Over the holidays I've been asked by a number of my readers and friends to make an effort to simplify the issues I've been discussing over the last few years. One of the suggestions, from a very astute money manager/friend of mine was "Nobody get's it!.....could you just put the most important stuff in one chart or table with citations?"
My response, not fully knowing exactly how I was going to approach this pile of financial spaghetti, was...."I guess I can try..."
So here goes.....
If you want a 30 Second Summary, just scan the graphics and read the text in RED.
After making my iron clad commitment to simplicity, almost on cue, the PBOC, on December 28th, published the long awaited (several months overdue), English version of their epic, annual, "no problem...nothing to see here" Financial Stability Report.
As usual, it's a laugh out loud gut-buster of a document filled with classic economic humor and side splitting financial one liners. But, in keeping with the spirit and direction of my informal, reader focus group, I'm not going to attempt to dissect the entire 246 pages of the report.
I'll confess, I don't understand some of it. I've tried. Believe me, I've tried. The problem is, to be kind, that it's a compendium of silly flotsam and odd financial jetsam, set adrift in a sea of irrelevant drivel. There are probably nuggets of accuracy buried in it somewhere, but I've, as of yet, failed to identify them with certainty.
The purpose of the PBOC's Financial Stability Report, as far as I can tell, is to fully describe the financial condition of the Chinese economy and let the world know that "China" is on top its game and doing a great job ....at everything. All's well.....nothing to see here.
As you also know if you've been a long time reader of this blog, I've been really concerned about China's meteoric "Questionable Financial Asset" growth and the impact that it might have on the global economy.
Keeping with the new "Simple,Short to the Point" theme, I'm going to try to boil this entire mess down to a couple of Simple, Short and to the Point Tables, complete with page number references......here they are:
The chart below has been compiled primarily from figures from the just released 2018 Financial Responsibility Report (page 62)
Highlights of the above:
1.) In four short years the Chinese Government has "created" 380 Trillion RMB or US$ 50.1 Trillion (US$ equivalent) in Financial Assets out of thin air. The US$ (currency adjusted) value of these Financial Assets increased a whopping 22% in 2017 and forecast growth of 8% for 2018.
2.) The 2015 & 2016 figures include the "newly discovered" (Restated) Off-Balance Sheet (OBS) Assets disclosed in the 2017 Report (For YE 2016).
3.) During this incredible run, Non-Preforming loan ratios actually improved. Chinese bankers have always had a reputation as tough, relentless underwriters. (For you Chinese bankers reading this....that was what we call "sarcasm" in America). Here's the quote (pg. 60) "Downward pressure on assets quality alleviated. By end-2017, the total outstanding NPLs of banking institutions recorded RMB 2.39 trillion, an increase of RMB 195.7 billion y-o-y. The NPL ratio dropped by 0.06 percentage point y-o-y to 1.85 percent."
4.) In the 2017 FSR (2016 YE Data) the PBOC appeared to be extremely concerned about the OBS Asset growth. Here's the quote from page 48 of the report: "In 2017, the foundation for a resilient economy and a sound financial market is still not firm, the downside pressure on real economy cannot be overlooked, and great attention should be attached to the challenges and risks confronted by the banking sector. The banking sector will remain committed to the mandate of contributing to the real economic growth, attach more importance to risk prevention, improve risk management and hold on to the bottom line of preventing systemic risks from happening." Since the time of this prophetic writing the PBOC has continued to "pay great attention"..."improve risk management" and try their best to "prevent systemic risks from happening"......by supporting Financial Asset growth at an annual rate of 14%! ....uh oh...
5.) By extrapolation and applying the demonstrated 2017 Financial Asset growth rate (quantifying the PBOC's commitment to financial austerity and tight money) to 2018 we can calculate/forecast that Chinese Financial Assets (as of yesterday) now amount to roughly 634 Trillion RMB (US$ 92.2 Trillion) or probably about 1/4th of all financial assets on the planet at current exchange rates.
