six top banks fined $US6bn rigging fx, Libor, page-58

For those that think it's all rosy in China.
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There seems to be a consensus that Chinese debt is somewhere in the range of $28 trillion, which is almost twice US GDP, and almost three times Chinese GDP. And for all we know the debt may be much higher still. All we really have is official numbers, plus a few ‘indirect’ data. One thing we do know is that Beijing will always make everything look better than it is. Every politician does.
And we know that they have a substantial series of issues to deal with. In fact, there are so many it’s impossible to catch them all in one comprehensive essay. China’s not nearly as simple as Greece. Let’s try a few:
• China’s housing boom is deflating, with prices down up to 6% YoY in many places, though of course for now less severe in major cities like Beijing and Shanghai. As one comment said recently, paraphrased: ‘there are no more buyers, everyone around here already owns property.’
• China is in the grip of a stock mania, with millions who are losing out on their apartment investments trying to make up for their losses with stocks. Many borrow heavily for their ‘profits’ (and not always from official banks). The stock mania is already popping as well. It will probably rise a bit more at times and at places, but exchanges that skyrocket when economies flatline or worse, will be smacked down by fundamentals at some point. That is true on Wall Street and in Europe, and it’s also true in Hong Kong, Shanghai and Shenzhen.
IPO’s are falling out of the deep blue skies like so many frogs, and people seem to think there’s all this pent-up demand for them, but the Hanergy and Goldin examples should serve as huge red lights flashing. And besides: what does pent-up demand mean when people borrow substantial parts of credit used for stock purchases?
When you read that at the Shenzhen exchange, rallies of more than 500% aren’t unusual, and the 103 stocks listed trade at an average 375 times reported earnings, you should know you’re looking at an ordinary slot machine, not an exchange that reflects any underlying real economy.
• Local governments are heavily in debt to the shadow banking system. Their liabilities may well exceed $6 trillion The crack down on the latter does not change that. Beijing has introduced a swap system, where paper can be swapped for bonds of much longer maturity at lower rates, but that leaves the question of who’s going to pay the debt to the shadow system.
Do local governments now need to borrow more from state banks just to pay off their loans to the shadow banking system? Or are the state banks themselves going to pay the debt after the swap? Or is perhaps the PBoC itself going to pay off the shadow banks directly? It looks as if the swap measures, which are pretty absurd in themselves since they encourage more borrowing, do not -or hardly at all- involve the ‘shadow debt’.
• Chinese factory activity is contracting. This is not growth slowing down, this is negative growth. Chinese consumers don’t help to avoid this, because they’re not consuming. They are doing one of three things: pay off housing -margin- debt as prices are falling, go nuts for stocks, or they are saving. No consumer based society is in sight.
• Capital outflow was $159 billion in Q1. This should be a major worry for Beijing. It hurts China’s international financial position. The country’s also stuck in its US dollar peg, and it dare not risk get out because of the potential losses on its Treasurys holdings. It’s all nice and stuff that the IMF considers including the yuan into its SDR basket, but it’s not a one way street to glory, or to the demise of the USD as some would have you think, for that matter.
Meanwhile, China keeps investing billions abroad. Untold billions in Africa. $50 billion in Brazil to damage the Amazon even more, $60 billion in the new Silk Road project.