of tinsel dreams

  1. 10,401 Posts.
    Of course getting anything accurate out of Chinese stats is areal art of calculated guesswork but some of the figures released lately have been 'revised' by academics; experts in this field.

    This week China released figures showing that Local Governments Borrowings of ~27% of GDP as at the end of last year but put through another formula the figure for LGD is more like 42% and with nonperforming loans running at 30% (at the moment) there are minium losses of $800 billion at least. This could of course get much higher as many State Owned Enterprises like to dabble in things other than statues of mayors, bridges to nowhere and pretty streets.

    For example Minmetals, China's largest metals trader, has a real estate development arm which is currently building a replica of the Austrian village Hallstatt in Guangdong
    province. Yes the local citizens just love it......

    If you were to take all government sponsored debt, debt to GDP in China is more like 150% (Japan 225%, USA 93%) and this is where the wheels can fall off.

    Massive amounts of cheap money bulk up the assets of SOE making those that run them worthy of fat salaries. The larger the SOE the more debt it is allowed, the bigger the asset base, the larger the development program.

    Of course the problem is the exposure of all SOE who are property developers. You name it eg. ghost towns, totally vacant shopping malls, cities that are virtually uninhabited, totally unsold residential skyscrapers etc.

    If there is a property collapse in China it will make many SOE insolvent to their only debtor, the government, sending the potential losses to be swallowed skyward to several trillion $'s or more. Of course they will be buried but even China can't print money without letting the inflation genie out.

    Problem is that building is continuing unabated, domestic economic growth is ~10%, employment within SOE is still high, illogical and unnecessary expensive tinsel dreams continue to be developed.

    As time goes by the date of reckoning gets closer. My take is 2 years before something snaps.

    We'll hear and feel that snap in Australia very clearly.

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