$1 Trillion to Defend Yuan, $1 Trillion to Recapitalize Banks, Credit Guarantee Related Stabbings

September was a recovery month for the markets and China's reserves fell about $40 billion in September, but I expected that number will increase even before CLSA came out with this report.

ZeroHedge: CLSA Just Stumbled On The Neutron Bomb In China's Banking System
According to CLSA estimates, Chinese banks' bad debts ratio could be as high 8.1% a whopping 6 times higher than the official 1.5% NPL level reported by China's banking regulator!

...If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 8% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $1 trillion.
Chinese banks have lots of Tricks For Hiding NPLs, and folks may want to bone up on the issue of credit guarantees. All manner of skullduggery is used to keep a bad loan from being recognized as an NPL. No one can really know what percentage of "extend and pretend" or simply "pretend" is out there on bank balance sheets, nor how many credit guarantee daisy chains will be unleashed if there are real defaults.

As for those credit guarantees: 35% of firms in Sichuan are "paralyzed," in part due to illegal fundraising.
Prior Sichuan SME Credit Guarantee Association, who will be revealed, from 2007 to June 2015, registered business entities within the scope of the security company in Sichuan served on Vanguard, but there are 30 percent to 35 percent paralyzed or dead state. Published data show that as of the end of December 2013, Sichuan has a financing guarantee company 509, the annual Sichuan cumulative financing guarantee balance has reached 233.84 billion yuan, involving 730,000 households, ranking second in the country.

  "Sichuan has so many non-financial institutions, accordingly the problems will be greater." The China Banking Regulatory Commission admitted that it gave regulators proposed new regulatory proposition, but yet have solutions proposition crisis broke out.
There are several posts on Sichuan and credit guarantees on the blog. In Textbook Credit Implosion Underway in Sichuan Province, I looked at an article which reported that the number of credit guarantee firms increased by 400% in 2013.
Sina:四川多形式非法集资频发 担保公司35%陷入瘫痪

Then there's the ongoing saga of Hebei Financing Investment Guarantee, the huge state owned credit guarantee firm that is circling the drain.

The latest: Chinese investor stabs asset management CEO after default
Wang Jie, the CEO and general manager of Global Wealth Investment (Beijing), was stabbed in the shoulder on Sunday during a meeting with investors, the company representative said. He was rushed to hospital where he remained in a coma.

..."Hebei Financing defaulted on us, and we defaulted on our clients," said the representative of Global Wealth. "We could not see any hope that Hebei Financing would compensate us ... and feel desperate."

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