Chinese Trust Problem Already Metastasizing

All of the stories about the ICBC/China Credit Trust trust default have stated a figure of 3 billion yuan. However, the total losses may be 4.3 billion with foregone profits included.

The article below from 21st Century Finance show's that there's a lot more to the story than a simple question of being unable to repay debt. It's the same story seen before: a company irresponsible enough to leverage itself to the hilt is also likely to be engaging in other irresponsible behavior.

Translation note: Google Translate translated Shanxi Zhengfu Energy as Shanxi amplitudes.

CCT: three black hole swallowed 4.3 billion gamble (中诚信托：3个黑洞吞噬43亿赌局)

21st Century Network Credit Trust suffered despite payment crisis, "Kim Cheng to open the 1st" trust schemes, the total amount involved in the trust funds nominally 30.3 billion. But 21st Century Network found behind the trust scheme, is actually a total amount of up to 4.35 billion yuan guarantee gamble.

Gamble corner Qingta, 4350000000 become Candu tripartite straw.

Borrower fraud from the outset, the intermediary deceiving trust scheme is by ignoring the interests of the risks. This sounded behind the incident risks alert trust industry in 2014, the number of hidden black holes.

"Trust is a trading pit father this, they managed to kill no matter buried." Some commentators in the 21st century network message.

4350000000 gamble

21st Century Network found that CCT "honest to the gold No. 1" trust fund trust scheme involving a total of 30.3 billion yuan. However, consumer trust funds, Shanxi Energy Group amplitudes aspects are beginning to sign agreements amounted to 4.35 billion yuan.

"Jin Cheng to open the 1st" trust scheme established in February 1, 2011, for a period of 36 months, until January 31, 2014 expiration.

Initially raised 1.111 billion yuan in February 1, 2011, the CCT and then immediately start the second period Kuomu again raised 1.918 billion yuan. Thus the whole Trust plans to raise the funds, totaled 3.03 billion yuan, ICBC as custodian.

Use the arrow trust funds are: the Central Trust Trustee in accordance with the agreed documents, the use of trust funds amplitudes Shanxi Energy Group Limited (hereinafter referred to as "Shanxi amplitudes Group") for equity investment by energy companies will be equity investments amplitudes purchase price paid for coal, technological inputs, coal washing plant construction, resource cost and other expenses approved by the Trustee.

Earlier reports showed amplitudes Group registered in Shanxi Luliang City of Shanxi Province, the actual control of the king in the lock, Wang Pingyan son, owns purple Xin Mining Group in Shanxi, Liulin amplitudes CHAR limited liability company and other subsidiaries and Sun Company, Control has five coal mines.

In the back of 3.03 billion yuan trust funds "honest to the gold No. 1" trust scheme, Shanxi amplitudes Group, Shanxi purple Xin Mining Group Co., Ltd., a limited liability company Liulin amplitudes CHAR way to guarantee equity pledge increase trust.

The master copy of the material of the 21st century network show, Shanxi amplitudes Group and Credit Trust secured document, the actual guarantee the integrity of the main aspects of care claims 43.5 million.

About 4.35 billion yuan of money, a project director of a trust company analysis, of which 30 billion of principal trust scheme, the remaining $ 1.35 billion, including a share of income investors should (interest), as well as a trust company, custodian bank, etc. fees charged.

Trust documents show "sincerity to open on the 1st of gold" to give investors more than the expected rate of return of 9.5% per annum. A conservative estimate of 3.03 billion yuan trust funds, the total amount of income trusts expected in three years more than 865 million yuan. If you can say about cashing trust scheme, the trustee and custodian bank Credit Trust Commercial Bank will also be benefited.

On the other hand, guarantees the principal debt of 4.35 billion yuan, also means that from the time the guarantee is determined from the relationship, respect owed Shanxi amplitudes Credit Trust Group for 4.35 billion yuan of debt, the actual annual finance costs 14.5%.

Shanxi face amplitudes Group bottomless pit, 3.03 billion trust fund obscure their thirst. Thus formed 4.35 billion of debt, whether it is the pressure amplitudes across the Group in Shanxi last straw?

Difficult to assert, as other usury Shanxi amplitudes Group itself owed, bottomless.

One of the black hole: the unspoken rules of the huge usury and industry

Trust 4.35 billion yuan of debt behind, while another group Shanxi amplitudes by nearly 30 billion loan sharks. In this regard CCT and ICBC never even unknowingly?

As a trustee of a trust scheme, CCT amplitudes in terms of the financial position of the Group in Shanxi disclosure, beginning more optimistic. Shanxi amplitudes Group usury until the incident.

Credit Trust provides trust documents show:

March 31, 2011, Shanxi amplitudes of the Group's total assets 6.888 billion yuan, net assets of 4.135 billion yuan.

June 30, 2011, Shanxi amplitudes of the Group's total assets 6.952 billion yuan, net assets of 4.147 billion yuan.

December 31, 2011, Shanxi amplitudes of the Group's total assets 6.424 billion yuan, net assets of 4.17 billion yuan.

Situation is mutated in May 11, 2012, this day, as chairman of Shanxi amplitudes Group 王平彦 been filed and criminal detention, and soon to the crime alleged illegal deposits from the public, was transferred to the Willows Police prosecutors prosecution.

CCT aspects of announcements, Shanxi amplitudes Group and its affiliates, in the second quarter of 2012, three new pen litigation, trust then appoint someone to verify and take emergency measures.

Ultimately reported that, as of the end of December 2011, the Group's debt has reached 9.8 billion yuan amplitudes, where the original principal amount of 6.2 billion yuan, 3.6 billion yuan of interest, including Credit Trust "honest to gold No. 1" Trust Scheme 30.3 one hundred million yuan and 1.32 billion yuan of principal costs (interest), which accounted for a significant part. Another 345 people directly to the amplitudes Group usury, usury principal total 2.98 billion yuan.

Prior to CCT side has responded to the media, said: Shanxi amplitudes group is recommended by the Industrial and Commercial Bank of China branch in Shanxi customers.

Shanxi amplitudes Group borrowed 2.98 billion yuan of usury, so wide number of people involved. Credit Trust trustee and custodian bank ICBC Does no knowledge?

In this regard, a trust company executives questioned: "more than 20 billion yuan of usury, CCT aspects of due diligence would not know to ask about the local casual Either they all know that did not do the best tune?.."

The middle is another trust business, said: "As a large local customer Shanxi, Shanxi Branch of ICBC may not know how usury case? '" Behind this deep water, how much money do not know took the middle square. "

"The boss can get ICBC, Prudential get outside usury also borrowed so much, that he is willing to spend money, capital is a game people play. Surface financing costs on this project nearly 15%, but this company actually give What is 18% of the base. doing coal trade, but also a year 22% to 25% of the profits. give two points, one point 30 million, two points 60 million they received a number of commissions? "above middle Trust Business analysis.

The two black holes: 3000000000 where to invest trust funds

3.03 billion yuan of trust funds to be used to exactly where any party did not give an exact answer. Face high risk of ownership issues the White House hilly coal mine, Shanxi amplitudes Group invested billions of dollars in funds whether the regulators?

CCT aspects documents show that as of March 31, 2011, which is "honest to open on the 1st of gold" was established in the first month, Shanxi amplitudes Group's total use of trust funds 1.111 billion yuan, while the second expansion The 1.918 billion yuan raised still deposited in the escrow account.

December 31, 2011, Shanxi amplitudes Group cumulative use trust funds 2.545 billion yuan, 484 million yuan remaining escrow account.

December 20, 2013, the balance of the monetary property trust scheme is only 86,342,600 yuan.

Trust funds in specific ways, the amplitudes of the Group's equity investment in Shanxi, the investment trust plans to hold a 49% stake in Shanxi amplitudes Group, another 51% stake held by his son Wang also pledged to Credit Trust.

CCT's announcement shows, Shanxi amplitudes Group will put equity investment funds for other expenses coal purchase price, technical inputs, coal washing plant construction, resource price and trustees approved. But for specific items of expenditure, were not disclosed. From the outside it has yet to learn.

Shanxi amplitudes Group in 2011 after many times over capital operation commenced generous, and both need big money-driven: 2011, its purple Xin Mining investment of about 430 million construction of 900,000 mines in Shanxi Province in northern town Shuiyu consistent; established in Taiyuan, Shanxi Kaifeng Source Energy Investment Co., Ltd. holds 100% stake in Jungar Banner, Inner Mongolia Yang mine drainage; Linxian County in Shanxi Luliang reorganization of the White House hilly coal, etc. 4.

Which the White House hilly coal mine, Shanxi amplitudes for the Group and Credit Trust, the fund is a black hole.

Public data shows, the White House hilly coal formerly Linxian White House hilly village collective mines since 2008 by the amplitudes Group Holdings subsidiary Shanxi Coking Co., Ltd. Sanko. This coal mine in Shanxi amplitudes Group's core assets, but there has been in the mining tenure disputes.

October 2008, the White House hilly village administrative proceedings to the Taiyuan Intermediate People's Court, said in an April 2002 White House issued the Shanxi Provincial Department hilly coal mining permit, the mining rights from the "white Linxian House hilly coal mine "to" Shanxi Coking Co., Ltd. Sanko "economic types from the" collective "is changed to" limited liability company "specific administrative act as illegal.

