Is China the next big short? (2018)


#1

I have been researching china in the past few months and I keep asking myself the same question - is china the next big short?

Debt
The extent of China’s debt problem today is absolutely incredible. China’s economy has long been powered by ambitious infrastructure projects, but not it seems that these projects have ratcheted up debt and non-performing loans. China now has on and off balance assets of nearly 70 trillion USD equivalent at the end of 2016…

China’s shadow banking sector is still murky. No one can quite point out the extent of the debt. The daily telegraph reported that bad debt could be as much as 20/30% GDP. The PBOc also revised its assessment of the 2015 off-balance sheet bank debt upward by 100%. There is nothing to say its not more.

Shadow Banking In Focus
The biggest trends in China’s shadow banking indusrty is the management products offered by JD.com,Ant Financial (Alibaba) and Tencent.

Ant Financial’s money market fund (YueBao) was the world’s largest money market fund in 2017, according to the FT. And it expanded the fastest in 2017, than it has in its entire existence. Its growth has been staggering…

One could be fooled for thinking its the technology thats driving these changes. It’s not. Interest rates dropped of the edge of a cliff after 2014 and this has driven the demand for WMPs like Yue Bao.

The problem is that these companies are picking fruit from the same tree as chinese financial services industry. They are part of the PBOC’s ponzi debt scheme, whether they not this or not. It is not a innovation thats driving these WMPs, it’s the hunt for interest on deposit accounts.

China’s long-term clunky, heavy debts are now being supported by short-term, growing short-term, liquid liabilities, created by tech companies and left off the balance sheet. In truth, they are a recipe for disaster…

The dangers associated with China’s banking sector stem from moral hazard concerns. It is understood that the government will bail out aggressive lenders and fund managers, in the event of a full-blown financial crisis. China has a history of bailing out banks.

Between 1998 and 2004 it spent roughly $200 billion on recapitalising its banks. But it did little to reform the sector. In 2004, the economist estimated that china’s bad loans had reached roughly $420 billion. Recent estimates by Bloomberg tell us that this figure has now reached 2.5 trillion

Bad debt has been slowly building up and it has far more work to do. The rate of non-performing loans has increased markedly, built up on years of infrastructure projects has yet to come to the fore. Plus, China’s off balance sheet shadow banking sector is propping up the central bank’s Ponzi scheme to some extent…

Make your moves today!


#2

Interesting…I will take a look


#3

That’s a long read, but when I have the time, I will read it…


#4

Chinese stocks hitting two-month lows - could this be the beginning???

http://www.scmp.com/business/money/stock-talk/article/2123054/hong-kong-stocks-be-pressured-continuing-tech-rout-new


#5

I will just leave this here:

http://www.scmp.com/business/china-business/article/2123301/hong-kong-stocks-lose-hero-status-slump-worst-global


#6

I found this a few minutes ago…

It’s a figure showing China’s non-performing loan ratio…

The fact that it’s enormous is not necessarily the worrying part. The worrying part is that these are the loans the communist party are tellings us about…

What about the ones we don’t know…


#7

It looks like things are starting to kick off in China…

It looks like the Chinese government what they are doing…

In December, President Xi Jinping started cutting leverage:

Then President Xi shrugged off China’s debts completely:

The statement illustrates both Mr. Xi’s growing clout and what economists say is a subtle shift in how China may address its debt pile — a shift that suggests leaders may be willing to tolerate even more debt if it will help growth.

Some of this is hauntingly familiar!


#8

Came across this today:

China accounts for a ludicrous amount of venture deals. Obviously the country is incredibly large, however one has to wonder. Is there too much money swirling around in the system!

Personally, I agree with previous sentiments - I think the party is going to end.

The final straw was Xi’s power grab. XI needs to keep the economy on track until 2023 to maintain legitimacy.

To do, that he has to start de-leveraging before powering up debt from 2020-2021. This puts China’s local officials in a strange position. They must reign in the economy and the debt, but they must also do everything XI wants - keep the economy on track. This is an inherently contradictory message:

“Reign in the debt, but keep the party going”

As people here have already pointed out… China’s NPLs are steadily rising and debt is growing at an incredibly fast pace as well. XI said he would reform the economy, however his actions do not match his words. It seems his actions have been to ignore the problem and just arrest people he thinks are out of line:

I can easily foresee the officials grazing over the numbers to keep XI on side. This will continue until the party can’t go on any longer.

I am 100% short China - show me dem inverse ETFs!

This is also an interesting play:


#9

China Big Short: I have been thinking the same thing - China looks like it’s going to get messy!


#10