when the USA was dismantling Glass-Steagall, up in Canada the Finance Minister was not amused by two merger proposals involving four of the big six banks, and the government vetoed them over the very vocal objections of the powerful banking lobby. Probably saved the banks from themselves...

2 Canadian Bank Mergers Likely to Be Vetoed

December 14, 1998

OTTAWA — Canada's finance minister is expected to block two proposed bank unions, which would have ranked among the largest transactions in Canadian history, because of concern they would erode competition, sources said Sunday.
Finance Minister Paul Martin will deliver a decision on merger proposals by four of the country's Big Six banks this morning, a Finance Department spokesman said...

...Sources told Bloomberg News that Martin and the government will prevent a proposed acquisition of Bank of Montreal by Royal Bank of Canada, valued at $12.24 billion, and a planned merger of Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, with a value of $8.7 billion, at least until new legislation is drafted.

"The banks are going to get hammered," said Bill MacLachlan, a partner at Calgary, Alberta-based Mawer Investment Management. "A veto is a veto, and that's information the market hasn't accounted for."

Bank of Montreal spokesman Joe Barbera said the bank is waiting for the minister's official announcement before taking any action. "Our increasing frustration is that while we may have been advanced with our action on Jan. 23, what we did has now been confirmed by 11 straight months of developments domestically and internationally that prove that in order to compete, we must evolve and change," Barbera said...

...Most investors expected that the proposed unions would have to undergo changes, but investors may be disappointed by the uncompromising tone of Martin's statement. The stocks of the four banks may help send the market lower...

[GRG55]

Re: Capital MisAllocation...

China defies IMF on mounting credit risk and need for urgent reform

If you think China's Communist Party fully understands the mess it has created by ramping credit to 200pc of GDP and running the greatest investment bubble know to man, read its shockingly complacent response to warnings from the International Monetary Fund.

8:00PM BST 17 Jul 2013

The IMF's Article IV report on China states - as clearly as the IMF dares - that excess credit has been pushed to the outer limits of sanity, and that there is a growing risk of an "adverse feedback loop" as the financial system and the economy take each other down in a mutually reinforcing spiral.

As you can see from the first chart, total credit has jumped from 129pc to 195pc of GDP since 2008, and has completely departed from its historic trend. The great mistake, plainly, was to keep the foot on the floor in 2010 and 2011, long after the Lehman crisis had subsided.




Total credit is higher in many rich countries but that means little. China's ratio is double or triple the level in states with a similar per capita income.

The Fund said wealth products (WMP) and trusts - a disguised second balance sheet of banks, worth $2 trillion - "could over time evolve into a systemic threat to financial stability". A sudden loss of confidence could "trigger a run" and set off "a severe credit crunch".

"As of now, the authorities still have sufficient tools and fiscal space to address potential shocks. However, failure to change course and accelerate reform would increase the risk of an accident or shock that could trigger an adverse feedback loop," it said. China has been warned.

Beijing's replied dismissively that "vulnerabilities were well under control". It said the fast growth of wealth products and trusts were a healthy sign of "market-based intermediation". Any risks were "manageable". Bad loans in the banking system "remained low and Chinese banks had some of the highest capital and provisioning ratios in the world"...

...Professor Michael Pettis from Beijing University expects growth to fall to 3pc or 4pc over the 10-year term of President Xi Jinping, which would come as a shock to many. He argues that this may be no bad thing provided the government bites the bullet on reform, and provided the Chinese people are at last given a bigger share of the pie...

...Unfortunately, the reform drive has yet to advance much beyond hot air. "Progress with rebalancing has been limited and is becoming increasingly urgent. A decisive shift toward a more consumer-based economy has yet to occur," said the IMF.
China is still diverting 48pc of GDP into investment, the highest in the world and far higher than the figure in Japan or Korea during their catch-up spurts. Consumption is still stuck at around 35pc of GDP, which matters for the rest of us. It means that the country is still reliant on export-led growth, flooding Western markets with excess goods by means of a suppressed currency and subsidised state credit...

...Chart 3 shows that China will fail to replicate the break-out spurt achieved by Japan and Korea if it clings to the status quo. Per capita income will languish at around 25pc of America GDP per capita through the decade.



This will happen just as China's aging crisis and demographic crunch hit in earnest. The workforce is already shrinking. It shed 3m people last year. The IMF says the 160m "reserve army" of cheap labour in the country will dry up by the end of the decade - the long-feared Lewis Point. This will turn into a drastic shortage of labour by 2030...

...Given that the US will keep growing towards 400m people as China's population shrinks, the basic maths imply that America will continue to be the world's dominant economic (and strategic) power for the next century. All those extrapolation charts of a Chinese-led planet that enthralled us all in the BRICS hysteria of 2008 will look very silly indeed...

[Southernguy]

Re: Capital MisAllocation...