After several rounds of litigation, the Shanxi Provincial High Court of Final Appeal ruling in 2009, the mining rights of the White House hilly coal recovery is "Linxian White House hilly coal mine." This means that the amplitudes of the Group losing mine in Shanxi mining rights.

Since then, the Group has changed Shanxi amplitudes another approach: holding and looking through usury Credit Trust borrowed money to intervene in the capital campaign to integrate the White House hilly coal mines.

Input amplitudes Group in Shanxi coal mine White House hilly much, there is no one specific number, "China Business" Earlier reports said: put "almost 6 billion yuan."

According to the "21st Century Economic Report", October 2010 before Shanxi amplitudes Sanko Group has been paid to the former shareholders of one billion yuan Coke Company acquired equity funds, and because the complexity of the dispute had involved in the process of handling equity transfer procedures , asked the government to pay 1 billion yuan compensation before it can re-apply for a mining warrants.

In 2012, Shanxi Linxian the new White House hilly coal mine consolidation plan submitted, but has not been approved, the mining rights has yet to come true right from advancing. Shanxi amplitudes Group huge investment, not to mention the current recovery.

Face high risk of ownership issues the White House hilly coal mine, Shanxi amplitudes Group invested several billion dollars. Credit Trust Trust plans to have 49% stake in the company and acquired the remaining 51% equity pledge, as well as the Industrial and Commercial Bank supervision line, if there is to be an effective supervision over the use of funds?

Three black hole: the wealth loss on disposal of assets

Unregulated, as well as between the amplitudes of Shanxi Group and a subsidiary of the huge presence of related party transactions. With the launch of asset restructuring program output to the Group by the Shanxi amplitudes subsidiary huge amount of money for this loss will become dead accounts, from nothing to do with trust schemes.

After funding strand breaks, each creditor to obtain funds, at the end of 2012 began to dispose of Shanxi amplitudes Group assets. Credit Trust which owns the name Yang Jungar Banner, Inner Mongolia Coal Mine Drainage Company (hereinafter referred to as: Yang mine drainage) pledge of 100% equity interest.

November 2012, a 100% equity Yang mine drainage in Beijing Equity Exchange to transfer, listing price 350 million yuan.

21st Century Network master document, as of July 24, 2012, Yang Mine Drainage Company had total assets of 142 million yuan, the assessed value of 553 million yuan; net assets of 34,557,000 yuan, to assess the value of 445 million yuan. Which intangible assets (mainly in the mining rights based) assessed value of 416 million yuan.

Assessed value of 553 million yuan of assets, and ultimately to 350 million yuan turnover, is an impairment.

In this regard, the aforementioned Trust Project Director, said: "mining rights in the asset valuation is very nominal, compared to land far Nenggen real estate, construction engineering, housing, in the absence of systemic risk is very easy to handle. mining right mortgage is not to say, reserves itself is actually difficult to measure, but also large fluctuations in the international market in recent years, coal prices into the bottom of the valley, but also CCT 3 billion payment crisis detonated one of the important factors. "

Internal documents show that: Yang coal mine drainage in the company's asset transfer, while packaged transfer, as well as Shanxi Kaifeng Investments Limited 100% equity (originally amplitudes Shanxi Energy Group Co., Ltd. holds 90%, 10% held by the king in the lock). amplitudes and Shanxi Shanxi Kaifeng Group Investment Limited of 754 million debt. Transfer price of $ 350 million the total amount which the Department of bundled three assets.

Equity tripartite relationship, originally Shanxi Shanxi Kaifeng Group Holdings amplitudes source, source 100% owned Shanxi Kaifeng Yang mine drainage. Results of the asset transfer, making subsidiary Shanxi Kaifeng source, and Sun Yang companies are stripped from the Shanxi Coal Mine Drainage amplitudes Group.

However, the existence of 754 million yuan in Shanxi amplitudes Group Claims Shanxi Kaifeng source, that is, Shanxi Kaifeng source output to 7.54 million. It is a trust fund 754 million yuan of funds or loan sharks? Unknown.

The results of the asset transferred, is this has nothing to do with the 754 million yuan from Shanxi amplitudes Group, and then unable to recover.

Another problem is that the 754 million yuan in Shanxi Kaifeng source used in the Where? Yang coal mine drainage was only 142 million yuan of total assets, even if coupled with mining rights assessment, also only 553 million yuan. Shanxi coal mine drainage Kaifeng Yang source for 100% of the equity investment, will not be far from reach this amount, then there are 2 million was used in the Where? With the completion of the asset transfer, the problem will become permanent puzzle.

Payment crisis: Tube Shashui pipe buried?

Side, the other side of the coin is the end result as a trust plan, project and product design side Mishap only problem - how honored.

From a legal perspective, the event will undoubtedly liability shall be assumed Credit Trust, 21st Century Network contact either trust people, or people related to this industry have maintained a consistent answer.

Some industry insiders Trust, said: "The project is to provide ICBC, ICBC's customers but also the integrity of the collection of money is relatively small, it is a quasi-channel business.."

"This is actually legal risks channel business and financial side of the project, this product is only channel in the law is the product of trust, trust responsibilities to the trustee, not because of the behavior of the channel and have to work any reduction. "

Famous trust lawyers more than red sign analysis: "Commercial banks think this is a trust product, I am only for products channel trust that this is a commercial bank clients and projects, I provide access to commercial banks this project accident reason is. commercial banks and trust companies regarded each other as a channel leading to the product of the lack of actual control, the risk that no one went to investigate and verify. "

"Fatal consequences for both sides. Private banking business focus is the development of commercial banks blue ocean in the interest rate market led to lower deposit margins generally trend into bottlenecks, increase private banking business is to develop a business focus, there are so a single event, its private banking business is a fatal blow. the event on this one for the private banking business, as an investment adviser to the bank without its responsible role which is not a legal obligation, but the market credibility problem. "

On "From the trust perspective, this 'two out' of the project, trust companies must recognize that they are the subject transaction, rather than the channel, so money is not pay any.

Another source said: "The industry has been rumors that the bank is willing to bear most of the responsibility, but there is also a problem. ICBC is a listed company, but also a state-owned bank, why take responsibility if there is no legal basis, even if it? want to take, investors and regulators have reasonable grounds to oppose. "

In this regard, insiders give ideas:. "Although the law can not reveal all the details work every row, four asset management companies can be looped another problem arises, however, amplitudes have no assets, and how to go Asset Management the company's path? "

In this connection, the news also believes that "resolve to honor this trust issue, the key is not necessarily to explore who is responsible, but what kind of market you can arrange to solve."

Middle aforementioned trust business said: "the industry is very concerned about this one if you lose trust, bank trust consignment Recommend this one is even more difficult to do, because in the past we are authorized to prevail if the single channel by the risk-free. Trust lost, indicating that a third-party bank to promote the project and to promote the project no difference, we have to strengthen the choice of doing business in the future. "

For this event handling, Industrial and Commercial Bank of respect for the 21st Century Network said that at present unable to make any disclosure.

21st Century Network call CCT relevant project managers, each office will have been unable to connect.

For this event, the 21st century network will continue to keep a close eye.

This article doesn't get into the above details, but it does cover the trust issue and how large it has grown in the past few years.
Crunch Escalates as Money Funds Rival Shadow Banks: China Credit

The assets under management of such plans surged to a record 737 billion yuan ($122 billion) on Dec. 31 from 304 billion yuan on June 30, said Roger Schneider, senior director at Fitch’s Fund and Asset Manager Rating Group. Yu’E Bao, managed by Tianhong Asset Management Co. and sold online by Alibaba Group Holding Ltd., offers an annualized return of 6.7 percent, compared with the 3 percent official one-year savings rate. Some funds are offering higher rates, with news portal Eastmoney.com marketing a product that targets 10 percent.

“Clearly, yields of 8-10 percent are not sustainable,” Schneider said in a Jan. 10 interview from Frankfurt. “They will definitely come with the risk, and the premium includes both credit risk and liquidity risk in what they buy. There are strong refinancing needs among corporate issuers this year and the credit profile is to some extent deteriorating.”

PBOC Warns on Loan Growth

Weekend press: PBOC issues warning as loans soar

The central bank warned in a statement after a meeting on money and credit conditions that commercial banks were still keen to expand loans, which have grown rapidly this month.

"Demand for cash will rise significantly as the Spring Festival is approaching," it said on its website. "Monetary and credit departments will issue timely risk alerts and guide financial institutions to strengthen liquidity, asset and liability management and reasonably set the pace on lending to prevent assets from expanding too quickly."

The mainland's money rates jumped this week as liquidity dried up ahead of the Spring Festival holiday, with traders watching to see if the central bank would maintain its passive stance and allow another cash crunch to unfold.

Analysts believe the central bank is likely to make measured use of policy tools, such as short-term liquidity operations, to help lenders weather sporadic cash strains this year.

Chinese coverage: Bank of fine solution "robust" landing warning in January excessive credit growth

2014, the central bank set the tone, "continue to implement prudent monetary policy" prudent policy implications of the word Why?

In fact, monetary policy "prudent" reference has been for many years, but in different years, different people, for robust interpretation of the word is not the same, or even different. January 17, 2014 the Bank held a working meeting of monetary credit, at this meeting, was finally able to see the 2014 "prudent monetary policy," the true capacity.

