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ronya posted:there are almost certainly quite a few insolvent banks, we just don't know which ones they are, and the panic when the wave of bankruptcies starts will take at least a few years to sort out. Well, "a few banks" is significant in the case of China because 5 banks (BoChina, BoComm, CBC, ABC, and ICBC) make up around edit:looked up the numbers on assets again, found out it wasn't as high as I remember. But 50% is pretty high given the primacy of bank lending in China. CIGNX fucked around with this message at 10:28 on Mar 20, 2014 |
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Mar 20, 2014 08:46
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| # ¿ Apr 28, 2024 10:39 |
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You can't use foreign reserves for a domestic bailout because it's all foreign currencies. The Chinese banks' liabilities are all in RMB, so if you gave them a bunch of Euro's and USDs they would have to exchange them for RMB with the central bank in order to pay back their debtors and depositors. This leaves the government with its original problem: how to get ahold of a bunch of RMB without deleterious effects. Their only real options are to print more RMB, issue debt, or increase tax revenue.
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Mar 28, 2014 00:43
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Jagchosis posted:I make all of these observations to ask; if there really is widespread overvaluations of firms in China, what potential effects could that have on the broader Chinese economy and does that fit into the broader bear view of China that many posters in this thread take? In order for a stock price crash in overseas exchange to stress the Chinese financial system, we need some sort of path or mechanism that ties stock price overseas and ability to finance loans domestically. And I can’t think of a direct one. It’s not as if the company has to pay back anyone should its stock price crash or has bank loans with stipulations tied to its stock price on NYSE or LSE or wherever. If anything, the reversed relationship should be the case, i.e. distress in the Chinese economy spooks overseas investors and crashes Chinese companies stock prices. edit: I should restate my first sentence: I don't think a stock price crash in overseas markets will precipitate the financial crisis domestically. China's financial systems has numerous fragilities, but the stock prices of its companies in international exchanges isn't one of them. CIGNX fucked around with this message at 13:22 on Apr 20, 2014 |
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Apr 20, 2014 12:45
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China's CPI isn't that high. It's around 3% at the moment and post-2008 it's only peaked around 6%. So 24% APR is loving nuts and it's pretty drat likely that investment is just a ponzi scheme to keep distressed developers afloat. If you're wondering how CPI has been so low despite the huge credit boom in China, the aforementioned 581% rise in real estate profits points out what's really going on. China's been experiencing an asset inflation. When lay people talk about inflation it almost always refers to the price of goods and services. However, China had a credit boom and not a simple expansion of the money supply. This means the money flowing into the system has to be paid back with interest. So investors went looking for interest-bearing assets and not things to consume. It's pretty obvious now that a lot of that credit went into real estate, hence the meteoric rise in housing prices in the past 6 years.
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May 9, 2014 04:05
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This has been said before, but it bears repeating; China can't do poo poo with its foreign reserves to deal with its debt crisis. Since the liabilities are ultimately denominated in RMB, using USD for an intervention would result in a bunch of companies and financial institutions going to the People's Bank of China looking to exchange their USD for RMB. This leads back to the government's original problem of trying to generate a bunch of RMB without causing other serious problems in the economy.
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Sep 22, 2014 09:09
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Ardennes posted:Granted, the question will the Chinese government expand the monetary supply through even more lending to state banks and local governments and simply flood the balance sheets like Japan did? It seems like that is for the most part their course of action so far. The increased lending isn't their solution to their debt crisis, precisely because increased lending is how they got into the debt crisis in the first place. The lack of actual risk assessment combined with the corrupt and political nature of lending by the state banks hasn't changed substantially since 2009, so I don't see how doing the exact same thing in 2014 will have completely opposite results. In other words, loans to unprofitable projects now can never pay back the loans to unprofitable projects from previous years. But, of course, this appears to be what the CCP thinks it can do for its debt crisis. And this really is a product of factionalism and corruption in the CCP, in my uneducated opinion anyway. Any attempt to deal with the corruption that lead to this debt bubble would be a massive undertaking requiring the backing of prominent political factions in the CCP. But all of the political factions get their power in part from the money they earn through corruption. None of them would realistically give up this basis for political power, and there would be a lot of everyone-but-mine sort of thinking if they ever consented to genuine corruption fighting. Since political action in China is based on political consensus from these factions, nothing proactive or substantial will ever be done to deal with this debt crisis. At best this system is suited only to react to major crises, not prevent them. All the leadership can really do is stay the course of more lending and announce token changes for the purposes of domestic consumption.
