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Not Concerned About China’s Financial Crisis? You Should Be
In February, IVN reported on a mostly ignoredstudy claiming that the world, especially China, was at risk of default (and possible economic meltdown) because of skyrocketing debt burdens.
On Tuesday, almost all media outlets worldwide picked up on the first Chinese-state owned business allowed to default.
Struggling in a cooling economy, Baoding Tianwei Baobian Electric missed its $13.8 million interest payment due on April 21 for bonds traded within China. Even though it is a state-owned company, Beijing let them default. Read More
The government should prioritize expanding its recent sales tax increase or risk an eventual collapse of sovereign bonds, former Finance Ministry official Eisuke Sakakibara said.
A failure to raise the consumption levy “could trigger massive dumping” of the nation’s debt, Sakakibara said in an interview in Tokyo last week. “We must not derail from boosting the levy to 10 percent. The bond market’s collapse would be more dire than a tax increase.”
Prime Minister Shinzo Abe has indicated he will decide by the end of this year whether to go ahead with the sales tax increase to 10 percent in 2015, weighing the economic fallout of the 3-percentage-point gain to 8 percent this month. Gross domestic product may contract an annualized 3.3 percent in the second quarter, the sharpest drop since the first three months of 2011, according to a Bloomberg News poll of economists.
“Ten percent is still not enough” and Japan may have to eventually increase it toward 20 percent, in line with other developed nations, said Sakakibara, who is now a professor at Aoyama Gakuin University in Tokyo. “If we increase spending, we need to radically boost revenue.”
Economy minister Akira Amari said earlier this month the decision to hike the levy to 10 percent will not be easy. Sixty percent of respondents in a survey by Nikkei newspaper and TV Tokyo oppose the move, while 32 percent support it.
Domestic investors hold more than 90 percent of the government’s debt, which means the country is relying on the world’s fastest-aging population for financing. A quarter of Japanese will be over 65 years old by the end of 2014. That’s the highest ratio globally, according to U.S. census bureau figures compiled by Bloomberg.
China Banks Drained by Funds Called Vampires Seek Rules By Bloomberg News It has been labeled a “blood-sucking vampire” by a prominent commentator on state-run television. Executives at China’s largest banks have called for regulators to curb its rapid expansion.
The focus of this ire is Internet financing, specifically Yu’E Bao, the fund pioneered nine months ago by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay. Its ease of use, involving a few taps on a smartphone, has drawn deposits from 81 million customers, more than the population of Germany, as they chase returns higher than China’s banks can offer. The total exceeded 500 billion yuan ($80 billion) as of Feb. 28, according to the official Xinhua news agency, double the amount reported by Alipay in mid-January.
At least six other technology firms, including Baidu Inc. (BIDU) and Tencent Holding Ltd. (700), have embraced Internet financing with similar products offering returns as high as 10 percent and threatening to drain more cash from China’s banking system. Bank executives, unable to stop the outflow of their cheapest source of funding because interest rates on comparable deposits are fixed by the government at 0.35 percent, are calling for more regulation, saying that lack of oversight and risks related to account security, yield volatility and liquidity management threaten China’s financial stability.
Faltering Bonds Condense Risk as Builder Collapses: China Credit By Justina Lee
China’s faltering bond market is forcing banks to pick up the slack, spoiling Premier Li Keqiang’s efforts to spread financial risks as defaults extend from solar companies to real-estate developers.
New notes issued minus maturing securities slumped 64 percent to 133 billion yuan ($21.5 billion) in the first two months of 2014, while new yuan loans made up about 69 percent of total credit in February, the most in seven months, according to central bank data. The yield on five-year company securities rated AA- jumped 128 basis points in the past year to 7.71 percent yesterday, compared with an average 5.64 percent on high-yield U.S. debt, according to a Bank of America Merrill Lynch Index.
The bonds of developers slumped yesterday after government officials familiar with the matter said Zhejiang Xingrun Real Estate Co. collapsed with 3.5 billion yuan of debt due, two weeks after Shanghai Chaori Energy Science & Technology Co. became the first onshore bond issuer to default. Over-reliance on state bank loans concentrates risks in the financial industry and puts funding out of the reach of smaller firms, according to Citigroup Inc.
BEIJING (TheStreet) -- A property market meltdown is spreading in cities within 100 miles of downtown Shanghai.
The latest regional cities affected by tumbling demand for new homes and commercial space are Ningbo and neighboring Fenghua, where local officials Monday formed an emergency task force following the failure of a real estate developer.
Media reports sayXing Run Real Estate Investmentabandoned an unfinished complex of French-style villas in Fenghua while defaulting on about $566 million in debt, including $388 million owed to at least 10 and perhaps as many as 19 banks, including state-runChina Construction Bank, one of China's largest.
The collapse is likely to ripple through the local economy, as privately held Xing Run and its chief executive Shen Caixing have close ties to construction companies in the Ningbo area, which is south of Shanghai, as well as Zhejiang University in another nearby city, Hangzhou.
The property market in Hangzhou started crumbling last month, prompting developers to slash prices on a glut of unsold apartments. Police had to be called after existing homeowners angrily stormed one developer's office, demanding compensation to make up for the sudden fall in their home values.
