Military bluster of China meant to distract from this ?
China's Peer-To-Peer Lending Bubble Bursts As Up To 90% Of Companies Expected To Default
Submitted by Tyler Durden on 01/12/2014 21:22 -0500
When it comes to the topic of China's epic credit bubble (which continues to get worse as bad debt accumulates ever higher), we have beaten that particular dead horse again and again andagain and, most notably, again. However, since in China the concept of independent bank is non-existent, and as all major financial institutions are implicitly government backed, by the time the "big" bubble bursts, it will be time to hunker down in bunkers and pray (why? Because while the Fed creates $1 trillion in reserves each year, and dropping post taper, China is responsible for $3.6 trillion in loan creation annually - yank that and it's game over for a world in which "growth" is not more than debt creation). But just because the big banks can continue to ignore reality with the backing of the fastest marginally growing economy in the world (inasmuch as building empty cities can be considered growth), the same luxury is not afforded to China's smaller lender, such as its peer-to-peer industry.
Granted, in the grand scheme of things P2P in China is small, although in recent years, as a key part of shadow banking, it has been growing at an unprecedented pace: according to research published last year by Celent consultancy, the country’s P2P lending market grew from $30m in 2009 to $940m in 2012 and is on track to reach $7.8bn by 2015. Here's the problem: it won't. In fact, China's P2P lending boom just went bust because as the FT reports, "dozens of the P2P lending websites that sprang up in recent years have shut as borrowers default on loans. The biggest companies are unscathed so far, but the rapid collapse of smaller rivals highlights the mounting difficulties in the Chinese micro-lending industry as economic growth slows and monetary conditions tighten... Of the nearly 1,000 P2P companies operating in China, 58 went bankrupt in the final quarter of last year, according to Online Lending House, a web portal that tracks the industry. Several more had already run into trouble this year, it added."
And it's only going to get worse:
"The main reasons are the intense competition in the P2P industry, the liquidity squeeze at the end of the year and a loss of faith by investors," said Xu Hongwei, chief executive of Online Lending House.He estimated that 80 or 90 per cent of the country’s P2P companies might go bust.
Oops. None of this is unexpected: after the Chinese banking system nearly collapsed in June, following an explosion in overnight lending rates on just the mere threat of tapering of liquidity by the PBOC (since repeated several times with comparable results), it was inevitable that there would be unexpected consequences somewhere.
That somewhere is manifesting itself in the one industry that was supposed to gradually alleviate the lending burden for the SOEs.
People in the industry had hoped that P2P lenders would fill a hole in China’s financial system by helping small businesses obtain funding and by giving investors higher returns than they can obtain from banks.While proponents believe that will still eventually prove to be the case, many believe the industry has expanded too quickly and with insufficient oversight.“A lot of P2Ps have blindly copied each other and they don’t have a business plan that is robust enough to react to market changes. They’ve just focused on sales, scale and bragging to each other,” said Roger Ying, founder of Pandai, one of the websites that is still active.Wangying Tianxia, a Shenzhen-based lender, was one of the biggest P2Ps to fail, according to the Shanghai Securities News, an official newspaper. Between its founding in March last year to its failure in October, Rmb780m ($129m) of loans were disbursed via its platform.A second China-wide cash crunch at the end of December heaped more pressure on P2P lenders. Fuhao Venture and Guangrong Loans posted notices on their websites in the first week of the new year warning investors that loan repayment might be delayed.
So, condolences to China's P2P business model: if it is any consolation, you are merely the first of many debt-related dominoes to tumble in China.
But while the Chinese government has already thrown in the flag on P2P - after all at just over a $1 billion in notional how big can the damage be - it is desperately scrambling to give the impression that all is well in the other, much more prominent areas of its credit bubble. Which is why the WSJ reports that "China's government is gearing up for a spike in nonperforming loans, endorsing a range of options to clean up the banks and experimenting with ways for lenders to squeeze value from debts gone bad.
