Reuters Writes: China locks foreign investors out of another bad-debt cleanup
HONG KONG (Reuters) – Chinese banks have a colossal mess of bad debts to clean up for the second time in as many decades, but they are unlikely to call in the financial world’s most efficient mop and broom.
Foreign investors that specialise in buying up distressed debt are queuing outside the industry’s door, but bankers say China’s reluctance to pay the price of a privately funded clean-up means that door probably won’t open — to the cost of Chinese tax-payers and, ultimately perhaps, the wider economy.
Some economists believe the current mess will need a bigger clean-up than was required after the late-1990s Asian financial crisis. From 1999 to 2007, about $323 billion in bad loans were swept out of the banks, according to a PriceWaterhouseCoopers (PwC) review of media reports over the period, in what amounted to a taxpayer-funded bailout.
“Sometimes the door is open for foreigners to come up and make money, and sometimes it’s closed,” said one veteran debt specialist who has bought and sold Chinese debt for global investment banks. He declined to be named due to the sensitivity of discussing China’s sovereign debt.
“Our belief right now is that the door is closed.”
Read The Rest Of The Article Here:
It doesn’t look like it yet, but China is in a huge mess. From outside it looks like an economic marvel growing at 7% per year, yet it is in huge trouble. While a good chunk of Chinese economic growth over the last decade has been export and manufacturing related (which is great), some economist estimate that as much as 50-75% of that growth came from government debt and domestic property misallocation (aka building empty cities and roads to nowhere).
That is the primary reason Chinese banks don’t want foreign investors to look at their balance sheet or their assets. They know that as soon as someone looks at their debt they will be horrified of what they see. At that point the news will get out and the state controlled economy that is China will not be able to control the outcome. The game will be up.
As they say, ignorance is bliss. The Chinese economy will keep moving forward through the minefield until one of those mines goes off. I believe the time is at hand or will be shortly. At that point the jig will be up and Chinese economy will go through a severe correction.
If you can, please share our blog with your friends as we try to get traction. Gratitude!!!