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Sep 22, 2014 20:54
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Ceciltron posted:Sorry for the text dump, (and odd formatting), but I really do think that even though, on the surface, China has state-owned banks, the shadow banking system has completely overpowered it. China's financial regulations are toothless, and since we don't really reflect the shadow banking system in our calculations of ownership, we can easily consider that SOEs in the banking sector are not the majority of actors. By most credible estimates, the shadow banking system is smaller than the formal financial system and the state-owned banks still dominate. The Chinese shadow banking system is estimated at $5.8 trillion USD whereas financial assets in the banking system is around $23 trillion USD. The big 4 state-owned banks (ICBC, CCB, BoC, and ABC) by themselves hold $10 trillion USD in assets. For comparison, the US banking system at the height of the housing boom in 2007 was around $13.5 trillion. icantfindaname posted:So how exactly did Japan make it so much further on this model before imploding? I mean China is still significantly poorer than Japan was in 1990, what happened? To put it succinctly, each country experienced exogenous shocks to their financial system at different points in their economic development. Japan's credit bubble was arguably a result of the 1985 Plaza accord, where the then-G6 nations collectively appreciated the Yen. This led to lower interest rates, which then led to credit expansion and thus a bubble. For China, the 2008 financial crisis threaten to plunge their economy into negative GDP growth. With western-style financial reforms discredited, they turned to credit expansions to infrastructure and politically important projects to boost GDP, hence the 2009 stimulus in the form of credit. These bubbles and crashes weren't inevitable results of their development models but rather reactions to an outside shock.
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Oct 2, 2014 04:31
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Ardennes posted:The savings grace is that China does have gigantic currency reserves which they can still call upon for fiscal stimulus, the "Chinese dream" is going to be dimmed but the CCP has a giant warchest. China CANNOT use its foreign reserves to bail out its economy because the foreign reserves are, well, foreign currencies. The obligations of the entities that would be rescued in a bailout/stimulus are denominated in RMB. So even if the Chinese government were to use its foreign reserves for fiscal stimulus, in the end those foreign currencies will have to be exchange for an equivalent amount of RMB, which leads to the Chinese government's problem of figuring out where to get more RMB.
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Apr 14, 2015 09:53
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Ardennes posted:They are in the same sentence only because I am contrasting the significant differences between them. In particular, I needed an example of what happens to a country that can't control their currency. Either way, you are still wrong, it isn't inconceivable China could run a trade deficit at this point, their current account surplus has dwindled considerably and now is around where it was in 2002-2003. In addition, China has taken the biggest hit to their currency reserves in recent history. It isn't nearly as big as the hit Russia took, but at the same time we don't really know how bad the banking system actually is in China and how far they are going to have go to fix it. Ultimately, China's economy and its financial system is far from invulnerable. Even then I don't see China or the Yuan being in an emergency in the medium term but it seems you want to shut-down any conversation of any long-term consequences. This is a very familiar tactic. I wish you wouldn't fly off the handle and instead actually read what I wrote. You're trying to argue that China is in a precarious situation with its foreign reserves because it needs to maintain and defend the RMB's exchange rate with these reserves. China does not have this problem right now nor has it faced such a problem in the past 20 years. You only need to use the foreign reserves to defend an overvalued pegged or semi-pegged currency, which is the opposite situation with the RMB. Instead, there is pressure on the RMB to appreciate, or in other words it is generally seen that the RMB is undervalued. To defend this kind of exchange rate situation, the PBoC can just print RMB* and use it to buy foreign currencies on the foreign exchange. By defending the RMB exchange rate, the PBoC does not drain its foreign reserves but in fact increases it. In fact, this is one of the primary ways in which China amassed its foreign reserves over the years. The decline is the foreign reserve is also not very important because their foreign reserves are still insanely massive. It went from $4 trillion to $3.5 trillion these past 6 months, but that's still nearly triple of the foreign reserves of Japan (which are the 2nd largest in the world.) and triple what China had in 2008. And again, why would they need that much foreign reserves if they don't have to defend their currency with it? Make no mistake, I am no cheerleader for the Chinese economy. It's got a stupendously horrifying bad debt crisis on its hands and no good options. On top of that, its political system is crisis-prone due to its need for consensus building amongst self-interested and corrupt political factions. But what you have here is an incorrect assessment of the RMB exchange-rate situation. Also, I need to repeat this again: using foreign reserves to intervene in the domestic economy is meaningless. It all comes back to the central bank to be exchanged back into the domestic currency. This negates the supposed benefit of using these "hard" foreign currencies. *for those who are curious, technically the PBoC "sterilizes" these printed RMB in order to prevent inflation within China. It's debatable if it works anymore these days.
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Apr 21, 2015 11:20
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| # ¿ Apr 28, 2024 10:39 |
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I don't see why you shouldn't completely dissuade her. There are loads of failed investment schemes and products that were sold to retail customers in recent years. I'm not sure how well your wife or sister-in-law will take to this argument, but here's a thought experiment. Since 2009, China's banks created about $16 trillion USD in new loans to fund to a hodgepodge of investments. Some were profitable, but many were not. For reference, the US banking system has about $14 trillion in assets/loans. 6 years since, what investments could there be that are that profitable for that long and were overlooked during the boom years? How likely is it that whoever your sister-in-law is giving money to could actually find such profitable investment? Do you think that if such investments existed, they'd tell regular folks like your sister-in-law about it? Here's another possible argument: why expect this government to protect their money? The government doesn't do a very good job with protecting people in other ways (food safety, environmental regulation, social welfare, rule of law, etc). How would it suddenly become so competent at protecting people financially? I'm just spitballing arguments here, I really don't know if any of this would stick now that financial-bubble fever has settled in.
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Apr 24, 2015 04:27
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