The above conference on money and credit, the central bank once again emphasized in 2014 will continue to implement a prudent monetary policy. Unlike in the past, but this time the central bank explained from two aspects of how landing prudent monetary policy in 2014. The central bank said the Central Economic Work Conference that do economic work in 2014, the core is to adhere to the "progress while maintaining stability, reform and innovation." Continue to implement prudent monetary policy should be conducted around this core.

Earlier, central bank data showed, in 2013 total new RMB loans 8.89 trillion yuan, the scale of financing social 17290000000000. Financing scale social record, a record size of loans in RMB is the second highest on record.

Bank Financial Research Center expects 2014 full-year lending rate will slow further than the 2013, new loans 9800000000000-10000000000000; financing scale community will 19000000000000-19600000000000, raising the stock up by speed will slow down.

A joint-stock bank sources said, in December 2013 the credit worse than expected, but after entering in 2014, the bank invested early benefit of early inertia impulse remains, for now, put the size of bank credit is still relatively fast.

Before the 12 days in January, the four lines new loans has reached 320 billion, higher than last year's 270 billion yuan. At this rate, in January of this year, new loans of financial institutions is expected to more than 1 trillion yuan. Historical data show that in January 2013 1.07 trillion yuan in new loans.

Bank Financial Research Center, said Xu Bo, by the beginning of the seasonal rise in loan demand, banks have increased lending and other factors affect the expected January new credit facility and the community has increased significantly.

"Since January, the supply of liquidity in the banking system more comfortably and pursue commercial banks 'early delivery, early gains', etc. under the influence of rapid loan growth." Central bank also off in rapid credit growth remain vigilant. In addition, the central bank also said that the Spring Festival approaching, the cash requirements will increase significantly.

"Historically, whenever the Spring Festival approaching, cross-section of the cash demand will begin to rise gradually, beginning repo rate will gradually rise from mid-January due to end this year on a peak theoretically take now fully reflected in the January . " Minsheng Bank financial market researcher Ma Yue said that residents take now will reduce the excess reserve ratio for banks, which will form a more significant impact on liquidity.

Can also be seen from the recent trend among Shanghai Interbank Offered Rate (Shibor), the Spring Festival approaching funding level of tension. On Friday of each term Shibor rates rose across the board, which breeds week Shibor rose 52 basis points to 4.776 percent of the high level.

In the meeting, said the central bank, monetary and credit risk departments to timely tips to guide financial institutions to strengthen liquidity and asset-liability management, reasonable arrangements for the granting of loans to prevent excessive expansion of assets.

In fact, in addition to external credit conditions in January for the annual monetary and credit, the central bank once again stressed the need to implement a prudent monetary policy. With the previous difference is that the central bank explained in two ways foothold prudent monetary policy.

First, insist on maintaining stability. "Stability" mainly money and credit work for "total stability", the focus is to create a stable monetary and financial environment for economic structure adjustment and transformation and upgrading; "into" shows as "optimization", by improving and optimizing the financing structure and credit structure, and enhance the ability of financial service of the real economy.

Second, persist in reform and innovation. With the spirit of reform, ideas, ways to improve monetary policy, blending into the reform in the regulation to improve financial efficiency of resource allocation.

For this year's work, the central bank will still be financial reform in a very prominent position, "to further promote the interest rate market and further improve the RMB exchange rate formation mechanism of the market." In fact, in 2014, is generally considered to be the first year of a new round of China's financial reform. In this year, the deposit insurance system is likely to fall, the interest rate market, the exchange rate market, as well as capital projects are considered to be open to march forward.

It is worth noting that the central bank on Friday also said that monetary policy will be based on the need for innovative operational tools to enhance the relevance of macro-control, flexibility and effectiveness.

Last time, the central bank monetary policy operations launched innovative tool is early in 2013. At that time the central bank introduced two new monetary policy tools, namely short-term liquidity adjustment tool (SLO) and equipment loan facilities (SLF). SLO, SLF's creation greatly expansion of central bank monetary policy toolbox, to improve the central bank initiative and flexibility, but also make the central bank's monetary policy intentions more conduction. In June 2013, December next two tight liquidity situation, the central bank to inject huge amounts of liquidity of some banks by SLO, on a stable market expectations played a crucial role. Up to now, the central bank open market operations toolbox, already has a central bank bills, repo, reverse repo, SLO, SLF and other policy instruments.

SHIBOR Spikes Again Ahead of Spring Festival

I recently had two posts on the risk of an early cash crunch at the end of Janaury. See More on Cash Crunch Risks Ahead of Spring Festival and
Spring Festival Cash Crunch.

Based on history, I expect another cash crunch in March at the end of the quarter. However, Chinese New Year is a cash intensive holiday and banks always see an outflow of money at this time. As reported in the links above, some banks are still attracting depositors with high interest rates.

In the days ahead of Spring Festival, SHIBOR typically spikes. Here are two posts from 2012:
Inter-bank liquidity extremely tight ahead of Spring Festival
SHIBOR drops towards normal levels thanks to massive PBOC intervention

Here is SHIBOR today, followed by a chart of the 1 Week SHIBOR rate.

If you click through the links from 2012, you can see that SHIBOR started spiking about the same time in relation to Spring Festival. Chinese New Year fell on January 23 that year and rates moved about just under two weeks before. It is less than two weeks until Spring Festival this year and rates are moving up again. There's reason to expect rates will continue to drift higher ahead of the holiday unless the PBOC intervenes. With the default of a trust product looming at the end of the month as well, fireworks may start early this year.

Why Do Credit Bubbles Pop?

One of the great advantages of the Austrian school is that it does not use mathematics to try and divine the future. Rather, the key is to understand human behavior. In the case of credit bubbles, there is no magic percentage of GDP at which debt levels become unsustainable. Smaller nations and industries are obviously at the mercy of larger players. With no larger player, such as with a Chinese or American credit bubble, the bubble ends because people think it will end. As the bubble inflates, more and more people believe it will end. Then it is only a matter of the trigger event that crystallizes this belief. Thought becomes action and the bubble has burst.

Theoretically, a bubble can go on forever as long as people think it will keep going on, but this requires that people do not change their behavior or expectations. This never happens because people do respond to prices and incentives. Lower interest rates cause people to borrow more, which leads to higher growth and eventually higher prices (monetary inflation filtering through the economy). There is no equilibrium in the economy, ever. Real interest rates are either rising or falling and for a trend to continue, it requires that the trend never stop or that people perfectly change their behavior in the right proportions in order to keep the economy on an even keel. This doesn't happen because most people do not have great insight and instead use the wisdom of crowds: they follow the herd.

Will the failed trust product market by ICBC (see: Pop Goes the Trust; Chinese Investors Learn the Hard Way That Credit Does Not Equal Gold) be enough to change perceptions and change the direction of the market? It's hard to predict. I consider one thing: is the credit bubble large enough to justify a change in behavior? And if behavior changes, will the effects be great?

Credit bubbles require increasingly large amounts of new credit in order to keep the growth rate steady. It can be a constant rate of growth, but this results in increasingly large nominal numbers and since the credit is growing faster than GDP, it leads to an ever widening gap/rising debt-to-GDP ratio. Investors and business discount this amount of new credit and become accustomed to easy money. They do not worry about having cash because they feel secure with a line of credit. After 2008 hit, many people lost their credit access. Corporations saw the commercial paper market screech to a halt and some faced bankruptcy, with concern that even blue chips like General Electric (GE) could go bust due to an inability to roll over short-term debt. The result was that in the ensuing years, corporations issued hundreds of billions in new long-term bonds and stuck the cash on their balance sheets. Businesses also make long-term plans assuming the good times will continue. As the credit bubble grows, a smaller and smaller change in credit growth leading to a small change in GDP growth can have a major impact on an individual firm or sector in the economy, which sets off a chain reaction.

Who knows if China is at the point of a major trend change, but China definitely is at risk of a major trend change and has been for years. Here is Andy Xie on the topic: When the Giants Unwind

China's tightening is really about limiting local government borrowing. They are not interest rate sensitive. The current rise in interest rate is unlikely to dent their appetite. Indeed, China's local governments went to the shadow banking system for money at high interest rates in 2013, as banks have become wary of too much exposure to them. Local governments depend on the perception that provinces and, ultimately, the central government will bail them out, if they can't repay their loans. This is the reason that the shadow banking system is focusing on them. Private companies have been borrowing at low interest rates offshore and lending to them at high interest rate, either directly or through trust companies. Unless the bailout responsibility is clarified, China's credit bubble would continue.

If the central government spells out its position of no bailouts clearly and convincingly, the reaction in the credit market will likely be massive. The shadow banking system, for example, wouldn't roll over their loans. Unless the banks step in – probably forced by the government – a financial crisis is possible. If the banks do step in, it is actually a bailout by the central government, as it will be forced to bail them out if they go down. When moral hazard is the main reason for a credit boom, cooling it slowly is very difficult.

I have always argued that a hard landing would be a good thing for China. It flushes out all the financial excesses quickly and allows the economy to have a fresh start and soon. China's labor shortage ensures that such a landing wouldn't lead to social instability. Declining inflation would improve people's living standards. Hence, it's all good looking from the people's perspective. The banks and local governments wouldn't look at it that way. They all hope to stretch out the time horizon for paying off the legacy costs from the bubble. Or better that the people in charge now could walk away before the problems are exposed. Hence, the system's bias is to drag it out. But, a bubble grows larger if it doesn't burst. One cannot hold a bubble stable; it either shrinks or expands.

