The toxic asset problem in China especially in the real
estate sector has been a definite problem that continues to grow. The Chinese
have not dealt with the bad loans from the last recession.
seekingalpha.com/article/125105-really-bad-banks-chinas-asset-management-companies.
With another $1.2 trillion worth of loans poured into the economy this year
alone, there are bound to me massive problems.
According to the Financial Times "On Monday wires
reported that China’s Banking Regulatory Commission, where he is chairman, was
urging big banks to boost capital ratios to 13 per cent of risk-weighted assets
next year, from 10-11 per cent now" The story was challenged by the CBRC's
chairman Liu Mingkang, who said the "Lenders simply need to formulate
“medium-to-long-term plans” on replenishing capital; more thinly-capitalised
banks may face quotas on new lending."
What is truly troublesome is the level of denial. In an
editorial in the Financial Times, Liu Mingkang stated that "China’s
banking sector has largely avoided the worst of the global financial
turmoil"
www.ft.com/cms/s/0/a2d0f308-d55d-11de-81ee-00144feabdc0.html. Quite the
contrary, the Chinese not only did not avoid the global financial turmoil. They
made it worse. "At the end of last year, the six largest lenders had
average core capital fractionally over 10 per cent. By the third quarter this
year, that had dropped to 8.88 per cent – a record rate of decline, according
to Credit Suisse."
According to Zhang Xin, chief executive of Soho China,
one of the country’s most successful privately owned property developers “In
Manhattan, they have vacancy rates of 10-15 per cent and they feel like the sky
is falling, but in Pudong [the central business district in Shanghai] vacancy
rates are as high as 50 per cent and they are still building new skyscrapers,”
she said. www.ft.com/cms/s/0/ea14130c-d46e-11de-a935-00144feabdc0.html
If your vacancy rates are as high as 50 per cent, it
means that much of the money borrowed is simply not going to be paid back. But
real estate is only one sector of the economy that were recipients of the
Chinese loan give away program. The Chinese like banks everywhere else also
made risky loans from 2005 until last year. So the level of toxic assets at
this time must be rather large to say the least.
The real worry is again the level of denial and not just
in China. All over the world and especially in Asia many countries have
benefited from the Chinese stimulus package. The costs of that package are just
beginning to be realized, yet it has not generally entered the calculations of
commentators, economists or policy makers, who continue to admire China's
apparent recovery. The Chinese lending was definitely not sustainable and is
being terminated. Since the stimulus packages in both the US and China have not
been successful in kick starting stand alone economic growth, the probable
outlook for a quick economic recovery is bleak.
