The Taper And The China Credit Power Struggle Squeeze
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National Photo Co. Roller Coaster Dips, Montgomery County, Maryland 1928 There is a crisis a-brewing in China that evolves around interest rates, with
[See the full post at: The Taper And The China Credit Power Struggle Squeeze]Doug Noland addresses this power relationship between the banks and the central bank by always noting it is far far easier for the latter to loosen than tighten. Tighten and the banks and the financial players may just just threaten to blow the whole thing up. Leaving the central bank on the horns of a dilemma. In the end they always have to relent so they can live another day. It’s rarely understood in terms of power but that is exactly what it is.
The world over the elites are gaining wealth from the flow of funds and asset inflation engendered by the credit bubble. While the Fed doesn’t have the slightest interest in upsetting the apple cart of the rich even if they did, like the PBOC they wouldn’t have the balls.
I doubt the same power relationship exists between the PBoC and Chinese banks as the ones in (formerly) rich nations. It will eventually, but for now the PBoC looks like a tool for the government, not the banks.
“The men at very top may have less control over the economy than they think and/or desire, but they sure still control the army, and may well feel they have the right to use that army to defend their positions.”
The common denominator the world over. The MIC. It takes banks to run tanks, and tanks to secure banks. That’s why economic dislocations end in wars. As a means of redistributing real resources after the phoney ones are exposed?
“It will eventually, but for now the PBoC looks like a tool for the government, not the banks.”
Like the Fed, the top dog in the PBoC is appointed by the top dogs in political power. It’s just that the image of the Fed is marketed as “independent,” in order to maintain plausible deny-ability on the part of pols. As you said. it keeps things behind curtains, so the buck can stop somewhere in the twilight zone when things go awry.
Surely, in China the top dogs have their fingers in the banking pie, as well.
It is always said that the U.S will be a reserve currency but what if other countries ie….Japan and China have to start bringing their money home out of the U.S market?
Ted, if trading countries don’t employ the Planners paper, with what will they trade? The Fed knows this, so is exporting it’s devaluation.
The only thing holding it together (the dollar) at this point is the example set in Libya, Egypt, Syria, Afghanistan, Iraq etc. Trade…or else!
“China Local Government Debt Soars”
“In a long-awaited report, the National Audit Office (NAO) said that China’s local government debt rose 70% from three years ago to 17.9tn yuan ($2.9tn, €2.1tn, £1.8tn). According to China’s last local debt audit, the figure stood at 10.7tn yuan as of end-2010.
Beijing had ordered the NAO in July to submit an accurate report on government debts after available figures failed to show the exact debt situation.
According to the NAO report, about 57% of the local debt was borrowed from commercial banks. In addition, 22% of the local debt matured before the end of this year, and about 40% will mature in the next two years.
Meanwhile, total government debt including both central and local governments amounted to 20.7tn yuan as of June, representing 40% of the country’s gross domestic product (GDP). Including contingent liabilities, total government debt stood at 30tn yuan, equivalent to 55% of the GDP.
“This national debt audit result could indicate that China’s local government debt almost doubled in about two-and-a-half years,” said Liu Li Gang, economist at ANZ Research.”
https://www.ibtimes.co.uk/china-local-government-debt-soars-raising-fears-hard-landing-1430672
More Capitalism for the Chinese:
“China’s role in global capitalism, despite its impressive growth figures, has been an assembly platform for foreign multi-national corporations. This system has brought wealth to a minuscule layer of Chinese capitalists while enormously profiting Western and Japanese companies, and their East Asian contractors.
Two-thirds of China’s exports are shipped from factories wholly or partially owned by non-Chinese companies. In high-technology industries, the ratio is higher: Wholly owned non-Chinese corporations account for 68 percent of high-tech exports and, if firms partially owned by foreign companies are included, the total is 83 percent.
And in contrast to misleading trade statistics, most of the money captured by this Chinese production is taken by Western and East Asian multi-national corporations, not by China. The world’s multi-national corporations profit immensely from China’s low wages and like the current Chinese system just as it is. […]
The dramatic increase in Chinese manufacturing is driven by multi-national corporations from the U.S., East Asia and Western Europe. State-owned enterprises account for 25 percent of China’s industrial output, down from 75 percent in the mid-1980s.