China is showing some resolve in reigning in the credit bubble. A credible anti-corruption campaign and rising interest rate are the visible signs. The tightening path is anything but assured. The system's bias for stable appearance may cause the policy to change direction.

I agree with his outlook. A hard landing is very possible, but it would also be very bullish for China. The anti-corruption campaign is extremely strict. Government officials, and almost anyone spending government money (which includes a lot of sectors such as education), cannot spend more than 20 yuan per person on meals, and they must eat buffet style. I know that some many departments have cancelled overseas trips and domestic travel that used to be a work/pleasure combination. The screws are tightening and the people fear Xi Jinping means business. That is a good thing, but it also means that if the credit market tightening is for real, China is going to be at risk of a very hard landing for the duration.

With Yuan Approaching 6 to 1 Dollar, Factories Leave for Vietnam

China missed it's window of "cost free" reform from 2005 to 2008, when party insiders shut down the reform agenda. The Ministry of Finance took power away from the reform minded PBOC and when 2008 hit, the response was a lending spree that directly benefited insiders who control state owned companies. The result is China is now trapped between Scylla and Charybdis: the situation is at an extreme where choosing a new path entails great cost. Reform in 2008 would have been costly as well, but a recession then could have been blamed on global conditions. Had they accelerated currency appreciation before 2008 and caused more pain in the short-run, they would have been better positioned in 2008 because the bubble in real estate would have been much smaller. Now, if they tighten credit and the currency rises, the risk of a major slowdown is great. If they instead follow the developed world and weaken the currency, they risk high inflation.

China Manufacturers Survive by Moving to Asian Neighbors

Leaving China, Samsung heading towards Vietnam to optimize profits

Cambodia versus ‘cheap China’

Exporters Leave China but Find Rising Costs Elsewhere

Stung by local cotton prices, Chinese yarn makers go global

Chinese article, Google Translated:
RMB exchange rate approaching 6.0 Enterprise, said the plant can only be moved to Vietnam jumped to

RMB exchange rate approach "6.0" manufacturing "labor pains" difficult to stop

"If the yuan to rise, I can only go to the factory moved to Vietnam. "

RMB against the U.S. dollar exchange rate has been close to 6.0 mark, and failed to reverse the appreciation trend. However, faced with the national foreign reserves hit new high of Downcast and Chinese manufacturing industry resisted calls for renewed appreciation of the renminbi.

January 13, the central parity of RMB against the U.S. dollar surged 58 basis points to 6.0950, a record high, at the same time, the spot exchange rate broke through 6.05 mark, closing at 6.0434 highs. Although the upward trend in the next two days has been suppressed, but some analysts believe the yuan continues to rise this year, has become a high probability event, but the pace of increase may be slowing.

2013 yuan hit a new high of 41, the central parity against the U.S. dollar has risen by nearly 3%. China and even to some extent, played a role as an international safe haven, when the rapid withdrawal of international capital from the emerging markets, not all returned to the U.S., but hoarding in Hong Kong Or go directly to mainland China.

2013 as a whole, the only BRICS strong performance of real effective exchange rate appreciation, the other four countries have different degrees down.

RMB "thriving"

January 16, the latest data released by the Bank for International Settlements show that in 2013 the annual increase of RMB real effective exchange rate of 7.89 percent, the nominal effective exchange rate of increase of 7.18%. 2013 People's Bank of China announced central parity of RMB against the U.S. dollar cumulative increase of 3.09%, current cumulative increase of more than 2.91 percent.

It is understood that the RMB real effective exchange rate is the trade-weighted index, the greater the influence of exchange rate movements of major trading partners. In BRICS, the real effective exchange rate appreciated sharply only China, India and South Africa, rates dropped by a big margin.

RMB exchange rate in the first quarter of 2013 experienced a non-volatile direction, when the central bank governor Zhou Xiaochuan re-election, with the foreign media, "RMB internationalization will accelerate" as a comment. Sure enough, from the beginning of April RMB skyrocketing, rising first followed by another four-seven rising, 1 April to 31 May 40 trading days, the RMB exchange rate reform 17 times hit a new high.

Correspondingly large inflows of hot money, financial institutions, foreign exchange soared, according to a rough estimate of the residual method, 2013 to April 1 arbitrage funds into the country the size of more than 700 billion yuan. The face of surging hot money, SAFE issued in early May "on the strengthening of foreign exchange inflows management issues related to notice", aimed at addressing the country's capital inflows through trade channels situation. Strengthen supervision, the external environment continues to deteriorate, while the market expected the Fed may begin after September exiting QE, RMB appreciation is expected to weaken.

Conditions in June and July hot money inflows inhibited financial institutions increased sharply the amount of foreign exchange, or even a reduction in the situation. Zhou Xiaochuan at the annual meeting of the International Monetary Conference 2013 statement, China will not come to the country to improve their competitiveness through currency devaluation competitive, this story had expressed dispel market concerns about China joined the ranks of pursuing a weak currency.

After July, the center launched a steady growth, and China's economic outlook showed a good situation, and in September the Fed has not scheduled exit QE, 10 month our country's new foreign exchange renewed surge of financial institutions, hedge funds continued influx of RMB October and early December again speed up.

Face of 2014, Zhou Xiaochuan, eighteen of the reporting period in the interpretation put forward in a timely manner to reduce the foreign exchange market intervention in normal type, making exchange rate fluctuations reflect the real needs of the market, regulators hope to increase the yuan shows the volatility.

Fudan January 13 release of "2013 Index of Fudan RMB exchange rate," said the beginning of 2014 will be a favorable opportunity to promote RMB exchange rate of the first stage of reform, suggested that the relevant authorities to seize the favorable opportunity to reform the RMB exchange rate formation mechanism appropriate relaxation volatility limits.

The report concluded that, under strong U.S. economic recovery, reduce the size of the background of QE, the dollar may recover strength, the RMB against the U.S. dollar this year, there may be a slight devaluation.

From the beginning of January this year, the United States began to reduce the size of the monthly purchase $ 10 billion debt, began gently introduced quantitative easing, the Fed will not raise interest rates repeatedly said recently. But "if the next two meetings of the Federal Reserve continued to buy the current pace of reduction can be expected in the first half 2014, the yen , Asia-Pacific and emerging currencies will be gradually subjected to greater selling pressure. "first vice president of Fubon Bank (Hong Kong) and investment strategy and research director Pan Guoguang said, could once again become a safe-haven during the renminbi in Hong Kong, which is the first half of the external pressure of RMB appreciation as it thinks.

But some analysts believe that the U.S. QE may completely withdraw before the end of 2014, the Fed rate hike is expected in 2015. Market trends will change, the dollar will regain strength in emerging markets, including hedge funds flowing into China will return to the U.S., which will also lead to downward pressure on the RMB against the U.S. dollar.

In the eyes of some economic analysts, as long as enough power to keep the domestic economy, the RMB appreciation trend will still remain. Jun Ma, chief China economist at Deutsche Bank believes that the U.S. and European economic growth this year will be significantly higher than last year, the recovery of external demand will significantly enhance China's export growth. Its expected appreciation of the RMB this year or 2%.

Chinese manufacturing difficulties encountered

Data from the General Administration of Customs show that last year China's foreign trade in Europe and America is still vulnerable to which the EU trade increased by 2.1%, the Japanese trade fell 5.1 percent, the U.S. recorded a 7.5% increase. Overall, China import and export value in 2013 was 25.83 trillion yuan, net of exchange rates, an increase of 7.6%, down from 8% at the beginning of the development goals for two consecutive years have not completed the goal. However, considering the continuous appreciation of the renminbi, under the background of shrinking demand in foreign markets last year, still recorded a trade surplus of 1.61 trillion yuan, an increase of 12.8%, also considered essential to complete the task.

"I think this data is somewhat water." Engaged in import and export trade in Dongguan businessman Wang (a pseudonym), said Wang as early as the 1990s, factories in the Pearl River Delta, engaged in the business of textile export trade. Due to rising costs and shrinking orders in recent years, which has already shut down the plant in the country, but its import and export trade volume reached 100 million yuan last year, remains. "Not afraid to tell you, before I was engaged in the import and export of goods, capital and export is now the main." According to him, this way is through false trade flows of funds.

Frequent cases of large-scale domestic trade make false entry of hot money, the first three months of 2013, exports from the Mainland "IC" number grew nearly 7 percent, but exports jumped nearly three times the amount of an. Meanwhile Statistics "precious metals" a situation also shows the soaring price of such an unreasonable price soaring, so that regulators realized that the presence of a false trade, thus beginning to strengthen supervision in May.

According to industry sources, most similar trade staging in Hong Kong, and import and export data last year, the contribution to the overall bilateral trade between Hong Kong and the maximum data growth, an increase of 17.5%.

Although the trade surplus is still expanding, but the ability to attract foreign investment in China seems to diminish. Commerce Department data show that in the first 11 months of last year China Manufacturing actual use of foreign investment 41.458 billion U.S. dollars, down 5.71%; while approaching the lower cost of production areas such as Vietnam, in 2013 foreign investment grew by 54%, most of which are concentrated in the manufacturing and processing industries. While appreciation of the renminbi, in 2013 most of the general decline in emerging market currencies, such as the rupiah against the U.S. dollar fell to five-year low, constant outlet pressure buildup in China.