6.) During the same time period the RMB has weakened by only 13%. (6:05 v 6:88)
7.) No economy, in history, has ever created financial assets, in equivalent reserve currency at this pace or level.....EVER.
Given the above, relatively shocking Asset Growth (even though the PBOC says "All's well...nothing to see here"), let's compare the above PBOC Figures to those previously provided to the Financial Stability Board for the Global Shadow Banking Monitoring Report. The FSB Figures (2014, 2015 & 2016) are taken from the 2017 Data Set. 2017 Data should be available in the March 2019 Report (2018 Data Set)
When reviewing the figures we note a significant disparity between the PBOC Financial Stability Report and those provided to the Financial Stability Board (Since the numbers are all being reported by the PBOC, one would think they should be the same). Here are the bullet points
1.) We note that the figures reported in 2014 were about the same (give or take a "Trillion" or two! US$ 40.0 Trillion vs. US$ 42.1 Trillion) At that time Chinese Financial Assets were roughly 12% of Global Financial Assets as reported by the FSB. Moving forward to 2016, the disparity grew to 20.6% vs. 14.4%. (The "newly discovered" OBS Assets)
2.) When we fast forward to 2018, extrapolating the trend and accounting for an estimated decline in Total Global Asset Values over the last month we can forecast, based on 2017 growth rates that Chinese, Mainland RMB Assets are now roughly 27% of all Global Assets. (in dollar terms as of 12/31/18).
3.) In the 2017 FSR (2016 YE Data) the PBOC attempts to explain the US20.9 Trillion disparity between their own financial asset figures, and those reported to the Financial Stability Board, while half-heartedly acknowledging the risk associated with the meteoric growth of mainland Shadow Banking. Here's the absurd quote found buried on page 151. "Such business is of low transparency and is easy to evade regulatory requirements for loans. Moreover, part of the money is invested in prohibited areas and most of the money is not yet covered by statistics of the TSF (Total Social Financing)" I believe that what the PBOC FSR is saying is that they don't include significant Shadow Bank Assets in their reporting to the to the FSB. Like most things Chinese, if it makes them look bad....they leave it out...
In other words, there's a good chance that, at the current exchange rate, Chinese Asset Values now exceed total US Financial Assets at the end of 2018 (Total US Financial Assets were US$90.2 Trillion as of 2016 per the FSB data Set). How could this happen?.....because very little is written off or written down. Bad Assets are rewritten, refinanced, rolled over and/or revalued. US$ Trillions are locked into far from liquid, vacant, overvalued residential real-estate, mortgages and wealth management products tied to same. There's no such thing as a default or a non-performing loan or WMP in China.
Why Are the Numbers Different?
From my perspective, the numbers produced by the PBOC in their "Financial Stability Report" (an oxymoron if there ever was one) should exactly match the numbers they provide to the Financial Stability Board. Total Bank Assets and Off Balance Sheet Assets are specific terms with specific definitions, yet, the figures seem to "jump around" and differ by tens, or even hundreds of Trillions of RMB depending on the document/source. There are a number of possible explanations for this....here they are:
1.) I'm (DeepThroatIPO) making a mistake in my reading of the reports and really don't understand what I'm looking at. There could be some sort of definition issue or translation problem which causes the Trillions of dollars of differences in the figures and there's a simple answer for this anomaly. Everyone who matters is already aware of it and I'm last to the party. (I doubt it since the PBOC Report was just issued last Friday night). If any economist or banker out there has a handle on what's really happening, or if you believe I'm dead wrong, I'd love to hear from you.
2.) The PBOC has a "second set of books" that they provide to the Financial Stability Board. This also makes perfect sense, you know, just like the silly filings on the US$2.733 Trillion (Feb. 2018 valuation) of goofy Chinese IPOs on US Exchanges. I'm told "Dual Bookkeeping" is nearing epidemic levels in China.
