The news:
Feb. 5 (Bloomberg) — Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.
“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”
What is happening? Well, the truth is that no one really knows – least of all the Chinese government. Think of it like this: the Chinese government at the start of the year says that growth will be 8% this year. Are you going to be the apparatchik who sends up word that there was actually a contraction of 10%? Only if you want to get shot.
The only thing we do know for certain is that a huge amount of fiat money has been shoved in to the Chinese economy. The government made the money and then ordered China’s banks to lend it – and lend they did. And the Chinese people borrowed like mad and bought property and stocks in a gigantic, speculative bubble. Is that bubble bursting right now? Impossible to tell.
China’s government – at least officially – is concerned about this and is allegedly taking steps to reign in the borrow and spend binge before it gets entirely out of control. But there still is the fact that if you’re in charge of anything in China, you’d better show growth. And if a higher up wants a loan, you’d better give it to him. Its a huge mess – the lid is kept on, for the present, because the Chinese government is willing to use extreme measures to crack down on any unrest sparked by this…and, of course, a lot of western financial institutions, invested to the hilt in China’s stock and property bubbles, have a vested interest in convincing everyone that all is well…just as they had such interest in the US housing bubble…and we remember how well that worked out.
This will blow up in everyone’s face. Do not for a minute believe those who are selling the story that China has developed a new economic paradigm which is destined to over take the United States and become the model for the world. China is a communist dictatorship – corrupt, hidebound and fundamentally unstable, as are all regimes which don’t base their power upon consent of the governed. We heard the stories of a new paradigm with Germany in the 60’s and Japan in the 80’s – each of those nations was also supposed to have permanently figured it out and was going to outstrip the United States. This one is worse than Japan and Germany because, of course, the entire Chinese economy is a confidence game.
Get ready for the crash – now, next week, next month, next year; it will come.
HAT TIP: Mish’s
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