Posted on 04/20/2021 8:05:47 PM PDT by SeekAndFind
The debt crisis of China’s state-owned enterprises (SOEs) has been deepening since 2020. Beijing has recently issued a report to address the issue as several SOEs have defaulted on loans in recent months.
The State Council of China recently issued the report “The Guideline on Enhancing Debt Risk Control of Local State-owned Enterprises” on March 28. Beijing requires state-owned firms to create the following: a mechanism to identify and monitor debt; a mechanism to control debt; a mechanism to support the life cycle of a bond; and a long-term mechanism for debt risk management.
In the same month when the guideline was issued, state-owned coal company Jizhong Energy Group missed part of it payments on two bonds; while Chongqing Energy Investment Group, the only local energy platform wholly owned by the Chongqing municipal government, defaulted on its bank notes.
In November 2020, China saw consecutive defaults by a number of SOEs, including Yongcheng Coal and Electricity Hold Group, Brilliance Auto, and Tsinghua Unigroup.
According to a report by Shanghai Securities Co., from 2018 to 2019, the default of bonds mainly occurred in private enterprises; while in 2020, the SOEs became the main defaulters.
In an interview with The Epoch Times, Hong Kong-based financial analyst Katherine Jiang said that the defaults by SOEs highlight the weakness of the large SOEs under the Chinese regime. These SOEs have accumulated huge debts during the Chinese Communist Party (CCP)’s credit expansion over the years without improving their own profitability.
The defaults by SOEs also undermine a key factor in their success in raising capital in the market, and that is the support from the regime and the credibility of the CCP—this in turn undermines the stability of China’s financial system, Jiang said.
(Excerpt) Read more at theepochtimes.com ...
These SOEs are like puppets on stage. A small puppet appears much bigger when it is illuminated by the lights behind it, but it is just an effect. Similarly, the expansion of credit has inflated the SOEs, but they lack actual strength.
With easy credit, SOEs were able to borrow cheap money from banks to make large investments, which inflated the size of SOEs’ assets. But the profitability of their investments were not high.
I have a very strong feeling that the same fate will await favored industries by the Biden administration should they start to spend money on their “infrastructure projects” which will include that gigantic and collosal initiative called the “Green New Deal”.
China has a PBOC just like we have a Fed. They can do the exact same thing as the Fed does. Create money, enshroud it in a sophisticated label like Quantitative Ease, and proceed to pretend all is well.
Frankly, the Soviets never had a proper Central Bank. What they had was constrained by 5 year plan documents. If they had an independent CB, there would probably still be a Soviet Union. They would have just created the money for internal use that they needed.
Do not fool ourselves. Everybody knows how this works now.
No one every said that communists are good capitalists. They can pretend, but pretending doesn’t pay the bills, or the debt. Screw ‘em.
When the Soviet Union collapsed, the CCP studied it very carefully. Deng very wisely decided he would use “openness” to stimulate the economy. China had already released its agriculture from absolute communist doctrine 10+ years before, which greatly increased food production. In the 1990s, they created state-run versions of western capitalism, with all the key industries remaining in state hands, while flooding the world with goods and sucking in western money and especially technology. Stupid Westerners thought this was some kind of one-way path to economic liberalization and “democracy.” In fact, the Chinese Government never intended to lose political control of the economy.
You are absolutely correct - while bankrupt Chinese banks and investment firms are usually corrupt and highly inefficient, they are not a systemic risk. They are under firm political control, China has tight capital and currency controls, there is no George Soros-types to cause a panic, and no one in the financial system in China will cause a run or a panic. The Chinese Gov’t and central bank can deal with them in their own sweet time.
If only we had a president who could exploit this for our gain instead of his own.
Biden will help them with liquidity. Minus his 10%>
And it begins. China has been papering over the fact that they are bankrupt. So are many European countries.
If they are bankrupt what are we? Is a Jubilee coming?
They also have province banks that act as local feds. That is where the hide the national debt. Some a horribly mismanaged. Make our fed blush. That is where China is weak and strong. They can consolidate debt in “states” and bankrupt a few while freeing the others. Executes some “criminals” making our bankers glad to not be in China but the results are the same. It’s a shell game.
I think in terms of sinewaves. Big peaks are going to lead to big valleys.
Right. The drive to enact the main elements of the GND will bankrupt the fed gov. Default will be on the horizon. And all for the solution to a problem that doesn’t exist.
ping
Are they defaulting on gold-backed Yuan?
I’m unable to unravel it.
They are better at it than we are.
That goes from the commie democrats in our government, never a problem socialism could not fix. Free money is socialism.
China is a huge user of coal with a huge and constant demand. I would bet serious internal corruption in management.
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