FIRST QUARTER CHINA:
China ended its annual political convention with a PRIORITY for control of financial system core risk. This itself defines how BAD the risk IS.
The first volley is to punish banks for dealing in shadow banking. To keep up the loan and profit velocity, China financial institutions are using assets the central banks increasingly is disallowing. The unintended CONSEQUENCE is that banks sell off assets. Some lenders went into default positions ( as the assets they used as core resource were disqualified ) and the central bank was FORCED to inject liquidity into those systems. Interactive bank lending and bond price sets are soaring.
My prior Blog reporeted on Shadow banking and its effects due to digital circumvention of fiscal regulations.
One target was and has been over two years cooling the SUPER BUBBLE of the China housing market – skyrocketing within unsustainable valuation’s much like the rest of the world experienced earlier in this decade. Planners fear SUPER CRASH in the system.
Debt is the issue. Downpayments on second and third home loans have now been substantially increased. Lenders are engaging SHADOW BANKING to resolve the issue in virtual and digital joint ventures that defy regulators on the conventional books. The Chinese central bank is engaging old tools and old tactics to ratchet down the property SUPER BUBBLE and the CREDIT SUPER BUBBLE.
However these policies – to date – have failed. The real estate market is soaring and the bubble is in a spiral that has no end in sight in 2017. The CONTROL OF RISK is including new punishing tools to banks who fail to follow central planner directions. The unintended consequence here, is that banks dump bonds and core assets to secure liquidity against credit controls, and STOP MAKING LOANS. The economic break is also unwanted.
The unfolding CHINESE experiment is new financial history. No nation has engaged this level of debt to income ratio, nor had the majority of its capital circulation occur in digital space, outside regulatory ease of conventional review assessment and control. Lacking real time digital assessment tools – nations including China – are behind real time events and when they review the issues the CRISES has already occurred. Will the Central Banks in China continue to furnish unlimited liquidity to assure the system does not lock up? Can the upside down pyramid of bad loans shown as good and current assets, against real assets liquidity and income continue to wobble and remain in place?
Will a SUPER CRASH occur via contagion and panic in China?
That remains the 2017 and 2018 risk related to China economics.
We have long warned that China economics are not sustainable at 300% debt to GNP to drive economics. We also have reported that there are serious asset class SUPER BUBBLES in China economics. Finally. we have warned the trillions in non performing loan bad debt must work out of the system which will create a rebalancing of accounts.
Kicking the ball down the street as leadership does year to year makes it all worse when the SUPER CRASH hits.
Historically such economies always result in a SUPER CRASH.
We continue to hope for the best as we are concerned for the worst.
Berny Dohrmann – China First Quarter Review – Just IN March 2017
PS: Off to the EU tomorrow to work with heads of state.