3.) The PBOC simply has no idea what it's doing and just "makes shit up". None of these numbers are actually calculable or accurate from the mish-mash, duct-taped-together financial systems they've conjured up and they just want to issue a rosy, feel good report for all the world to see. "Assets" are a good thing....right? The "trillions" could also be typos, slipped decimal points or mistakes, as been posed by a few of my troll-ish readers. As a rebuttal, I'd suggest that typos and math errors are occasionally acceptable for bloggers, journalists and pundits, but they shouldn't be present in Central Bank documents.
4.) The PBOC reports are politically motivated propaganda tools disbursed by the CCP. The authors simply report big, gigantic, impressive numbers that they believe Xi wants to see, so they don't end up in one of those Xinjiang region re-education camps along with the Uighurs. Avoiding re-education is most likely a primary career objective for most Chinese Bankers and Economists nowadays.
The point I'm making is that the idea that these disjointed, nonsensical, inconsistent, figures could possibly be accurate, reliable or free from bias is laughable.
TO BE CRYSTAL CLEAR, SIMPLE, SHORT AND TO THE POINT.......IF THE PBOC FSR IS ACCURATE, THEN THE FINANCIAL STABILITY BOARD REPORT IS DEAD WRONG!
THE FSB REPORT WOEFULLY UNDERSTATES THE LEVEL OF GLOBAL ASSETS, DUBIOUS SHADOW ASSETS AND THE INHERENT RISK OF DEFAULT ASSOCIATED WITH SAME.
THERE ARE ROUGHLY US$ 28.2 TRILLION ($92.2T-$64T) OF FINANCIAL ASSETS OUT THERE (AS OF YESTERDAY) THAT THE WORLD'S CENTRAL BANKERS DON'T KNOW ARE THERE, NOR DO THEY UNDERSTAND THE SIGNIFICANCE RE: MONETARY POLICY
The Relationship of China's Financial Assets to "Fake" GDP
Here's a nice graphic I like, describing 2017 Global GDP by region/country.
Focusing on the period from 2014 thru 2017:
In 2014, China GDP was US$10.48 Trillion compared to Total Financial Assets of US$42.1 Trillion (i.e. Financial Assets were 4x GDP). By 2017, China GDP increased to US$ 12.24 Trillion and Mainland Financial Assets increased to US$85.3 Trillion (i.e. a multiple of 7x GDP)
As a point of reference US Total Financial Assets have been relatively constant at roughly 5x GDP (FSB figures) over the same time period.
The Simple Question is: How in the name of Paul Volker could any economy (China) create an additional US$43.2 Trillion (US$85.3T - US$42.1T) in Financial Assets in three (3) years, while increasing GDP by only about US$400 Billion a year.
In the three year period from 2014 thru 2017 the Chinese economy created US$25.00 of new Financial Assets for every dollar of GDP. If we use PGDP (Productive GDP) in the ratio, it's probably about US$40.00 of Financial Assets per dollar of PGDP. How could this possibly happen?
The Simple Answer is: It can't!
There You Have It!
Simple, Short and to the Point.....I invite you to read the PBOC report in its entirety. It's a hoot!
Here are just a few of my favorite quotes from the Executive Summary :
The economic and financial development and reform and the defusing and tackling of major risks during the past one year have not only reduced financial risks, improved stability of the financial system, laid the foundation for the economic transformation and development in the next five years or an even longer period, but also contributed to growth and sustained recovery of the global economy.
Well.... based on the numbers, that's not exactly what I might have concluded. Apparently, they are looking for a "thank you" from the world?
The Chinese economy is going through the transformation of high-speed growth to high-quality growth and structural adjustment, thus some financial risks of a grey rhinoceros nature may still come up.
I'm glad they are concentrating on quality over quantity, otherwise they might have created US$100 Trillion of junk assets rather then just US$50.1 Trillion. I also wish the PBOC wouldn't refer to the POTUS as a "grey rhinoceros". So disrespectful.
