2014-06-08

Bosses Are Running Again; High Interest Lending Beats Fireworks

I recently mentioned the case where One of China's Richest Men Cannot Repay Banks, Suspected of Illegal Fundraising. The man in question, Liao Rongna, and his family have "lost contact." In Longhai, Fujian, the boss of the Hui Chang Company, Huang Jianhui, has fled over ¥100 million in debt.

In most of the cases, the bosses on the run are suspected of illegal fundraising, not simply because they cannot repay their debts.

From Baidu: mobile searches for "跑路" the Chinese phrase most often used to described bosses on the run.

A lot of industries are involved in illegal or gray market fundraising and loaning activities. In Liuyang, Hunan, fireworks production is a major industry. (Liuyang: Where the world's fireworks are born). But even here, the number of bosses doing "money business" exceeds that of the fireworks industry. The interest in industry is waning due to intense competition and instead businessmen enter the fields of such as high interest lending.

China is one of the world's highest savings rate country, the government has been seeking ways to stimulate people's consumption or investment, but with little success. Meanwhile, there are many companies suffering from the pain of financing difficulties. This is a puzzling phenomenon: the country has the highest savings rate, but not when there's a sudden "money shortage."

信贷挤泡沫进入实质阶段:老板跑路案多发
This is the season for fleeing.

June 4, once the taxpayer Longhai City of Fujian Hui Chang Co. boss Huang Jianhui fled, leaving the "billion" in debt.

Among the many bosses on foot, Huang JH only a small role. On the same day, the richest man in Liuzhou, China's private enterprises had boarded the 500 list and the Hurun Rich List turbot Group chairman Liu Rona and his family also lost contact with members of the collective. Message is displayed constantly being disclosed, Liu's alleged illegal deposits from the public, the local police investigation has been, up to the size of its liabilities billion.

Debt had previously been heard on foot private enterprise boss also include Sichuan Tengzhong actual control of Eon, Qingdao real estate business group boss Lee Jun Ho Wang Li et al.

Chinese people the highest utilization rate search tool Baidu [ microblogging ] display, and the "boss foot" relevant results up to 25.9 million, including a long record document called "Wenzhou business owners foot" list, this list is From April 2011 people began to write on the Internet, and was labeled "...... gradually increasing."

Most of these business owners foot deep mire of debt in the local underground and illegal financing cases are found to have participated in fund-raising. To Tengzhong example. This reputation has been boosted by the acquisition of Hummer private enterprises, as early as a year ago was the outgoing capital chain tension. Tengzhong actual control of Eon foot after rumors came out, their control of a listed company and soon the rumor. However, local authorities disclosed information display, Chengdu financial financing office at the end of April this year, has begun to Eon control Sichuan Huatong Investment Co. investigating. The China Agricultural Bank (2.51, -0.01, -0.40%) , a sub-branch in Chengdu, then apply to the court seized some of its assets.

In real estate, mining, steel, coal, and even fireworks manufacturing and other industries, "money shortage" again sounding the alarm. Not long ago, an investment banker, who had traveled to Hunan Liuyang survey found that many local business owners actually do the fireworks also involved in the financing or illegal fund-raising in the underground. Liuyang fireworks is China's most famous production base, but locally, do "money business" boss, to make fireworks are generally higher than the Bank. This traditional industry groups during the past two years, a huge change has occurred. Bosses on the competitive Industrial melancholy, almost turned to folk collective funds, financial investment or loan-sharking and other financial regulatory system is difficult to see the business being.

It is no stranger to this business tradition, such as pawn, which is one of humanity's oldest industries. Some economists even believe that this is the currency in circulation and improve efficiency in the use of an excellent manner. Chinese businessmen in the past few years many new gameplay rich again this ancient business. The investment banks in the survey found that more than business owners to participate in financing the underground phenomenon is more serious in Shandong, Jiangsu, Shaanxi and other places and even appeared in the case of civil servants involved in illegal fund-raising. The investment bankers describe said, "This is a Ponzi scheme."

China is one of the world's highest savings rate country, the government has been seeking ways to stimulate people's consumption or investment, but with little success. Meanwhile, there are many companies suffering from the pain of financing difficulties. This is a puzzling phenomenon: the country has the highest savings rate, but not when the sudden "money shortage."

China's banking sector in the last year there have been a wave at the moment, "money shortage", but today the situation has been very different. Get lessons bank no longer daring, risk prevention and control of their waking consciousness seems to be overnight. Some are considered a higher risk factor of the industry, almost across the board to tighten credit, which makes those who play the bosses money than their careers pains. Underground financing channels have helped them pull through, but the Chinese real economy downturn, the macro new means of control, and anti-corruption efforts continued pressure to allow consideration of this channel is more heavy. Flower drum pass of the game play does not go.

