China's State Owned Banks

Ambrose Evans-Pritchard brings us: China's banks are an accident waiting to happen to every one of us
"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local governments ultimately will be willing or able to bear."

Note the phrase "able to bear". Fitch's "macro-prudential risk" indicator for China threatens to jump from category 1 (safe) to category 3 (Iceland, et al). This is a surprise to me but Michael Pettis from Beijing University says China's public debt may be as high as 50pc-70pc of GDP when "correctly counted".

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a "massive lending spree".

Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate.
He goes on to quote Andy Xie's comments on the debt fueled "recovery". China is still in a strong position, however, because it can use its foreign currency reserves to bail out its banks. How the U.S. fares once its largest creditor stops lending is another question.

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