However, the fundamentals of the Chinese economy featured by the large volume, huge market and strong resilience have remained unchanged. The basic policy orientation of reform and opening up has remained and will not change.
"Opening up?" Really? Do you have any Uighurs, Muslims or Tibetans working at the PBOC? Have you talked to any US Tech Companies about how open you are? Can your "regular" citizens transfer money offshore without a financial rectal exam? Can your workers move to a new Chinese city or take another job without getting CCP approval? Do you still bulldoze Chinese houses and throw the homeowners on the street when a crooked, connected party member developer wants to put up a high rise? Why are all of those journalists and college professors deported or re-educated? What exactly do you have against Canada? How about unblocking this blog on the mainland? Openness my ass.....Just sayin'......
That said, Chinese self reported Financial Asset growth doesn't make any sense. It could be that the PBOC FSR is accurate, or the Financial Stability Board is accurate or "none of the above" is accurate. In any case, managing intelligent, functioning monetary policy in this environment is not possible.
Right now, again if we were to guess, since China doesn't publish any real/believable numbers, debt service, at current mainland interest rates on US$92.2 Trillion of non-performing Financial Assets is rapidly approaching half of China's fake GDP. The assets might actually exist in some form, but if they do they are poised for monetization, their economic values to be inflated away (currently underway) or default over time. The only remaining question is, when will this devastation finally hit the exchange rate, properly reflecting the true value of the Chinese economy.
The Chinese Financial Cancer is now officially terminal and the malignancy has spread to every corner of the globe, thanks to the world's anonymous, offshore banking system and sophisticated Off-Balance-Sheet financial tools (Swaps, Repos, Cross Border Listings, FOREX Bonds/Notes/Loans, Cryptos, etc. and any other derivative tool our amazingly creative American, Japanese and EU Bankers can dream up.)
If you'd like to read more detail about how US Banks, Regulators and the off shore financial system have at best failed us, and at worst have been complicit in this debacle (for hefty fees), please feel free to peruse some of my prior posts. Here are two of my relatively recent, better efforts that you might enjoy.
Twas the Night Before Christmas...
When Will Xi hit the Sell Button?....
One Final "What the Hell?"
This just popped into my inbox from a reader.....it appears that as the Chinese Equity Markets dry up, Chinese fraudsters.....I'm sorry....I meant to say "Chinese entrepreneurs" have continued to scour the world for dopey "China Dream" investors courtesy of US Investment banks. For the first time in history, at least that I'm aware of, a nation's "off shore" new listings & corresponding capital raises have actually surpassed that same nation's "on shore" raises.
In 2018, the capital raised by Chinese IPO listings in the US & HK (offshore) of US$40 Billion, was greater than capital raised on the mainland US$18 Billion.....again, these figures might all be suspect....but who the hell knows anymore.....
That's right, an economy the size of China's is raising more equity money via off-shore listings than on-shore. Apparently, Chinese mainland investors have very little faith in their "entrepreneurs".
Does that make any sense at all?
Anyway.....
HAPPY NEW YEAR!
Resources:
PBOC - All FS Reports - 2018 Report Published 12/28/18 (English Version)
http://www.pbc.gov.cn/english/130736/index.html
Financial Stability Board - Global Shadow Banking Monitoring Reports and Data Sets
http://www.fsb.org/2018/03/global-shadow-banking-monitoring-report-2017/
Actual Text - pg 62 of the 2018 PBOC FSR
SCMP - China Construction Bank Chair Warns of housing bubble....
https://www.scmp.com/economy/china-economy/article/2179289/chinese-state-bank-chief-warns-against-buying-property-now
My response, not fully knowing exactly how I was going to approach this pile of financial spaghetti, was...."I guess I can try..."
So here goes.....
If you want a 30 Second Summary, just scan the graphics and read the text in RED.
After making my iron clad commitment to simplicity, almost on cue, the PBOC, on December 28th, published the long awaited (several months overdue), English version of their epic, annual, "no problem...nothing to see here" Financial Stability Report.