"If the yuan to rise, I can only go to the factory moved to Vietnam." Zhongshan vigorous shoe chairman Liu Changning said that the RMB appreciation and the sharp rise in wages, so刘长宁export business is getting harder and harder .

"I also understand that the government wants us transition to domestic consumers." He said, had around 2009 channels and set about establishing the brand in the country, to now we have not yet succeeded. He had designed in accordance with the strategic planning, design and future domestic market, leaving only the marketing department, the manufacturer then moved to Vietnam and other Southeast Asian countries.

Asian Borrowers Try U.S. Credit Markets

Coincidentally, these two stories were close together on Yahoo Finance today.

Yuzhou Markets Dollar Debt as Weekly Bond Sales at 3-Month High
Chinese Developers Face Tighter Financing, Local Curbs, S&P Says

Pop Goes the Trust; Chinese Investors Learn the Hard Way That Credit Does Not Equal Gold

Reuters: China's ICBC says won't compensate investors in troubled shadow bank product

Industrial and Commercial Bank of China, the world's largest bank by assets, said on Thursday that it has no plans to use its own money to repay investors in a troubled off-balance-sheet investment product that it helped to market.

FT: Chinese shadow banks face major test

Most wealth management products are sold with some form of bank guarantee, leading many investors to believe that the products are effectively risk-free, despite the often high promised yield.

But, in an unprecedented move, ICBC has said it will not stand behind the Rmb3bn ($495m) investment product it distributed through its branches in 2010, according to people familiar with the situation. The fund matures at the end of this month.
Zhang Zhiwei, China economist at Nomura, said that a default in the shadow banking sector could trigger a ripple effect across the whole financial system.

The Chinese name of the product is 2010年中诚•诚至金开1号集合信, shortened to the very succinct: 诚至金开1号 in the press. It translates as: 2010 China Credit / Credit Equals Gold #1 Collective Trust Product.

Chinese coverage, Google Translated. More below.

30亿信托兑付大限将至中诚工行博弈结果未明

January 31, the day of the Lunar New Year's Day of the Horse. However, the "honest to the gold No. 1" investor trust, but then this would have been filled with festive day filled with panic. Because this day is to honor the deadline, "honest to gold No. 1" Trust. The products issued by China Credit Trust from time to honor the last only 14 days, but there is simply unable to meet the financing side.

Statistics show that the payment of principal of the trust only reached 30 billion yuan, with earnings not paid, totaling at least 33 billion. Yesterday evening, the Trustee of the Trust realized announcement that there is uncertainty in the January 31, which adds to investor panic.

Left little time away from the payment deadline, while Credit Trust and agency side ICBCAttitude is still not clear.

Uncertainties exist settlement schedule

Credit Trust in the fourth quarter of 2013 the trust management report, the duration of the trust will expire on January 31, and in view of the king in the lock, Wang Pingyan, Shanxi amplitudes Energy Group Limited ("the amplitudes energy") fails to pay the full cost of maintaining equity, nor equity transfer price paid by notification in advance, the White House hilly coal mine consolidation program has not yet been approved, the trust property realized there is uncertainty on January 31.

Trust plan shows "sincerity to open on the 1st of gold" was established in February 1, 2011, issued by China Credit Trust, two of the funds raised 3.03 billion yuan, the period of 36 months, the annual yield from 9.5 to 11% funds for energy amplitudes equity investment, equity investment by the amplitudes Energy will purchase price paid for coal, technological inputs, coal washing plant construction, resource cost and other expenses approved by the Trustee.

Back in May 2012, to honor the crisis has erupted. Amplitudes energy Wong actual control locks, Wang Pingyan long involved in loan-sharking and his son, when on May 11, Vice Chairman Wang Pingyan energy amplitudes on suspicion of illegal deposits from the public, i.e. day filing criminal detention.

Accordance with the contract, CCT should be before 31 December each year, then assigned to the priority beneficiaries of the trust net income, revenue sources for the amplitudes of energy dividends, proceeds from the disposal of equity holdings, equity maintenance fees, repo deposits.

According to the investor presentation, the yield is calculated according to the above, the amplitude of the energy payments to investors totaling income of about 10 million, but with Wang Pingyan behind bars, shut down the mine, from the first half of 2012, for failure to pay normal income. "I figured that last year only about 3 percent of revenue, and some people may be lower." He said.

"Now the main problem is that the principal can not be cashed." Shenzhen, one investor said, compared to the principal, to get the return on investment is of secondary importance.

It is understood that, although called equity investment trusts, but "honest to the gold No. 1" is actually debt investments. Under the agreement, energy amplitudes in October 2013 should be to repurchase a total margin deposit escrow account the amount of money agreed to repurchase trust schemes, namely payment to investors. The report shows that as of last December 31, amplitudes energy use trust fund has accumulated 3.03 billion yuan. The account balance remaining 5.66 million yuan, according to the notification nor the equity transfer price to pay in advance. Plus about 10 billion revenue, energy amplitudes pay totaling about 40 million, excluding part paid, currently there are more than 3.3 billion yuan funding gap, which made investors full of panic.

Credit Trust, said the report period, held a special meeting to discuss energy and amplitudes financing risks associated with the company to resolve issues and coordinate with the relevant departments, but there is no progress. Will continue to actively promote the settlement of relevant issues in the legal and regulatory framework, does not exclude the right to claim through litigation related entities.

Silver Letter Game

Payment deadline is approaching, but the attitude of the relevant parties are still unknown, which makes investors more anxious. The silver letters behind the game, to make things even more complicated.

"Prudential's payment capacity is relatively strong, but this is mainly too large, and who knows Prudential willing to reveal all the details, but behind the existence of the game." An investor in Shenzhen "First Financial Daily" said.

According to a report published in December last year, Shanghai Jiaotong University, and the payment capacity, CITIC Trust, CR SZITIC other five trust companies in the country ranked in the top five, while the CCT is also impressively. Report shows that China Credit Trust in 2012 with registered capital of 2.457 billion yuan, the total assets of 11.6 billion yuan. If the final payment rigidity, high pressure can be imagined.

Shenzhen investors above the reporter that if payment is not scheduled, they will have to bear the main responsibility for ICBC, ICBC they are mostly private banking customers, "Cheng to open on the 1st of gold" is also available through the bank's private banking division. ICBC had also bought a consignment of trust products, not only the payment schedule, and a good income. Even when the instructions are not carefully look out of the trust the bank, where he bought "Jin Cheng to open on the 1st."

He said that in the back of the project, may be a novelty. Amplitudes Energy Trust ICBC financing project was originally asked to recommend to the faith, which was not very willing to take over, and later launched the product. This means that, just as the CCT ICBC channel appears. After the crisis, the bank considers itself as the consignment side and the custodian bank, not directly involved in the project, should not bear the responsibility; while Credit Trust believes that the project comes from ICBC, ICBC should bear the primary responsibility.

And now, "Kim Cheng to open on the 1st," There is no doubt the absence of risk control. Before amplitudes energy intervention, the White House hilly coal mine for many years has been involved in property disputes, after it has been outstanding.

These investors said, everyone knows that the investment risk, but the key is that "honest to Gold No. 1" due diligence, risk control, etc. There are serious problems.

Investment person, due to the January 31 deadline approaching, and the amplitudes of energy cashing hopeless, ICBC Credit Trust has planned and implemented by the same proportion rigid payment. People close to the CCT, also known as ICBC could own pocket payment, but has yet to formally process the results.

However, the above statement and ICBC will contribute cashing matter, and failed to get ICBC and China Credit Trust have confirmed. Yesterday, reporters call the CCT website leave contact phone number, its staff said the matter will need to contact the customer service department, and called the customer service hotline can not divert. The general manager of ICBC private banking division Ma Jian then said the reporter, is currently looking into the matter and Credit Trust actively communicate aspects of treatment, but he declined to disclose details, just said everything in CCT announcement. Reveal all the details of the trip or not, nor to disclose any of the contents.

This article mentioned ICBC as having responsibility, but ICBC says it will not bailout customers.

The firm at the heart of this busted trust is Zhenfa Energy. The tycoon at the center was the subject of a post last month: How The Credit Boom Ends: Chinese Tycoon Who Threw Lavish Wedding Sees Firm Go Bust. The stories linked in that article mention the risk to trust products.

Related posts: China's Financial Crisis Began in June; PBOC Must Pump More or Deflation Will Return
China on the Verge of Major Financial Crisis

The failure of this product could be an isolated event, but it it reminiscent of the failures seen in early 2008. Remember New Trouble in Auction-Rate Securities?

SOME well-heeled investors got a big jolt from Goldman Sachs this week: Goldman, the most celebrated bank on Wall Street, refused to let them withdraw money from investments that they had considered as safe as cash.

The investments at issue are so-called auction-rate securities, instruments at the center of the latest squeeze in the credit markets.

...“Investors have lost confidence in the liquidity of these instruments,” said G. David MacEwen, the chief investment officer for fixed income at American Century Investments, a mutual fund company. “These types of instruments depend on new investors showing up to own the securities.”

And that's the way the bubble bursts.

Canadian Dollar Quietly Sinks

Long gold/gold miners, short CAD. It has eased my pain.

