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China facing full-blown banking crisis; BIS
Topic Started: 19 Sep 2016, 07:12 PM (6,227 Views)
Simon_S
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China facing full-blown banking crisis, world's top financial watchdog warns

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hina has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog.

A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.

The Bank for International Settlements warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia's speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.

Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring. The credit to GDP gap measures deviations from normal patterns within any one country and therefore strips out cultural differences.

It is based on work the US economist Hyman Minsky and has proved to be the best single gauge of banking risk, although the final denouement can often take longer than assumed. Indicators for what would happen to debt service costs if interest rates rose 250 basis points are also well over the safety line.

China’s total credit reached 255pc of GDP at the end of last year, a jump of 107 percentage points over eight years. This is an extremely high level for a developing economy and is still rising fast .
Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.

The BIS said there are ample reasons to worry about the health of world’s financial system. Zero interest rates and bond purchases by central banks have left markets acutely sensitive to the slightest shift in monetary policy, or even a hint of a shift.

Just a sample......
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Tick Tock
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I wish they would hurry up and just default.

I'm so sick of reading all this bad news but nothing ever happens!
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Bardon
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Lukey01
19 Sep 2016, 07:21 PM
I wish they would hurry up and just default.

I'm so sick of reading all this bad news but nothing ever happens!
It wont happen they will just forgive it its all internal numbers anyhow.
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conork
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Bardon
19 Sep 2016, 07:54 PM
It wont happen they will just forgive it its all internal numbers anyhow.
Exactly.
A couple of trillion in their rainy day fund.
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Simon_S
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Bardon
19 Sep 2016, 07:54 PM
It wont happen they will just forgive it its all internal numbers anyhow.
Is it just numbers...........

Or is that what you would like to believe?

Maybe you could explain the question I posed to our dearest Trollie about what the impacts would be to Australia when China's Economy tanks.

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Simon_S
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Fear that China debt bubble will burst

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Making this view all the more formidable is the fact that the Bank for International Settlements which looks after the world's central banks and makes the rules on the strength of banks, has based its concerns on a fairly straightforward measure of the country's debt relative to the size of the economy.


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Thus there are two problems. The first is that the economy's growth is slowing and the related problem is that the government has taken on debt in order to stimulate it.

Chinese have become addicted to debt and weaning off this stimulus will be painful.


And Look they Joined the dots......

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But ignoring the build-up of debt risks a major shock to the economy and one that will spread to other economies - and in particular Australia given its strong trade ties.


Looks like DEBT Matters..........


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Jon Snow
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Bardon
19 Sep 2016, 07:54 PM
It wont happen they will just forgive it its all internal numbers anyhow.
All liabilities have a corresponding asset. Will the asset holders also be so forgiving?
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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Bardon
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Jon Snow
20 Sep 2016, 08:52 PM
All liabilities have a corresponding asset. Will the asset holders also be so forgiving?
Firstly the Chinese collapse is not coming, their industrial age is just starting.

Then to answer your question Chinese govt are a major shareholders in most of the banks doing the lending, they have a lot of economic armory at their disposal including lost of assets that they convert if things got tight and they needed to.
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conork
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Jon Snow
20 Sep 2016, 08:52 PM
All liabilities have a corresponding asset. Will the asset holders also be so forgiving?
I think the asset holders is the state, they can let the state owned companies absorb a default.
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Jon Snow
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conork
20 Sep 2016, 09:28 PM
I think the asset holders is the state, they can let the state owned companies absorb a default.
No, that is incorrect. Most state enterprises are unprofitable or barely profitable. Those enterprises who are profitable export to the United States and deposit their profits in the banking system. They would most certainly not be happy about losing their deposits. But China is a communist dictatorship and so will do whatever they want, hence the desperate capital flight going on for the last 5 years or so.

Bardon
20 Sep 2016, 09:12 PM
Firstly the Chinese collapse is not coming, their industrial age is just starting.

The industrial correction is coming. It happened in Japan, it happened in Taiwan, it happened in South Korea and Hong Kong. It is not a collapse, it is a restructure. Unprofitable industries have to be let go, along with their workforce.

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Then to answer your question Chinese govt are a major shareholders in most of the banks doing the lending, they have a lot of economic armory at their disposal including lost of assets that they convert if things got tight and they needed to.
You really do like talking out of your arse don't you?
Edited by Jon Snow, 20 Sep 2016, 10:12 PM.
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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