I'll confess, I don't understand some of it. I've tried. Believe me, I've tried. The problem is, to be kind, that it's a compendium of silly flotsam and odd financial jetsam, set adrift in a sea of irrelevant drivel. There are probably nuggets of accuracy buried in it somewhere, but I've, as of yet, failed to identify them with certainty.
The purpose of the PBOC's Financial Stability Report, as far as I can tell, is to fully describe the financial condition of the Chinese economy and let the world know that "China" is on top its game and doing a great job ....at everything. All's well.....nothing to see here.
As you also know if you've been a long time reader of this blog, I've been really concerned about China's meteoric "Questionable Financial Asset" growth and the impact that it might have on the global economy.
Keeping with the new "Simple,Short to the Point" theme, I'm going to try to boil this entire mess down to a couple of Simple, Short and to the Point Tables, complete with page number references......here they are:
The chart below has been compiled primarily from figures from the just released 2018 Financial Responsibility Report (page 62)
Highlights of the above:
1.) In four short years the Chinese Government has "created" 380 Trillion RMB or US$ 50.1 Trillion (US$ equivalent) in Financial Assets out of thin air. The US$ (currency adjusted) value of these Financial Assets increased a whopping 22% in 2017 and forecast growth of 8% for 2018.
2.) The 2015 & 2016 figures include the "newly discovered" (Restated) Off-Balance Sheet (OBS) Assets disclosed in the 2017 Report (For YE 2016).
3.) During this incredible run, Non-Preforming loan ratios actually improved. Chinese bankers have always had a reputation as tough, relentless underwriters. (For you Chinese bankers reading this....that was what we call "sarcasm" in America). Here's the quote (pg. 60) "Downward pressure on assets quality alleviated. By end-2017, the total outstanding NPLs of banking institutions recorded RMB 2.39 trillion, an increase of RMB 195.7 billion y-o-y. The NPL ratio dropped by 0.06 percentage point y-o-y to 1.85 percent."
4.) In the 2017 FSR (2016 YE Data) the PBOC appeared to be extremely concerned about the OBS Asset growth. Here's the quote from page 48 of the report: "In 2017, the foundation for a resilient economy and a sound financial market is still not firm, the downside pressure on real economy cannot be overlooked, and great attention should be attached to the challenges and risks confronted by the banking sector. The banking sector will remain committed to the mandate of contributing to the real economic growth, attach more importance to risk prevention, improve risk management and hold on to the bottom line of preventing systemic risks from happening." Since the time of this prophetic writing the PBOC has continued to "pay great attention"..."improve risk management" and try their best to "prevent systemic risks from happening"......by supporting Financial Asset growth at an annual rate of 14%! ....uh oh...
5.) By extrapolation and applying the demonstrated 2017 Financial Asset growth rate (quantifying the PBOC's commitment to financial austerity and tight money) to 2018 we can calculate/forecast that Chinese Financial Assets (as of yesterday) now amount to roughly 634 Trillion RMB (US$ 92.2 Trillion) or probably about 1/4th of all financial assets on the planet at current exchange rates.
6.) During the same time period the RMB has weakened by only 13%. (6:05 v 6:88)
7.) No economy, in history, has ever created financial assets, in equivalent reserve currency at this pace or level.....EVER.