When Mortgage Refis Weaken, Lower Lending Standards

Worst of All Worlds’ for Lenders

Mortgage Lending is down more than 50% at the big banks from the 1st to 4th quarter. Higher interest rates on mortgages is leading to less refinances and fewer home purchases.

...Banks are hungry enough for mortgage revenue that they may relax standards and increase lending for home-purchase loans. Indeed, a recent Federal Reserve report on bank loan officers signaled that some are easing mortgage standards.

The end of a credit expansion ends with tighter standards, not looser ones. There hasn't been a real private credit expansion yet in the economy, 5 years into a "recovery." Most likely it means it isn't coming (because this is a depression), but if private credit did begin growing again, it could fuel several more years of "recovery" before the bubble burst.

Chinese Banks Lend Like Crazy in First Two Weeks of January

The explanation for now is the cash crunch in December.

China’s Credit Growth Slows as Foreign Reserves Jump

China’s broadest measure of new credit fell in December while money-supply growth and new yuan loans trailed estimates amid a cash crunch and government efforts to curb speculative lending.

Aggregate financing was 1.23 trillion yuan ($204 billion), the People’s Bank of China said today in Beijing. That compared with 1.63 trillion yuan a year earlier. China’s foreign-exchange reserves, the world’s largest, rose to a record $3.82 trillion at the end of December from September’s $3.66 trillion.

China’s shadow banking loans leap

The central bank reported a fall-off in new bank loans in December to Rmb482.5bn, from Rmb624.6bn in November. Jian Chang, an economist at Barclays, noted that loan demand tended to weaken at the end of each year, with last month’s decline reflecting weaker mortgage demand.

This next one is Google Translated.

9 Trillion Yuan Rhythm, Four Big Banks Again See Credit Rebound

Summary: As of January 12, workers and peasants in four rows of about 320 billion yuan new RMB loans, significantly higher than the same period last year 270 billion new; and so focused lending is based on the loss of 550 billion four rows on deposits contrarian completed.

21st Century Business Herald "early lending, early gains," China Banking centralized lending beginning in 2014 tradition still continues.

21st Century Business Herald reporter data obtained from the authorities of the display, as of January 12, workers and peasants in four rows of about 320 billion yuan new RMB loans, significantly higher than the same period last year 270 billion new; and lenders are so focused On the basis of the four deposits contrarian loss of 550 billion on completion.

Strong credit growth, maybe some relationship with 2013 last month forced pressure loans. The market is more concerned about the 2014 Chinese monetary and credit policy towards how.

Reporter interviewed a number of authoritative experts, 2014 is expected to target the gross domestic product (GDP) growth, inflation control, several indicators are likely the intended target line with 2013 or slightly lower, that is, economic growth target will maintained at around 7.5%, the consumer price index (CPI) rose 3.5% in may.

This means that the expected growth of broad money M2 target in 2014 will be around 13%, so the projections, in 2014 the new loans will be down at 9000000000000.

In late November 2013, M2 grew by 14.2%, higher than the previous year an increase of 0.4 percentage points; January to November, RMB loans increased 8.41 trillion yuan, an increase of 660 billion yuan.

Different than in previous years, the January 2014 New Year's Day and Spring Festival set one of two festivals, under the "double" in great capital, liquidity test of China's banking system will be unprecedentedly severe.

"Project reserves, the banks have done enough work." 14, a state-owned big firms Northeast Branch told reporters that he did not agree with the argument rushed loans, project loans had originally planned to put a lot out of the end of 2013, but limited in the amount of control did not put out.

According to the reporter available data, in December 2013 the first three weeks, four lines put up 215 billion yuan of new loans, higher than the average of previous years put on a node; But in the last week, the size and liquidity of the pressure control of under the pressure of the loan the bank had to take the final four lines of new loans in a single month was controlled at 180 billion yuan.

In this way, you can explain the first two weeks of January 2014 credit a more concentrated logic. Credit ferocious, but it does not mean money drain, prudent monetary policy is still the norm.

As reported by the Bank of China macroeconomic thought, "in 2014, the central bank may maintain a prudent monetary policy, the likely maintain prudent monetary policy, M2 year on year growth will remain steady state, estimated annual M2 growth will be 13.5 about%. "

"Our monetary policy from a moderately loose to prudent been more than three years, and this trend will continue." Early January, the CBRC supervision annual meeting requiring commercial banks to recognize the long-term control of monetary aggregates, early to adjust liquidity preference.

"Some banks are still in accordance with the inertia of thinking, the pursuit of high growth scale, high-performance indicators, high value-added profit, not on the use of non-credit facilities to complement, not on the table with the table of foreign make, credit constrained on the influx of Trust, the Trust Restricted securities on the route through the channel is limited and poured into the industry, expansion of the old road still to go. "regulator of commercial banks in recent unreasonable asset-liability management approach criticized.

Double test

But now the war is yet to come fluidity, January 14, the overnight interest rate has been about 2.74 percent since June 2013 a relatively low level of money shortage, whether or seven days SHIBOR collateral repo rate are currently in last November the lowest level since mid degree of inter-bank funds face relaxed exceeded market expectations.

Since June 2013 money shortage crisis, China's banking sector asset and liability management and liquidity risk has become a major proposition regulatory agencies and commercial banks have to take seriously.

CBRC had just concluded annual meeting, the regulators noted that liquidity risk management more difficult to reason from the following several aspects, one of these years in the industry, the rapid development of financial and other services, the proportion of short-term financing in the interbank market significantly increased funding decreased stability; Second, the balance rises with the degree of maturity mismatch.

Changes in asset and liability structure of commercial banks to liquidity management brings considerable challenges. Business on the interbank market response has been very sensitive to the strong volatility, particularly over-reliance on a number of small institutions interbank assets expansion, which is prone to liquidity exports.

Regulators pointed out, from four aspects, strengthen liquidity risk prevention: First, recognize the long-term control of monetary aggregates, early to adjust liquidity preference. The second is to improve the stability of funding sources, to firmly establish the concept of living within our means business assets, strengthen active liability management. The third is to strengthen the financial and investment industry business management, adjust the asset structure, balance the reasonable control of the degree of maturity mismatch. Fourth, earnestly implement the liquidity risk management practices, pay close attention to the currency market trends, good response plans, to discover potential risks, to take decisive countermeasures.

Japanese Dumping Yen As Fast As They Can

SUNTORY HOLDINGS TO ACQUIRE BEAM IN $16 BILLION TRANSACTION

Suntory Holdings Limited and Beam Inc. (NYSE: BEAM) today jointly announced that they have entered into a definitive agreement under which Suntory will acquire all outstanding shares of Beam for US$83.50 per share in cash or total consideration of approximately US$16 billion, including the assumption of Beam’s outstanding net debt. The transaction consideration represents a 25% premium to Beam’s closing price of $66.97 on January 10, 2014; a 24% premium to the volume-weighted average share price over the last three months; and a multiple of more than 20 times Beam’s EBITDA1 for the 12-month period ended September 30, 2013.

More on Cash Crunch Risks Ahead of Spring Festival

Cash crunch signals policy dilemma for China's reformist central bank

China's central bank looks set to risk another cash crunch at the end of January, barely a month after the last market squeeze, as policymakers press ahead with a crackdown on shadow financing and other risky bank lending.

The People's Bank of China (PBOC) is attempting a delicate balancing act to keep economic growth on track while avoiding a debt-induced financial crisis.

Periodic cash squeezes as banks scramble for fresh funds highlight the policy dilemma the PBOC faces in 2014, as it pushes financial reforms to help rebalance the world's second biggest economy away from the investment- and exports-led model that powered its rapid rise.

Spikes in June and December in the interest rates at which banks lend to each other signaled the central bank's determination to reduce alarming levels of debt. But it must try to do so without hurting growth by braking too hard on credit.

(As I noted here, the PBOC intervened in September ahead of a cash crunch, which is why rates didn't spike. The situation then was the same as it was in June and December.) Yesterday, I posted Spring Festival Cash Crunch.

War Returns to Asia?

I noticed this at ZeroHedge:

Relying on US support, the Philippines is so arrogant as to announce in the New Year that it will increase its navy and air force deployment at Zhongye Island, a Chinese island that it has illegally occupied for years.

It will be an intolerable insult to China

According to experts, the Chinese navy has drawn a detailed combat plan to seize the island and the battle will be restricted within the South China Sea.

The battle is aimed at recovery of the island stolen by the Philippines from China.

There will be no invasion into Filipino territories.

A report in the Philippines Star confirmed the Philippines military buildup on the island.

ZeroHedge has is the headline that a battle will be restricted to the island itself, but that doesn't mean the political or economic response by the Philippines, Japan or U.S. will be similarly restricted.

The original article is below, followed by two others on the same topic. All Google Translated.

PLA South China Sea emergent big moves this year will force the industry to recover the island

The Philippines has relied on U.S. support, often to China to launch an attack on the South China Sea issue, the arrogance, had to intolerable proportions. South China Sea sovereignty dispute dragged on for too long, resulting in problems Humpty trouble. Territory was invaded, plundered resources, China is several small countries wanton bullying, really ruined face of international prestige is greatly compromised. When off constantly, will be troubled. Ancestral homeland, an inch nor from the loss of our hands, otherwise the Chinese nation ages.