IMF record about prognosticating the future is so abyssal that if I were the Chinese I would be much encouraged by the report.
In Latin America we know very well what following the IMF "recommendations" bring.
The list of economic-financial-social crises we have endured since IMF began managing our economies through venal governments is pretty long.
Every one of our countries have experienced more than one of those.
And each of them was the result, mainly, of consistently following such advice.
I don´t know where China is heading, nobody does, really.
But it´s for sure the worst thing they could is pay attention to IMF.

[GRG55]

Re: Yes Virginia...It's a Bubble...

The Americans peddle mortgage derivatives with fake credit ratings, the British fake LIBOR, the Greeks and Italians fake paying taxes, the Russians fake democratic elections...China is just trying to catch up.

Chinese museum found with 40,000 fake exhibits forced to close

Shanghai

1:24PM BST 16 Jul 2013

The 60 million yuan (£6.4 million) Jibaozhai Museum, located in Jizhou, a city in the northern province of Hebei, opened in 2010 with its 12 exhibition halls packed with apparently unique cultural gems.

But the museum’s collection, while extensive, appears ultimately to have been flawed. On Monday, the museum’s ticket offices were shut amid claims that many of the exhibits were in fact knock-offs which had been bought for between 100 yuan (£10.70) and 2,000 yuan (£215)...

...Among the most striking errors were artifacts engraved with writing purportedly showing that they dated back more than 4,000 years to the times of China’s Yellow Emperor. However, according to a report in the Shanghai Daily the writing appeared in simplified Chinese characters, which only came into widespread use in the 20th century.

The collection also contained a “Tang Dynasty” five-colour porcelain vase despite the fact that this technique was only invented hundreds of years later, during the Ming Dynasty...

... Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic...

...China is currently in the midst of an unprecedented museum boom with nearly 400 new museums opening in 2011 alone, according to government figures.

But fake relics have proved a persistent thorn in the industry's side. In 2011, state media reported claims that 80 per cent of the fossils in Chinese museums were fake.

“Fake fossils are like poisoned milk powder that injure and insult visitors,” a scientist from the Chinese Academy of Social Sciences was quoted as saying...

[Southernguy]

Re: Yes Virginia...It's a Bubble...

80 in 40000...hmmm. not so bad, not so bad...
That's why I very rarely visit museums...

[ProdigyofZen]

Re: Yes Virginia...It's a Bubble...

The Americans peddle mortgage derivatives with fake credit ratings, the British fake LIBOR, the Greeks and Italians fake paying taxes, the Russians fake democratic elections...China is just trying to catch up.

Chinese museum found with 40,000 fake exhibits forced to close

Shanghai

1:24PM BST 16 Jul 2013

The 60 million yuan (£6.4 million) Jibaozhai Museum, located in Jizhou, a city in the northern province of Hebei, opened in 2010 with its 12 exhibition halls packed with apparently unique cultural gems.

But the museum’s collection, while extensive, appears ultimately to have been flawed. On Monday, the museum’s ticket offices were shut amid claims that many of the exhibits were in fact knock-offs which had been bought for between 100 yuan (£10.70) and 2,000 yuan (£215)...

...Among the most striking errors were artifacts engraved with writing purportedly showing that they dated back more than 4,000 years to the times of China’s Yellow Emperor. However, according to a report in the Shanghai Daily the writing appeared in simplified Chinese characters, which only came into widespread use in the 20th century.

The collection also contained a “Tang Dynasty” five-colour porcelain vase despite the fact that this technique was only invented hundreds of years later, during the Ming Dynasty...

... Wei Yingjun, the museum’s chief consultant, conceded the museum did not have the proper provincial authorizations to operate but said he was “quite positive” that at least 80 of the museum’s 40,000 objects had been confirmed as authentic...

...China is currently in the midst of an unprecedented museum boom with nearly 400 new museums opening in 2011 alone, according to government figures.

But fake relics have proved a persistent thorn in the industry's side. In 2011, state media reported claims that 80 per cent of the fossils in Chinese museums were fake.

“Fake fossils are like poisoned milk powder that injure and insult visitors,” a scientist from the Chinese Academy of Social Sciences was quoted as saying...

More trouble in big China: http://www.bloomberg.com/news/2013-0...e-default.html

China’s rating firms cut the most bond issuer rankings on record in June and brokerages said they are preparing for the onshore market’s first default as the world’s second-biggest economy slows.
A total of 38 issuers were downgraded last month, according to Guotai Junan Securities Co., the most since the nation’s third-biggest brokerage started compiling the data in 2005. Some 86 firms were upgraded, down from 88 a year earlier. China Chengxin Securities Rating Co. lowered Zhuhai ZhongFu Enterprise Co. (000659)’s debt rating to AA- from AA on June 28, causing the yield on the beverage package maker’s May 2015 bonds to almost triple to 15.39 percent.