Given the above, relatively shocking Asset Growth (even though the PBOC says "All's well...nothing to see here"), let's compare the above PBOC Figures to those previously provided to the Financial Stability Board for the Global Shadow Banking Monitoring Report. The FSB Figures (2014, 2015 & 2016) are taken from the 2017 Data Set. 2017 Data should be available in the March 2019 Report (2018 Data Set)
When reviewing the figures we note a significant disparity between the PBOC Financial Stability Report and those provided to the Financial Stability Board (Since the numbers are all being reported by the PBOC, one would think they should be the same). Here are the bullet points
1.) We note that the figures reported in 2014 were about the same (give or take a "Trillion" or two! US$ 40.0 Trillion vs. US$ 42.1 Trillion) At that time Chinese Financial Assets were roughly 12% of Global Financial Assets as reported by the FSB. Moving forward to 2016, the disparity grew to 20.6% vs. 14.4%. (The "newly discovered" OBS Assets)
2.) When we fast forward to 2018, extrapolating the trend and accounting for an estimated decline in Total Global Asset Values over the last month we can forecast, based on 2017 growth rates that Chinese, Mainland RMB Assets are now roughly 27% of all Global Assets. (in dollar terms as of 12/31/18).
3.) In the 2017 FSR (2016 YE Data) the PBOC attempts to explain the US20.9 Trillion disparity between their own financial asset figures, and those reported to the Financial Stability Board, while half-heartedly acknowledging the risk associated with the meteoric growth of mainland Shadow Banking. Here's the absurd quote found buried on page 151. "Such business is of low transparency and is easy to evade regulatory requirements for loans. Moreover, part of the money is invested in prohibited areas and most of the money is not yet covered by statistics of the TSF (Total Social Financing)" I believe that what the PBOC FSR is saying is that they don't include significant Shadow Bank Assets in their reporting to the to the FSB. Like most things Chinese, if it makes them look bad....they leave it out...
In other words, there's a good chance that, at the current exchange rate, Chinese Asset Values now exceed total US Financial Assets at the end of 2018 (Total US Financial Assets were US$90.2 Trillion as of 2016 per the FSB data Set). How could this happen?.....because very little is written off or written down. Bad Assets are rewritten, refinanced, rolled over and/or revalued. US$ Trillions are locked into far from liquid, vacant, overvalued residential real-estate, mortgages and wealth management products tied to same. There's no such thing as a default or a non-performing loan or WMP in China.
Why Are the Numbers Different?
From my perspective, the numbers produced by the PBOC in their "Financial Stability Report" (an oxymoron if there ever was one) should exactly match the numbers they provide to the Financial Stability Board. Total Bank Assets and Off Balance Sheet Assets are specific terms with specific definitions, yet, the figures seem to "jump around" and differ by tens, or even hundreds of Trillions of RMB depending on the document/source. There are a number of possible explanations for this....here they are:
1.) I'm (DeepThroatIPO) making a mistake in my reading of the reports and really don't understand what I'm looking at. There could be some sort of definition issue or translation problem which causes the Trillions of dollars of differences in the figures and there's a simple answer for this anomaly. Everyone who matters is already aware of it and I'm last to the party. (I doubt it since the PBOC Report was just issued last Friday night). If any economist or banker out there has a handle on what's really happening, or if you believe I'm dead wrong, I'd love to hear from you.
2.) The PBOC has a "second set of books" that they provide to the Financial Stability Board. This also makes perfect sense, you know, just like the silly filings on the US$2.733 Trillion (Feb. 2018 valuation) of goofy Chinese IPOs on US Exchanges. I'm told "Dual Bookkeeping" is nearing epidemic levels in China.
3.) The PBOC simply has no idea what it's doing and just "makes shit up". None of these numbers are actually calculable or accurate from the mish-mash, duct-taped-together financial systems they've conjured up and they just want to issue a rosy, feel good report for all the world to see. "Assets" are a good thing....right? The "trillions" could also be typos, slipped decimal points or mistakes, as been posed by a few of my troll-ish readers. As a rebuttal, I'd suggest that typos and math errors are occasionally acceptable for bloggers, journalists and pundits, but they shouldn't be present in Central Bank documents.
4.) The PBOC reports are politically motivated propaganda tools disbursed by the CCP. The authors simply report big, gigantic, impressive numbers that they believe Xi wants to see, so they don't end up in one of those Xinjiang region re-education camps along with the Uighurs. Avoiding re-education is most likely a primary career objective for most Chinese Bankers and Economists nowadays.