This is the beginning of China's asset bubble pierce. It appears that the risk of a lot bigger than imagined.

Had for a long time, China's monetary authorities have always wanted to clarify one thing: China in the end how massive bank balance-sheet funds? These funds went to where they are? Find out the answers to these questions will determine the degree of risk a new round boss on foot tide.

It will be the bank's assets are divided into two inner and outer table, is widely believed that China continue to improve banking supervision system has basically been effective regulation of the assets can be done within a table. 2013, the CBRC only through various on-site inspection, the banking financial institutions to investigate the amount of 2.3 trillion yuan violations, penalties illegal organization 1341.

So that regulators worry is China in recent years between the ballooning balance sheet assets. Since the addition of free regulation, no one can know exactly how much off-balance sheet China in the end there. A report signed by a reluctant investment bank recently revealed that as of May 2014, the scale of China's balance sheet assets are close to 58 trillion in 2010 to 2013 between, the new average annual balance sheet assets of more than 8 trillion.

These off-balance sheet assets through trusts, funds and other financial products in the form of produce, where they have a more image called "shadow banking." In the past few years, the shadow banking is trapped in a shortage of funds business, real estate projects, local financing platform for companies to provide funds beyond those of commercial banks. But usually, the cost of the asset is relatively high.

Standard Chartered Bank [microblogging] In a report released in early 2014, said the financial products is the most popular Chinese enterprises to provide current financial industry, the fastest growing financial products, is China's emerging middle class and the interest rate market encounter . However, the transparency of financial products tend to be the lowest savings products, and to investors and issuers banks exposed to the risk of being ambiguous. In this report, Standard Chartered Bank, said the end of 2013, the size of funds financial products offered by banks reached 11 trillion yuan. According to the analysis of Standard Chartered Bank, where more than nine trillion trust funds (according to China Banking Regulatory Commission's statistics, as of September 2013, the trust assets under management amounted to 9.6 trillion yuan) has about 25% mainly into infrastructure through local financing platform areas, 29 percent into the industrial field, 9% into real estate.

In the past few years, China's regulatory policies, the real estate enterprises and local financing platform severely restricted access to bank loans, which means they need to pay higher financing costs. Standard Chartered Bank estimates that China using non-local financing platform bonds, debt funds obtained in the scale of non-lending between 300 million-400 million. With local financing platform in 2014 entered the peak period of debt repayment, old or new borrowing strategy of choice to deal with debt, common strategies.

Asia-Pacific research director Stephen Green of Standard Chartered Bank, said, "In fact, the Trust received 10% to 15% of the cost of local financing platform loans, show that the financing structure does not apply to public infrastructure projects, while the addition of local financing platform for real estate developers also facing their own risk. "

In addition to the flow of bank balance-sheet asset risk sector projects, as well as part of the financial sector is considered to be idle, that is, by some companies and institutions take to do a kind of "money begets money" business. This means that China continues to accumulate financial risks.

Off-balance sheet also allows banks to circumvent regulatory reserve indicator. China's commercial banks are required to prepare 20% of the RMB deposit reserve at the central bank [microblogging], and off-balance sheet assets is not required reserve deposits. Standard Chartered Bank estimates that only at the end of 2013 in accordance with financial products scale of 11 trillion calculations, if converted to table, you need to prepare 2.2 trillion of bank deposit reserve. And if the investment bank in accordance with the foregoing the latest research, China's nearly 58 trillion off-balance sheet as of the end of May 2014, To turn table, you need 11.6 trillion in reserve. This means that the cycle of off-balance sheet risk in pushing the same time, in fact a disguised increase in China's money supply.

In addition to financial products, the Bank of China (2.70, -0.03, -1.10%) outside the system, but also active in a number of other financial services activities, including underground banks, security companies, P2P lending (borrowing network platform), pawn shops and the Internet finance. Some brokers will call "table outside the off-balance sheet." Currently, no one can calculate these "off-balance sheet tables outside," how many of asset size. They are more concealed, the risk is greater.

Chinese Prime Minister Li Keqiang and his team of monetary control has apparently determined to tens of trillions of funds out of the water outside the banking system, circulation, and guide them to the real need of funds, transparent place to go. Evidence that since the second half of last year, the face of market "tight money" situation and lower the deposit reserve's call sign of gate delays in decision-making departments open.