“The government can’t save everyone,” said Xu Hanfei, a bond analyst at Guotai Junan in Shanghai. “In the future, downgrades may spread to high-grade bonds, especially those which rely heavily on support from the central or local governments.”
Premier Li Keqiang said July 16 that China shouldn’t change policy direction because of short-term changes in economic indicators, signaling he is ready to tolerate slower growth to rebalance investment away from industries with excessive capacity or which cause pollution. Economic expansionslumped to 7.5 percent in the second quarter, extending the longest streak of sub-8 percent growth in at least two decades.
The yield on one-year AA-rate bonds gained 16 basis points this week to 5.12 percent on July 17, according to data compiled by ChinaBond. The rate on similar-maturity AAA debt has risen 10 basis points to 4.66 percent. The gap between them was 46, the biggest since Feb. 5.
Debt, Bankruptcy

There have been no defaults in the publicly-traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service. Haitong Securities Co., the second-biggest listed brokerage, forecast yesterday that the first onshore default may occur in six to 12 months as the government seeks to build a sound credit system.
Concerns have mounted since the biggest unit of Suntech Power Holdings Co. (STP) went into bankruptcy in March after defaulting on $541 million of offshore bonds. The next month, LDK Solar Co. (LDK) failed to fully repay $23.8 million in dollar-denominated securities.
More Downgrades

“Investors should no longer blindly invest in state-owned companies with overcapacities without good credit analysis,” said Jiang Chao, a bond analyst in Shanghai at Haitong Securities. “China can’t restructure the economy without a bond default.”
More downgrades may follow and help build China’s junk bond market, said Jiang, adding that an AA- rating in the nation is equivalent to non-investment grades overseas.
Most downgrades occurred in steel, chemicals and new energy last month, according to data compiled by Guotai Junan. These industries are facing overcapacity, falling earnings and high liability-to-asset ratios, according to a report released on July 8.
The rate on Anyang Iron & Steel Co.’s debt due February 2019 has risen 245 basis points to 9.34 percent since China Chengxin Securities Rating Co. cut the state-owned company’s rating to AA- from AA on June 28, according to exchange data. The yield on Huayi Electric Co.’s bonds due November 2016 is up 132 basis points at 8.21 percent since Pengyuan Credit Ratinglowered the power equipment maker to AA- from AA on June 28.
Secondary Market

“It’s hard to tell whether the deterioration will spread to other industries, and we can’t tell when the first default will come,” said Sun Zhipeng, a bond analyst at Orient Securities Co. in Shanghai. “But the massive downgrades will certainly have an impact on the secondary market. Investors are turning cautious on lower-grade bonds.”
China companies accounted for eight of the 10 financially weakest issuers of dollar-denominated notes in Asia outside of Japan, according to a July 5 Standard Chartered Plc report.
Borrowers from the nation have the equivalent of $112 billion of all types of bonds maturing this month, the most since April 2011, according to data compiled by Bloomberg. Another $110 billion of notes sold by Chinese borrowers are due by the end of August, data compiled by Bloomberg show.
Guotai Junan’s Xu said investors should allocate assets to AAA-rated bonds to protect against rising credit risk. He forecast China’s economic growth may decelerate to 7 percent next year, the slowest since 1990, from 7.5 percent in 2013. The government in March set a 7.5 percent target for this year.
Economic Crisis

There is a “de facto phenomenon of economic crisis,” Xia Bin, a former central bank adviser, wrote in a China Business News commentary on July 15. A crisis will mean bankruptcy for some companies and financial institutions, Xia said.
The cost of insuring Chinese sovereign debt against non-payment jumped to a 17-month high of 147 basis points last month, before easing to 102.5 basis points on July 17, according to data provider CMA. The yuan weakened 0.1 percent to 6.1413 per dollar in Shanghai yesterday, according to the China Foreign Exchange Trade System.
China’s economy is in urgent need of supportive fiscal and accommodative monetary policies, Hu Yifan, Hong Kong-based chief economist at Haitong International Securities Group Ltd., wrote in a note yesterday. “With lackluster domestic and foreign demand, liquidity issues have arisen in SMEs amid the tightened credit policies of banks.”
She added that co-guarantee loans are common and have triggered chain reactions when one firm is at risk.
Cash Supply

Chinese regulators reined in money supply in June in an effort to force investors to shift funds out of shadow banking, which allows lenders to bypass controls and capital requirements. It includes entrusted loans, trust lending, bills and underground lending.
“The government’s crackdown on shadow banking has left fewer financing channels available for lower-graded companies,” said Dong Hui, a bond analyst at China Securities Co. in Beijing. “Fewer ways to raise money they are in need of will increase those companies’ default risk.”
Total fundraising in the economy declined to 1.04 trillion yuan in June, from 1.19 trillion yuan in May and 1.78 trillion yuan a year earlier, central bank data showed on July 12. New loans accounted for 83 percent of aggregate financing last month, up from 52 percent in June last year.
“The downgrades show that the rating agencies have reached a consensus that the economy will be on a downward trend and companies’ financials will worsen,” said Cheng Qingsheng, a bond analyst at Evergrowing Bank Co. in Shanghai. “The first bond default is getting closer and closer.”