The point I'm making is that the idea that these disjointed, nonsensical, inconsistent, figures could possibly be accurate, reliable or free from bias is laughable.
TO BE CRYSTAL CLEAR, SIMPLE, SHORT AND TO THE POINT.......IF THE PBOC FSR IS ACCURATE, THEN THE FINANCIAL STABILITY BOARD REPORT IS DEAD WRONG!
THE FSB REPORT WOEFULLY UNDERSTATES THE LEVEL OF GLOBAL ASSETS, DUBIOUS SHADOW ASSETS AND THE INHERENT RISK OF DEFAULT ASSOCIATED WITH SAME.
THERE ARE ROUGHLY US$ 28.2 TRILLION ($92.2T-$64T) OF FINANCIAL ASSETS OUT THERE (AS OF YESTERDAY) THAT THE WORLD'S CENTRAL BANKERS DON'T KNOW ARE THERE, NOR DO THEY UNDERSTAND THE SIGNIFICANCE RE: MONETARY POLICY
The Relationship of China's Financial Assets to "Fake" GDP
Here's a nice graphic I like, describing 2017 Global GDP by region/country.
Focusing on the period from 2014 thru 2017:
In 2014, China GDP was US$10.48 Trillion compared to Total Financial Assets of US$42.1 Trillion (i.e. Financial Assets were 4x GDP). By 2017, China GDP increased to US$ 12.24 Trillion and Mainland Financial Assets increased to US$85.3 Trillion (i.e. a multiple of 7x GDP)
As a point of reference US Total Financial Assets have been relatively constant at roughly 5x GDP (FSB figures) over the same time period.
The Simple Question is: How in the name of Paul Volker could any economy (China) create an additional US$43.2 Trillion (US$85.3T - US$42.1T) in Financial Assets in three (3) years, while increasing GDP by only about US$400 Billion a year.
In the three year period from 2014 thru 2017 the Chinese economy created US$25.00 of new Financial Assets for every dollar of GDP. If we use PGDP (Productive GDP) in the ratio, it's probably about US$40.00 of Financial Assets per dollar of PGDP. How could this possibly happen?
The Simple Answer is: It can't!
There You Have It!
Simple, Short and to the Point.....I invite you to read the PBOC report in its entirety. It's a hoot!
Here are just a few of my favorite quotes from the Executive Summary :
The economic and financial development and reform and the defusing and tackling of major risks during the past one year have not only reduced financial risks, improved stability of the financial system, laid the foundation for the economic transformation and development in the next five years or an even longer period, but also contributed to growth and sustained recovery of the global economy.
Well.... based on the numbers, that's not exactly what I might have concluded. Apparently, they are looking for a "thank you" from the world?
The Chinese economy is going through the transformation of high-speed growth to high-quality growth and structural adjustment, thus some financial risks of a grey rhinoceros nature may still come up.
I'm glad they are concentrating on quality over quantity, otherwise they might have created US$100 Trillion of junk assets rather then just US$50.1 Trillion. I also wish the PBOC wouldn't refer to the POTUS as a "grey rhinoceros". So disrespectful.
However, the fundamentals of the Chinese economy featured by the large volume, huge market and strong resilience have remained unchanged. The basic policy orientation of reform and opening up has remained and will not change.
"Opening up?" Really? Do you have any Uighurs, Muslims or Tibetans working at the PBOC? Have you talked to any US Tech Companies about how open you are? Can your "regular" citizens transfer money offshore without a financial rectal exam? Can your workers move to a new Chinese city or take another job without getting CCP approval? Do you still bulldoze Chinese houses and throw the homeowners on the street when a crooked, connected party member developer wants to put up a high rise? Why are all of those journalists and college professors deported or re-educated? What exactly do you have against Canada? How about unblocking this blog on the mainland? Openness my ass.....Just sayin'......