Write-offs have multiplied in recent months. Over-the-counter asset exchanges have sprung up as a way for banks to find buyers for collateral seized from defaulting borrowers and for bad loans they want to spin off. Provinces have started setting up their own "bad banks," state-owned institutions that can take over nonperforming loans that threaten banks' ability to continue lending."In recent years, Chinese banks have been exploring new avenues to resolve their bad loans," said Bank of Tianjin, which is based in northeastern China. The lender recently listed more than 150 loans for sale on a local exchange. "We will continue to recover, write off, spin off and use other avenues in order to resolve bad loans," it said.China's banks reported 563.6 billion yuan ($93.15 billion) of nonperforming loans at the end of September. That is up 38% from 407.8 billion yuan, the low point in recent years, two years earlier.
Amusingly, just like in the US, where nobody dares to fight the Fed, in China the sentiment is that nothing can possibly go wrong at a level that impairs the entire nation: "Analysts think it is unlikely that Beijing would let major banks go bust. Still, investors suspect the cost of a cleanup could be a sizable economic burden and could become even greater if growth continues to slow."
Good luck with that, here's why:
"The last time Beijing confronted bad-loan problems, in 1999 and 2000, the sums involved had crippled the banking system. Banks became far less able to make new loans, forcing the government to take action. Some 1.3 trillion yuan of bad debt was spun off the books of the biggest state banks and swept into four purpose-built bad banks.This time, to avoid a costly bailout in the future, the government is pushing the banks to clean up their mess early. It is giving them new tools to do so: the exchanges to sell bad assets, provincial-level bad banks and permission to raise fresh capital using hybrid securities, complex products that combine aspects of debt and equity."
One small problem: sell them to who? After all China is a closed system, and the US hedge funds have their hands full will pretending Spain and Greece are recovering and sending their stock markets to the moon because of the endless stream of lies emanating from the government data aparatus, all of it made up.
A potential constraint on the bad-debt cleanup is the inexperience of buyers at pricing and dealing with distressed debt, never a significant asset class in China. Finding buyers for a failed factory or commercial property seized as collateral can be difficult, particularly in cities with weaker economies."There's an immature market for collateral. So the banks' capacity to resolve loans is more determined by the market than their own abilities," said Simon Gleave, regional head of finance services at KPMG China.Analysts see the bad-loan problem as a growing issue. Although figures as of the end of September indicate bad debt represents only about 1% of total loans inChina's banking system, a range of major industries are plagued with overcapacity and local governments are struggling to repay money borrowed to fund a construction binge. Investors broadly believe the actual bad-loan figure is much higher. The share prices of Chinese banks listed in Hong Kong have fallen, to trade below their book value.
And while all of the above is accurate, here is the biggest constraint: it is shown as the blue line in the chart below:
Applying a realistic, not made up bad debt percentage, somewhere in the 10% ballpark, and one gets a total bad debt number for China of... $2.5 trillion, and rising at a pace of $400 billion per year.
No, really. Good luck.
China Plans To Seize South China Sea Island From Philippines, Says "Battle Will Be Restricted"
Submitted by Tyler Durden on 01/12/2014 19:00 -0500
Following Japan's proclamations that it will take over another 280 'disputed ownership' islands, it appears the increasingly dis-approved of Prime Minister Shinzo Abe's path of militarism and provocation is working. As China Daily Mail reports, citing experts, China intends to take back Zhongye Island - 'illegally' occupied by the Philippines, according to the Chinese. The Chinese navy has drawn a detailed combat plan to seize the island and the battle will be restricted within the South China Sea. Philippines military is building up on the island and the Chinese see as 'intolerable' the "arrogance" relying on US support. It seems the Obama administration may have to 'not take sides' in another fight soon.
Background on the build-up...
Eugenio Bito-onon Jr, mayor of the Kalayaan island group, part of the contested Spratly islands administered by the Philippines,recently confirmed that the Western Command of the Armed Forces of the Philippines has deployed new air force troops in rotation to the disputed island of Thitu, according to Jaime Laude in a report for the Manila-based Philippine Star on Jan. 5.Known as Pag-asa in the Philippines and Zhongye island by both China and Taiwan, Thitu is the second largest in the Spratly island chain in the South China Sea and the largest of all Philippine-occupied Spratly islands.Laude said that the air force troops were deployed to Thitu island by naval aircraft, which will give the residents of the island a chance to visit Kalayaan aboard the returning plane. He added that China's maritime expansion into the South China Sea continues to put pressure on the Philippines, and the Philippine Navy have also been stationed in the area to defend the islands....Six countries - Taiwan, China, the Philippines, Vietnam, Malaysia and Brunei — claim in whole or part to the South China Sea and its island chains and shoals.
