China on the brink of Catastrophe?

[waterbottle]

I found this on another blog:

http://www.afr.com/p/world/guarding_the_global_economy_biggest_4ZaLHtqeG8IKJdGUZ8FJqO

 

[DeepState]

China and GFC....hmmmm

GFC played out with mostly US-sourced sub-prime of various tranches eroding the balance sheets of banks and institutions around the world causing a balance sheet recession and triggering a death-loop between sovereigns and their national banks who called in their implicit puts.

If China goes to catastrophe, the banking system is largely internally controlled and owned. The impact will be felt via lack of credit availability to fund infrastructure and domestic consumption. It will dampen trade and confidence globally. The US banking system is so strong now that the key question is how much capital can be returned. Japan can't get its banks to lend enough. Europe....well, let's see what the Asset Quality Review comes up with. Canadian banks are super strong. Volcker and Basel III are all being gradually worked towards. It might cause a set of problems in Europe, but probably firewall there in the developed world as interbank activity has declined quite a bit. China implosion would have a major impact in Asia where the production chain has become integrated. It may lead to contagion effects to other EM whose banking systems are suspect. The world's banks would probably remain intact in the developed world and things would recover as per normal recessionary cycles as opposed to these decade-long credit-related ones.

Is that likely? Lots of talk about debt as 220% of GDP etc. At least they spent is on something other than pure consumption vapour...like much of US revolver debt and mortgage refi in the leadup to GFC. The ghost towns and bridges to nowhere are the worst examples of excess capacity. But don't take that as an average.

The interbank market has calmed right down after the Credit equals Gold (!!!) and Chaori Solar....developments. They are acting as if there is essentially business as usual risks - pretty much none. The CDS spreads on the sovereign have widened as the strategy has become clearer. China understands there is an issue, it is taking action to ensure more discerning practices occur in the loan market for on balance sheet and WMP, it is shaking out hot money and it is regulating off-balance sheet activity more forcefully. The Required Reserve Margin for banks is 20%. Massive. This is the power of a command economy which is able to utilize market forces in areas to meet its ends. The CDS spreads are not pricing anything materially concerning. The sovereign is underwriting the banking system and yet making things dicey enough in the banking system to keep operators in it on their toes.

In the lead up to Lehman, the debt markets were pricing material stress in the credit system well before the equity market picked it up. Forget about the argument that the media preceded or followed the equity market. Both followed the debt market.

The Chinese debt markets and derivatives thereon are pretty chilled out right now and so are their banks.

 

[sydboy007]

In Australia entry into politics seems to have a severe detrimental affect on memory.

In China it seems to have a different impact - increasing suicide rates.

http://worldaffairsjournal.org/blog/gordon-g-chang/mysterious-suicides-chinas-leadership