That said, Chinese self reported Financial Asset growth doesn't make any sense. It could be that the PBOC FSR is accurate, or the Financial Stability Board is accurate or "none of the above" is accurate. In any case, managing intelligent, functioning monetary policy in this environment is not possible.
Right now, again if we were to guess, since China doesn't publish any real/believable numbers, debt service, at current mainland interest rates on US$92.2 Trillion of non-performing Financial Assets is rapidly approaching half of China's fake GDP. The assets might actually exist in some form, but if they do they are poised for monetization, their economic values to be inflated away (currently underway) or default over time. The only remaining question is, when will this devastation finally hit the exchange rate, properly reflecting the true value of the Chinese economy.
The Chinese Financial Cancer is now officially terminal and the malignancy has spread to every corner of the globe, thanks to the world's anonymous, offshore banking system and sophisticated Off-Balance-Sheet financial tools (Swaps, Repos, Cross Border Listings, FOREX Bonds/Notes/Loans, Cryptos, etc. and any other derivative tool our amazingly creative American, Japanese and EU Bankers can dream up.)
If you'd like to read more detail about how US Banks, Regulators and the off shore financial system have at best failed us, and at worst have been complicit in this debacle (for hefty fees), please feel free to peruse some of my prior posts. Here are two of my relatively recent, better efforts that you might enjoy.
Twas the Night Before Christmas...
When Will Xi hit the Sell Button?....
One Final "What the Hell?"
This just popped into my inbox from a reader.....it appears that as the Chinese Equity Markets dry up, Chinese fraudsters.....I'm sorry....I meant to say "Chinese entrepreneurs" have continued to scour the world for dopey "China Dream" investors courtesy of US Investment banks. For the first time in history, at least that I'm aware of, a nation's "off shore" new listings & corresponding capital raises have actually surpassed that same nation's "on shore" raises.
In 2018, the capital raised by Chinese IPO listings in the US & HK (offshore) of US$40 Billion, was greater than capital raised on the mainland US$18 Billion.....again, these figures might all be suspect....but who the hell knows anymore.....
That's right, an economy the size of China's is raising more equity money via off-shore listings than on-shore. Apparently, Chinese mainland investors have very little faith in their "entrepreneurs".
Does that make any sense at all?
Anyway.....
HAPPY NEW YEAR!
Resources:
PBOC - All FS Reports - 2018 Report Published 12/28/18 (English Version)
http://www.pbc.gov.cn/english/130736/index.html
Financial Stability Board - Global Shadow Banking Monitoring Reports and Data Sets
http://www.fsb.org/2018/03/global-shadow-banking-monitoring-report-2017/
Actual Text - pg 62 of the 2018 PBOC FSR
SCMP - China Construction Bank Chair Warns of housing bubble....
https://www.scmp.com/economy/china-economy/article/2179289/chinese-state-bank-chief-warns-against-buying-property-now
Yours just might be the most relevant blog on the entire internet. History will tell...
ReplyDeleteIt certainly feels prophetic, like reading some of the experts before the 2008 housing crash.
DeleteI don’t even really know how I got here (from Zerohedge actually) but I feel like I just read the most fact based, level headed analysis on China’s banking sector anywhere.
ReplyDeleteHow does this not cause an absolute shitstorm of epic proportions when it finally comes undone?
https://www.bloomberg.com/news/articles/2019-01-16/latest-china-bond-default-puts-spotlight-on-financial-reporting
ReplyDeleteWhen incredulity smacks head-first into reality...
Great blog! I agree with the thrust of your argument.
ReplyDeleteGiven the deleveraging attempts China has made and the feed through to activity we have observed(as well as the 30% drop in equity prices!!) - isn't a simple extrapolation of 2017 growth to 2018 unrealistic?
Also don't you need to add the difference between FSB and PBOC Chinese financial assets to the denominator of your PBOC % of global assets calculation? using FSB global assets presumably doesn't include this. Doing this Imake the numbers: 2017 21% 2016 19% 2015 19%. Looks much less dramatic.