I remember reading that Michael Burry of Big Short fame said that he thought the housing crash was like a car crash happening in slow motion…
I feel a bit like that with China…
There are so many red lights flashing for these guys it actually hurts my eyes to watch.
1. China’s Economic Structure
The Chinese system is a meritocracy. If you have political ambitions you go into local government, your turn on the credit taps and you get promoted.
Local governors in China are rewarded for economic growth. Often times, this growth is powered by debt.
So if they are getting rewarded for debt binges, they will keep on going and that is what is happening.
This system of local governments turning on the credit taps is endemic in China. Now the level of local government debt has gotten so large, the Chinese actually have to hide it!
Local government debt is $2.5 trillion. However, economist fear that local government debt is far more than that. The system doesn’t count ocal government financing vehicles, debt racked up at state-owned enterprises owned by local authorities, and tacit credit guarantees made by local governments in private-public partnership projects.
The government said they would reign in local government debt in 2017…
This off sheet stuff is terrifying!
2. NPLs Rising
This system o simply turning on the taps is beginning to unravel. You see this in the surging number of Non Performing Loans from local banks.
Although the number of non-performing loans has grown, it seems these figures are fraudulent again:
The Annual Assessment Report on NPLS in China published by the China Development Press attacked the NPl loan system for encouraging various frauds.
Although the number of NPLs are rising, the true figure could be far greater than this.
Which is f**king scary!!!
But the biggest red warning light of all is Beijing’s decision to ignore all the flashing lights!
Xi Jinping is trying to cement his status as the next Chairman Mao, this means being seen as an economic master. Instead of reigning in credit as debt to gdp ratios soar, Xi has decided that’s they can hang on for another few years…
There is enormous opportunitiy for investors who are willing to be greedy when others are fearful…
A slew of vultures are starting to circle:
Get ready to pounce, or pull out of the market, because when China sneezes, the whole world will catch a cold