Exploitable workers are needed in those factories, and China’s supply of labor comes from rural wages being consistently 40 percent or less that of urban wages and that local and regional officials continually take and sell off farming land to developers, partly for their own enrichment but also to generate revenue to fund local government. According to a Reuters report, about four million farmers lose their land annually — and those farmers receive an average of $17,850 an acre from local governments, which resell it for an average of $740,000 an acre.”
Chart of the Day: How China’s Stunning $15 Trillion in New Liquidity Blew Bernanke’s QE Out of the Water
“Much less has been said that of the roughly $2 trillion increase in US bank assets, $2.5 trillion of this has come from the Fed’s reserve injections as absent the Fed, US banks have delevered by just under half a trillion dollars in the past 5 years. Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects. […]
You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion – some two and a half times the GDP of China!
Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion! […]
But more importantly, as with all communicating vessels, global liquidity is now in a constant state of laminar flow – out of central banks: either unadulterated as in the US, Japan, Europe and the UK, or implicit, when Chinese government-backstopped banks create nearly $4 trillion in loans every year. If one issuer of liquidity “tapers”, others have to step in. Indeed, as we suggested a few weeks ago, any possibility of a Fed taper would likely involve incremental QE by the Bank of Japan, and vice versa.
However, the biggest workhorse behind the scenes, is neither: it is China. And if something happens to the great Chinese credit-creation dynamo, then we see no way that the rest of the world’s central banks will be able to step in with low-powered money creation, to offset the loss of China’s liquidity momentum.
Finally, when you lose out on that purchase of a home to a Chinese buyer who bid 50% over asking sight unseen, with no intentions to ever move in, you will finally know why this is happening.”
Ilargi – “Moreover, instead of fighting that development, most of the leaders will opt to jockey for position, to wiggle and scheme all they can in order to build and improve their own personal positions in this “new” world.”
Looks like they’re doing just that.
No Yuan for Growth
“China’s investment binge of 2009-10 is dragging down its economy.
While net exports contributed roughly 25 per cent of China’s GDP growth between 2001 and 2008, their contribution to GDP growth has been negative since. In other words, in the last four years, the Chinese economy has relied almost exclusively on domestic investment and consumption for growth.
That is where the main causes of the economic slowdown lie. In the fast-growth period, China depended on three engines to power its economy: exports, investment and consumption. Exports and investment contributed roughly 60 per cent of the growth, with 40 per cent coming from consumption. But as the share of contribution to GDP growth from exports becomes negative, investment and consumption must make up the shortfall.
China’s policymakers obviously recognised this challenge in 2008. Unfortunately, they botched their policy response. Instead of channelling resources to boost domestic consumption and the private sector, Beijing splurged roughly $2 trillion on fixed investments, most of them undertaken by local governments and state-owned enterprises. Predictably, such investments, financed largely by bank debt, were doomed to be unproductive. […]
Little did they know that a significant portion of the Chinese stimulus went into useless projects. Local governments went on a spending spree, building shining office buildings, shopping malls, highways, bridges and power plants. Real estate developers erected pricey apartment buildings to capitalise on sky-rocketing property prices. State-owned enterprises expanded their production capacity indiscriminately.
Today, the investment binge of 2009-2010 is dragging down economic growth through two channels. The financial leveraging in this period, during which Chinese banks issued new loans worth $3.6 trillion (about 43 per cent of the Chinese GDP in 2011), led to a massive build-up of debt accumulated by Chinese cities and corporations. […] Chinese banks have not recognised these loans as non-performing, mainly because Beijing has not pushed them to do so. However, the highly indebted local governments and corporations have become huge credit risks and, as a consequence, are finding it harder to draw new loans to survive. That is the reason why China’s shadow banking system has grown explosively in the past few years. […]
This leads us to the second channel through which the stimulus of 2009-2010 is holding back growth. The massive investments in manufacturing capacity, which began earlier last decade but got a boost during this period, produced enormous overcapacity in many industries in China. As a result, profit margins have been squeezed, if not destroyed. Heavily indebted Chinese corporations, even when they get new credit, can only use it to service old loans, instead of producing for profit. Such “zombie companies” now dot the Chinese industrial landscape.
Without addressing the two interconnected problems of over-leveraging and excess capacity, the Chinese economy is likely to stagnate and face its own version of a debt crisis at some point in the near future.”
https://www.indianexpress.com/news/no-yuan-for-growth/1110852/1
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