Until this year on April 25. The same day the central bank decided to cut the county rural commercial banks and rural cooperative banks county RMB deposit reserve ratio, the market liquidity measure overwhelmed by the scale of RRR was only released more than 1100 million is far below the previous expectations. This is a fairly accurate regulation. Since the policy operation, Li Keqiang also proved what a macro-control team is clever manipulator.

May 30, the State Council executive meeting, said it would increase the "quasi-directional drop" measure intensity. This allows the outside world to see the Chinese currency, Li Keqiang on guidance and control methods have become more adept. Directed down the flow of liquidity released by the quasi central policy point only place; while those in the past few years, the cumulative risk and foam industry is still unable to turn on the water to see the central bank hopes.

Terrible, those risks and foam industry has already tightened the reins of funds, bank lending channel a year ago began to tighten, the maturity of the loan, the loan is minimal likelihood want. Many of them are forced through small loans, usury financing, long relegated to the "table outside the balance sheet." Many companies now have to stand on the precipice of funds difficult to continue rotating the wheel, the boss on foot became a high probability event.

Cases of multiple bosses on foot, which means China from the credit squeeze bubble and go into the production of a substantive stage.

But this is a dangerous game, although still in control of the monetary authorities look into. The danger is that, it is necessary to ensure the safety and risks to defuse the bubble, but also to avoid a situation out of control, leading to a systemic or regional default risk, and further affect the real estate, manufacturing and other areas of the real economy.

Currently, the market is still difficult to determine if the outbreak of the crisis will spread to what extent. We see that the regulatory authorities around the emerging cases of foot and default tolerance is far more than the previous. Analysts believe that monetary policy will not easily relax, macroeconomic regulation continued to adhere to the previous tone is certain. Squeeze the bubble will continue, boss "sheet of sheet" appears on foot, just the beginning.

This will allow many companies feel the suffering and find any. Real estate companies are the most typical.

Ratings agency Moody's said in a report released on June 5 said that this slowdown in China's real estate market will exceed the length of time before the two down cycle. Moody's assistant vice president梁镇邦said: "We expect the slowdown in China's real estate market in this than in 2008 and 2011 down cycle lasted longer Firstly, the Chinese government is unlikely to completely abolish the policy followed by the purchase of domestic credit. and liquidity environment is unlikely to relax. again, China's economic growth is likely to continue slowing down. "

Liangzhen Bang said: "Unless the increase in the supply of bank credit and mortgage interest rates fall, otherwise, even if part of the city to cancel the purchase of the policy, is unlikely to stimulate a significant increase in demand."

Moody's warned that although the 52 most affected assessment developers can withstand difficult environment facing the industry over the next 12 months, but the next 12 months is likely to be negative rating actions than positive rating action.

Of course, the face of the difficult economic situation, the Chinese monetary authorities also told the bank "propaganda", behind just need the mortgage. May 12, central bank vice governor Liu Shiyu chaired a symposium on housing finance services, the conference demanded that commercial banks are not allowed to residents purchase loans credit crunch, give priority to households for the first time to buy their ordinary commodity housing loan demand; reasonable determine first home loan interest rates.

However, the major commercial banks in mortgage policy has continued the previous tight tone, hardly a bank for mortgage interest rate policy to relax.

Bank of propaganda, banks do not listen, this is rarely the case in China's financial system appears. This means that the bank is still optimistic about the future of real estate. If you look back, the central bank overwhelmed by propaganda is not easy. Since early this year, the central bank has just lifted the bank deposit and loan business scale assessment. In other words, in 2014 commercial banks have no pressure lending and deposit-taking scale, they will be more concerned about the safety and risks of credit funds. This is further exacerbated by the contraction of bank lending risk efforts.

Changes in the central bank baton, or a year ago that originated in the field "money shortage." When Li Keqiang grow breath out last year that field "money shortage" crisis among banks, he has determined, through various measures, and funding those idle mismatch which led to the real economy. Li and his team believe that monetary control, China is not the funds are not sufficient, but the funds mismatched. His language is summed up: "revitalize the stock, with a good increment."

The real economy in industries with excess capacity and asset bubbles, excessive false fire industry, Li Keqiang diversion is clearly not the direction. The Prime Minister has been speculation that want through a variety of measures of monetary policy, industrial policy, etc., to achieve China's economy deleveraging and growth shift. As for China in terms of investment patterns over the years, to control capital flows is equivalent to the real economy stuck in the throat.

Those boss on foot, is the first group could not resist the impact of regulation. Next, the days of suffering will continue.

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