And the Latest Tensions...
Via China Daily Mail (translated from Chinese media),
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 ChinaAccording 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.
Source: qianzhan.com “Sudden major move of Chinese troops this year to recover Zhongye Island by force”
Of course, claims that "battle will be restricted" are nothing but taunting and should China launch an offensive here, we suspect the already dry and brittle tinder box in the South (and East) China Sea could rapidly escalate.
Japan holds military drill as S. China Sea islands dispute widens
Published time: January 13, 2014 00:11
Japanese paratroopers recaptured an island from an enemy in a wargame as its Defense Minister vowed to defend a disputed East China Sea territory. China’s ships sailed near the contested islets as Beijing reportedly expanded its air defense zone.
Tokyo’s military on Sunday held a military drill dubbed “Island Defense,” in which the country’s elite airborne troops simulated the retaking of a remote island from an enemy nation.
The plot for the annual drill, which took place at an exercise field east of Tokyo, stayed the same for the second year in a row as the dispute over the group of tiny islets in the East China Sea, claimed by China, Taiwan and Japan, showed no signs of resolution.
Japanese Defense Minister Itsunori Onodera, who was overseeing the drills, vowed to protect the territory around the islands, which Japan considers to be its own.
“We can never overlook China’s repeated entries into our territorial waters. In addition to diplomatic efforts, we will cooperate with the Coast Guard to securely defend our territory and waters around the Senkaku islands,” Onodera said.
The islands, which are known as Diaoyu in China and as Senkaku in Japan, have again found themselves in the middle of regional tension less than two weeks into the New Year. Three Chinese patrol ships briefly entered the disputed waters early Sunday, the first time since controversial fishing rules approved by China’s southern Hainan province took effect January 1.
The fishing rules require foreign fishing vessels to obtain approval before entering the disputed waters in the South China Sea, as the local government maintains they are under its jurisdiction.
Both the boats’ venture and the reminder of the unilaterally imposed fishing law sparked angry official reactions from Japan and its ally the United States.
“Setting something like this unilaterally, as if you are treating them as your own territorial waters, and imposing certain restrictions on fishing boats, is not something that is internationally tolerated,” Onodera said, claiming that China is “threatening the existing international order.”
Washington earlier branded the fishing rules “provocative and potentially dangerous,” prompting a rebuttal from the Chinese Foreign Ministry on Friday.
Patrol ships from China and Japan have often shadowed each other in the disputed area, since Tokyo moved to nationalize its control over three of the islands, with the state buying them from a Japanese family for 2 billion yen in September 2012.
Beijing considered the move to be a breach of its territorial sovereignty, as it holds that the islands were returned to China in 1945, half a century after their annexation by Japan in an earlier Sino-Japanese War.
After World War II, the US took control of the islets, until the US Senate voted to return them to Tokyo in 1972. The decision followed a discovery of potential oil and gas reserves in the vicinity of the islands by a UN commission in 1969. Both Chinese and Taiwanese governments also declared their ownership of the territories in 1972.
Tensions over what are believed to be resource-rich territories have soared in recent months, particularly after China announced the creation of an air defense identification zone (ADIZ) covering a large swathe of the East China Sea, including the disputed isles.
Both Japan and its ally the US strongly condemned the creation of the Chinese air defense zone, which was announced in November, ostensibly sending their ships, jets and bombers to pass through the territory. China also scrambled its fighter jets to shadow the military aircraft passing through the area and kept patrolling the nearby waters.
A report Sunday by Japan’s Asahi Shimbun newspaper, however, suggested that Beijing was serious on taking a hard-line stance over the disputed territories, expanding its defense zone even farther toward Japan.
In response to an inquiry from the Japanese newspaper, China’s Defense Ministry confirmed the eastern tip of the zone is just 130 kilometers from the Japanese island of Kyushu. This makes it as close to Japan as Tokyo’s own declared air defense zone is to China. The report suggests the newly decided Chinese identification zone has been revised since its introduction on November 23.