Recently, the People's Liberation Army officially fired the first shot in the South China Sea activist. 2014 New Year, the Philippines announced plans to increase the naval and air forces deployed in the illegal occupation of the Nansha islands in the industry in an attempt to permanently occupy our territory, territorial waters. Experts said that this is a good opportunity for China to use force to give the Philippines, China should take the opportunity to force the industry to recover the island!

Experts said that the current PLA Navy has developed a detailed operational plan carefully, and the whole theater is limited to the scope of the South China Sea, but the Philippines is not the only aspect of the battle plan for the Philippines, local attack, because this war is for the purpose of regaining the Philippines The illegal occupation of the Chinese Nansha islands, while the PLA troops to be stationed on the island, so the Chinese side is bound to respond in accordance with the Philippine side to peer level attacks.

Philippines despite the Chinese government's repeated protests and warnings, in the South China Sea issue jump the highest, most downtown Huan, pounded the most vicious. 2014 New Year, the Philippines announced plans to increase the naval and air forces deployed in the illegal occupation of the Nansha islands in the industry. Deed goes unpunished, of course, would be the first to pack the Philippines. Philippine naval and air forces that point worth mentioning, only enough to deal with the South China Sea Fleet.

I occupy the island in the Philippines nearly 43 years of

Of the year, and then in the South China Sea, the Philippine military launched the "big action": its occupation of seven islands two massive sandbar send more troops; invested heavily in upgrading the local Navy and Air Force facilities; intends to reinforce its reefs depends on China Charity The old landing ship; secretly installed the new US-made warship gun system ...... many military observers believe that the Philippine government and the military is likely in 2014 in the South China Sea to further exacerbate tensions, the United States and Japan seem to be willing to Philippines " Site cheer. "

Cobble island in the Philippines Armed Forces industry

In November last year due to strong typhoon "Swallow" attacks delays in the Philippine Army Fangzeng Bing sector Island plans to restart this month.

Philippines' Kalayaan City, "Mayor Eugenio than Tony Austrian farmers confirmed that the new troops had arrived in the island this month, the 6th industry, including the Army and Navy personnel. Austrian farmers, said: "Before adding the Army stationed on the island, the island's armed forces complete the industry." Western Command, the Philippines has also confirmed that the day stationed in the island's industry Airmen are transported by naval aircraft. The command said in a statement: "As sea conditions remained poor, can only use aircraft to transport Airmen and residents in the island's industry and therefore have the opportunity to fly to Palawan Province to visit work."

Earlier, the Philippine troops in the industry on the island has a contingent of the Army and Navy, and the Air Force because the runway is completely destroyed, the high cost of the garrison evacuated years ago. However, on December 4 last year, the Philippine Department of Defense announced that the Philippines plans to invest 480 million pesos (about 66.1 million yuan) earmarked for the disputed Spratly islands in the industry to upgrade the island's airport runway and naval facilities.

Islands in the industry is the second largest island in China after the Spratly relay Taiping Island, since 1971 has been illegally occupied by the Philippines. In the administrative divisions of the Philippines, the islands in the industry under the "Kalayaan city", owned by Palawan province "jurisdiction." For the Philippine Army troops in the industry once again recently Island, a Philippine official said: "Although Petrel to the Philippines typhoon reconstruction caused huge human and property losses, Tacloban and other places are also needed, including China International social assistance, but to strengthen the industry's island capital infrastructure already in place, this cost is based on the "1995 Army Modernization Act" allocated. "

Attempt to create "Monitoring the South China Sea fortress"

Although the Philippine government and the military were unwilling to disclose the specific building programs in the industry of the island, but according to local media reports, the Philippine military in the industry on the island ready to upgrade first piece of 1300 m long runway for landing large military transport aircraft. In addition, the Navy facility, the armed forces barracks, town hall, hospitals and soldiers family wings, also has begun construction. Its support of the province of Palawan still facing the South China Sea Oyster Bay Naval Base. The base about 160 kilometers from China Nansha Islands, including military dock, deep water port and garrison facilities. After a new round of facility upgrades and troops stationed in the island of the Philippines military industry is expected to include 100 sailors, 36 army officers and 42 Air Force flying reconnaissance and intelligence officers. "When necessary, a battalion of Philippine Marines also fly landing operations." Revealed that a Filipino soldier.

In addition to strengthening the military deployment, the Philippines also consider increasing the number of inhabitants in the industry of the island. "Kalayaan City," Mayor Eugenio than Tony Austrian farmers revealed that: "As long as China ocean surveillance ship a return to the Nansha waters, our fishermen will promptly report to the government and the military because the military aircraft ...... and patrol boats can only guarantee the existence of a certain time period, while fishermen in relevant waters throughout the year, which is common in the industry, the fishermen's island effect, and we need more people. "

For the Philippine military move, Philippines ABS-CBN News quoted a security official word comment, said:. "In the industry on the island is the South China Sea island chain in the Philippines main military outpost which means the Philippine military to better the South China Sea to monitor the situation. "

US-Japan happy to little brother "Platform"

For the Philippines beginning in 2014 will be "eager" to mobilize troops towards the South China Sea islands and reefs, the Russian independent military observers Semenov said that the possibility of the Philippine government and the military in 2014 reignite Nansha dispute is very large. His analysis:. "Philippines move both their own needs, more support behind the U.S. and Japan factor"

Late last year, the Chinese navy "Liaoning" aircraft carrier with the United States warship "occasional" incident in the South China Sea during the training, the Philippine media have interpreted the move was related to the sea in the U.S. Navy intends to display the presence of cashing in on the Philippines' allies support. " Meanwhile, Japan since the end of last year, continue to send senior government officials and military personnel access to the Philippines, but also to honor previous commitments to aid the Philippine military equipment. It is said that in addition to the new Mini maritime patrol outside the Philippines, Japan will dispatch Self-Defense Forces since March this year, the Philippine military officers trained soldiers to the Philippines, to help them improve the combat capability of the ocean. Meanwhile, the Philippines continues to play the "China threat", the Philippine military and political leaders repeatedly claimed that China since last year performance was "increasingly aggressive" and continuing to send warships and ocean surveillance ship to Nansha Islands cruise, which makes the Philippines. " deeply disturbing. "

Some analysts have pointed out that the Philippines play a clown jumped on Taiwan, "performance", the U.S. and Japan to come forward its "Platform cheers", seemingly interactive "understanding", in fact, behind each play each abacus.


From the U.S. perspective, the current U.S. military is actively adjusting the Asia-Pacific and China's military deployment around the key objective is to curb the fortress East China Sea, South China Sea, Okinawa, pressed Chinese naval activities in the region, in this process, Japan and the Philippines are just their strategies pawn in a chess board, where to put, how to put it all depends on U.S. strategic needs.

From the Japanese perspective, Abe insisted ghosts, the Sino-Japanese relations have been bruised and then poke a knife, so that tensions in East Asia upgrade again. At this time, implied or support dispute with China reefs Philippines to China to launch an attack, Abe has become an important option for the implementation of its policies, and thus, the Philippine military have recently shouted Japanese maritime cooperation would strengthen rather "heating" meaning.

United States and Japan playing a major strategic thinking, Philippines naturally want to muddy the waters, to benefit from it. To send more troops to islands in the industry, for example, the Philippines made ​​up his mind that Japan's recent tough markedly effective, may be too busy South China Gu, this firm or its opportunity to take advantage of the heel in the South China Sea. Currently, the Philippines has usurped my nearly 43 years in the industry, the island if another strong surge through rely on this island for seven years, then it will be able to order the "actual control for 50 years" as an excuse, advocates from the level of international law get full sovereignty, and thus anchored, occupation wider Nansha waters, and then pushed forward to the South China Sea, in order to reap more benefits, its ambition is quite substantial.

This article discusses the rearming of SE Asian nations, including Vietnam and Indonesia.

South China Sea will be something big happens: Southeast Asian countries are rushing to mass troops

Late last year, the Chinese navy "Liaoning" aircraft carrier and the South China Sea during a training American warships after the occurrence of "occasional" event, the Philippine media have interpreted the move was related to the sea in the U.S. Navy intends to display the presence of cashing in on the Philippines' allies support. " Meanwhile, Japan since the end of last year, continue to send senior government officials and military personnel access to the Philippines, but also to aid the Philippines to honor previous military commitments equipment.

It is said that in addition to the new Mini maritime patrol outside the Philippines, Japan will dispatch Self-Defense Forces since March this year, the Philippine military officers trained soldiers to the Philippines, to help them improve the combat capability of the ocean. Meanwhile, the Philippines continues to play the "China threat", the Philippine military and political leaders repeatedly claimed that China since last year performance was "increasingly aggressive" and continuing to send warships and ocean surveillance ship to Nansha Islands cruise, which makes the Philippines. " deeply disturbing. "

Of the year, and then in the South China Sea, the Philippine military launched the "big action": its occupation of seven islands two massive sandbar send more troops; invested heavily in upgrading the local Navy and Air Force facilities; intends to reinforce its reefs depends on China Charity The old landing ship; secretly installed the new US-made warship gun system ...... many military observers believe that the Philippine government and the military is likely in 2014 in the South China Sea to further exacerbate tensions, the United States and Japan seem to be willing to Philippines " Site cheer. "

For the beginning of 2014, the Philippines will be "eager" to mobilize troops towards the South China Sea islands and reefs, the Russian independent military observers Semenov said that the possibility of the Philippine government and the military in 2014 reignite Nansha dispute is very large. His analysis:. "Philippines move both their own needs, more support behind the U.S. and Japan factor"

Some analysts have pointed out that the Philippines play a clown jumped on Taiwan, "performance", the U.S. and Japan to come forward its "Platform cheers", seemingly interactive "understanding", in fact, behind each play each abacus.

