China Happening or Not

I have spent many years blogging about China's rise and the economic risks within China. I do not believe there is much more to be said about the risk of a credit crisis/currency devaluation in China. It is either going to happen or it isn't. Here's a good summary of how we're again at a crisis point. The authorities will put the denouement off for another day, or the they won't.

Rhodium Group: Beijing’s Credibility and the Baoshang Bank Dilemma
The dilemma is fundamental: Does Beijing want the market to price the risk of potential bank failures, or do authorities want “stable” production of riskier and riskier forms of credit? Beijing can have one or the other, not both.
There's no stable way to switch from non-market to market pricing. You can hide the effects by making the switch after a crisis, but there will always be instabilities. Any system that is controlled for decades will suffer from extreme volatility. If the data is announced, pressure will build in the system as speculators start betting on what will happen once the curtain lifts.
The PBOC’s initial foray in managing the financial stress produced by Baoshang was to send a message that this failure is a one-off related to political affairs—the bank’s primary shareholder was the Tomorrow Group controlled by arrested financier Xiao Jianhua. However, no one knows exactly why this political risk suddenly materialized in late May, and Baoshang’s financial asset profile is similar to many other banks that are in similarly vulnerable positions, particularly under new accounting standards (IFRS 9). Some of these banks are listed and some are not, but larger banks are treating many of them similarly: by reducing the number of banks with whom they are willing to do business.

Because markets quickly started seeing similarities between Baoshang and the Bank of Jinzhou, a listed bank in Hong Kong whose external auditors recently resigned, the PBOC was forced to provide emergency assistance to that bank, effectively guaranteeing its interbank borrowing through negotiable certificates of deposit (NCDs).
Key point:
The PBOC has no history in managing counterparty solvency risks in the interbank market. They just created these risks seven weeks ago. Moreover, the evidence is right in front of us in the form of NCD sell-through rates in the markets, which show that small banks rated AA+ and below are still selling only 20-50% of their interbank NCDs offered in recent auctions, even over the past week (Figure 1), down from 65-75% before May 24. If large banks are comfortable lending to small banks, why won’t they buy their NCDs, which are claims on banks’ creditworthiness?
The kicker:
Beijing cannot restore faith in implicit guarantees or see interbank business return back to pre-Baoshang levels, as policy-makers try to arrest the aggressive expansion of small financial institutions and push for deleveraging. Investors will need to reprice risks in the market and small banks will inevitably face balance sheet contractions and higher funding costs, which also means higher interest rates for their borrowers.
You go to market with the hypothesis you have. The CCP and PBoC have near omnipotent powers over the economy or they don't. I'm betting they don't. I do not know when it'll be triggered, but as in 2011, 2014 and 2016, there is once again signs of something larger being possible. Personally, I believe the time for understanding it has aleardy passed. Now is the time to be trading it or patiently waiting for the zero hour.

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