Reuters Writes: Analysis: China eyes private funds to tackle bad-debt buildup, avoid bailout
(Reuters) – Faced with a chorus of warnings that China risks choking on bad debts, Beijing is pushing banks to raise private capital in an effort to head off the need for a second government bailout in as many decades.
The hangover from a credit binge that powered China’s swift recovery from the global financial crisis, combined with the economy’s slowdown, has prompted expectations of a repeat of the early 2000s, when Beijing shored up its major banks with hundreds of billions of dollars.
Right now, however, authorities appear focused on pushing banks to bolster their balance sheets by aggressively enforcing new international bank capital requirements, known as Basel III.
Some analysts say warnings of an impending crisis are overdone.
Goldman’s analysts calculate that China’s total debt-to-GDP ratio has surged by 60 percentage points since the global financial crisis. It says such a rapid increase is often associated with financial crises, even if the absolute level of debt is not excessive.
“China must get to a point where it can get back on a healthy growth path that is not dependent on massive amounts of credit every year,” said Fitch’s Chu last month.
As I have written many times before. I believe China is in big trouble. The article above clearly illustrates the fact.
Basically, no one really knows what is on the balance sheet of Chinese Banks. Not the government, not bondholders, not investors and in many cases not even the banks themselves. However, the nonperforming loan numbers being thrown out by some analyst are downright scary.
Does Chinese Government sees/understands that and by pushing banks to raise private capital trying to “Scam” outside investors while minimizing impact on Chinese economy in case of a collapse?
I believe so. What they are trying to do is recapitalize the banks before Credit Time Bomb in Chinese financial system goes off. Mind you, any collapse can happen very fast in China. Just as it happened for Lehman Brothers in the US in 2008. Once nonperforming loans truly blow up and liquidity dries up, most Chinese banks might fight themselves insolvent literally overnight (just as Lehman did). Be aware and beware of this.
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