From the U.S. perspective, the current U.S. military is actively adjusting the Asia-Pacific and China's military deployment around the key objective is to curb the fortress East China Sea, South China Sea, Okinawa, pressed Chinese naval activities in the region, in this process, Japan and the Philippines are just their strategies pawn in a chess board, where to put, how to put it all depends on U.S. strategic needs.

Cam Ranh Bay in Vietnam, Russia delivered the Vietnam procurement 6 "Kilo" class conventional submarines type 636 in the first one. The submarine is from St. Petersburg harbor crane transport comes with. With the submarine from the shipyard in St. Petersburg Admiral experts, they will do the finishing touches before the official handover ceremony. The submarine will be named HQ182 "Hanoi" sign. The remaining five "Kilo" class submarines are expected to be delivered in 2016.

Reported that, as early as the 1960s, Indonesia becoming the first Southeast Asian country underwater combat capabilities, when it receives a number of Soviet-built W-class submarines. Later, in 1978, Indonesia has purchased two West German diesel-electric submarines. In 2012, the Indonesian Ministry of Defense announced that it plans by 2020 to expand its submarine fleet to 12. Because you want to overwrite the strategic choke points or entry into the channel islands offshore, requires a minimum of 12 submarines.

Currently Daewoo Shipbuilding and Maritime Engineering Company is working with the Indonesian Pal military cooperation company in Korea to build three U-209 submarines to Indonesia. The U-209 submarine is expected to be delivered between 2015 to 2016.

In addition, Indonesia is considering two options. The first option is to purchase and refit Russian "Kilo" class submarines. The second option is to buy new submarines from South Korea. This option is attractive because of the new submarine port compatible with existing infrastructure.

The report also said that by the end of November 2013, Singapore announced that it has signed a contract from the German Thyssen - the purchase of two new submarines 218SG Krupp Marine Systems. The terms of the sales contract, including maintenance and crew training in Germany. Singapore submarines will be equipped with air-independent propulsion system, is expected to be delivered in 2020.

Malaysia signed a contract with France in 2002, bought two "Scorpene" class submarines from the latter there. The two submarines were in 2007 and 2009 in service. May 2012, Malaysia said that any further submarine procurement plan will depend on the funds. That same year, Malaysia signed a contract to buy the boat submarine escape and rescue services, which will be built in Singapore.

In the Philippines, the Aquino administration took office early, according to the Department of Defense and the Armed Forces modernization project procurement "wish list" are said to include submarines. But now the country seems to have quietly abandon plans to buy a submarine.

Reported that in the next 5-10 years, the waters of Southeast Asia - especially in the South China Sea - the witness to the number of countries in the region to deploy conventional submarines increased significantly. This will make the South China Sea more crowded. Submarine force combat capability will enable the region to four dimensions - air, land, sea and underwater. Submarines will be able to engage in reconnaissance and intelligence gathering, mine, ship and long-range strike missions.

Fed Official: Diversify Into Asian Currencies, Euro

Can you read the writing on the wall?
Economists Are Thrilled To Hear Stanley Fischer Will Be Joining The Fed

Stanley Fischer was officially nominated Friday as a Governor and Vice Chairman of the Federal Reserve, the job Janet Yellen is vacating as she becomes Chairwoman.
While Yellen is incredibly qualified, it's exciting to have Fischer beside her.

He's a legend in central banking and economics circles, and for good reason. Fischer's a highly accomplished monetary economist, and excelled as Israel's central banker.

Policymakers see dollar losing reserve currency allure

"I'm more optimistic about the euro gaining strength as a potential reserve currency," Bank of Israel Governor Stanley Fischer said during a panel discussion at the annual World Economic Forum in Davos, Switzerland.

"We ourselves are diversifying into currencies which we would never have put in the reserves before, including the Australian dollar and so forth," he added. "I think people will diversify their reserves."

Too bad those Asian currencies are dependent on the Chinese economy in the short-run. Though if one owned gold, it would mitigate a lot of that risk. In sum: central bank heads say to diversify into Asian currencies that are dependent on the Chinese economy. The Chinese central bank is buying gold because it knows no one is going to trust its currency in a crisis. Solution: cut out the middle men and buy gold.

Spring Festival Cash Crunch

China's financial system isn't headed for another cash crunch at Spring Festival (31 Jan), but SHIBOR always shoots up around Spring Festival because many migrant workers drain their accounts and move money home. Also, China's still very cash economy sees a surge in spending around the holiday. Long story short, banks that are in financial straits are still having to offer huge interest rate enticements, as we saw in December and earlier cash crunches, to stay liquid.

民生、招商、平安等行春节前资金压力较大

Minsheng, Merchants Bank, Ping An, and more face financial pressure ahead of Spring Festival

21st Century Business Herald last year is, inter-bank lending rates have begun to fall, to Shibor 1W (Shanghai interbank interest rates one week), for example, the price went from a high point of 23 December whereabouts of 8.8430% to 8 January of 4.126%.

Reflecting the tightness of the interbank funding market prices Although stable, but the expected return rate of short-term bank financing seems to be still high.

In order to understand the recent yield of bank financing, the current statistical period of 3 months and subsisting in the sale of financial products included in the statistical category.

Expected return rate is still "high"

According Flush iFinD data show recent sales and duration of short-term financial products of 775, of which a total of 76 banks 481 financial products, the highest expected annual yield (the expected rate of return) of over 6%, the total number of issued of 62.06%, while the expected yield of 14 financial products more than 7%.

At the same time, the weighted average expected return rate of 775 financial products 5.92%, while the median expected rate of return of 6%, with the former difference 8 BP, which means more income than bank financing weighted average yield, showing that the recent short-term bank financing is still high rate of return, or it means that the funding tensions between the banks did not get along with greater ease and New Year's Eve.

It is worth mentioning that the top two highest statistical expected annual yield of structured products, namely China Merchants Bank - Focus Equity Index Series performance linkage linkage (CSI 300 Index Closing bidirectional continuous touch with the terms) financial planning and Agricultural Bank of China - "Golden Key wishful combination" 2013 Section 15 bearish CSI 300 Index, the expected rate of return of 15% and 8.2%, respectively.

However, due to the effective yield of such products linked to the Index conditions, the reaction of the price of capital is low, without considering these two products, the recent short-term financial returns expected in the range between 2.7% -7.2% .

Chinese New Year effect is obvious livelihood, investment, financial pressure or a larger peace

It is worth noting that the recent financial gains the high or the upcoming Spring Festival effect is not without relevance.

Statistics show that before the expected rate of return financial products ranked 100, with more than half the number of days within 45 banking days, and most financial beginning on Jan. 2 or Jan. 3. Visible, its maturity located just around the Spring Festival.

"Generally speaking, banks often have to face two rounds of funding pressures, one is natural, the other is the Chinese New Year." Between an inter-bank market, traders said, "Nature is often deposit ratio of the annual assessment of factors point , and the Spring Festival is to try to ensure that there is sufficient cash. "

In the trader seems to happen at the end of the Spring Festival this year in January, which will exacerbate the impact of funds festive effect. "Spring Festival falls on the end, which branches of some banks may be more affected." The trader said.

On the other hand, the statistics are expected to yield lower portion of financial products are showing a short term character. For example, the expected rate of return of less than 4% of financial products to six days, seven days, such as ultra-short-term-oriented financial products - "Minsheng Bank - Zhou Zengli extraordinary asset management plan" (hereinafter referred to as Zhouzeng Li plans) accounted for a relatively large scale.

Statistics show that a total of 19 products expected rate of return is under 4 percent, Minsheng Bank, "Zhou Zengli plan" had 14, these products are expected to yield at between 3.2% -3.55%.

In fact, their lower earnings, or its short duration and maturity from the time of the Chinese New Year are still relevant, statistics show that the current 14 "Zhou Zengli plan" maturities until January 18, while the Chinese New Year on the eve of the possibility of such products is expected to rise in yields is still large.

It is worth mentioning that not all ultra-short-term financial gains are due before the holiday are low, Minsheng Bank more than just "extraordinary asset management bamboo" income products to more than 5%.

The recent short-term financial situation is expected to yield specific to banks, performance is not the same.

Statistics show that the expected rate of return of more than 6% of the 481 financial products, in addition to the Bank of China, Construction, labor, delivery, agriculture, financial products are four lines in his column, issue number was 116, 24, 24 and 21 only.

In addition, a total of 11 banks to issue more than 10 is expected to yield no less than 6% of financial products, in addition to the aforementioned big firms, but also includes people's livelihood, investment, peace, SPD four joint-stock banks and Nanjing, Hankou, Jiangsu three city firm.

Among them, the Minsheng Bank issued the expected rate of return of not less than 6% of the number of large financial, reaching 41, shares the peace line, two investment banks to issue number was 23 and 20. This may mean that the three stock funds or face greater pressure on banks around the Spring Festival.