Tuesday, November 26, 2013

How Much of Chinese Banks' $24 Trillion in Loans Are Bad?

A correspondent writes,

"That $24-trillion is the cost of the ghost cities, plus other line items of similar size. Enormous misallocation of capital. I wonder if it will take the Chinese communist party with it? We are among the the few to understand this.This could be the basis for a contrarian play, right? There must be various American companies, headquartered in America and subject to the full rigor of American bankruptcy laws, whose operations are at risk from a Chinese collapse."
Yes, the loans can never be paid back because they weren't used to build sufficiently productive assets. This bubble is so big that when it collapses it will make 2008 seem like just a tremor.

From the Zero Hedge post,
"Total Chinese banking assets currently stand at some CNY147 trillion, around 2 ½ times GDP. As such, they have doubled in the past four years of increasingly misplaced investment and frantic real estate speculation, adding the equivalent of 140% of average GDP – or, in dollars, $12.5 trillion - to the books. For comparison, over the same period, US banks have added just less than $700 billion, 4.4% of average GDP, 18 times less than their Chinese counterparts"


Taylor Conant said...

Here's a hint of how it will end badly:

In the Japanese bubble in the 80s, America was overcome with Japanophilia and business leaders and schools were talking about how to be more like Japan to benefit like they were. One major suggestion was the fusing of public and private interests in cooperative organizations (fascism).

Eventually, the bubble collapsed and people stopped worrying about how to emulate Japan.

The same thing has happened with China. It was all the rage in 2010/2011 when the bubble there was really gathering steam, for people high up in the US government and in major US educational institutions to marvel at the "Chinese Miracle" and they were all discussing how to emulate the Chinese Method. State Capitalism seemed so... successful... over there. And again, there was a clamoring for public-private partnerships.

We'll see what kind of mea culpas come out of this one.

Anyway, this is a classic Keynesian scenario-- China is so wealthy with empty lodgings the only real problem is how to distribute it equitably. Right?

CP said...

Excellent comment. I'll move to front page.