Credit equals Gold No 1.

January 29, 2014 admin China 18

A last minute bailout will see the 700 investors in a 3 billion-yuan wealth management product (WMP) called Credit equals Gold No. 1 recouping their full principal minus some interest averting an emerging crisis in China’s troubled shadow banking system – for now.

The product, issued by one of China’s largest “shadow” banks – China Credit Trust Co, was widely expected to default on the 31st January 2014 after the marketer, Industrial and Commercial Bank of China (ICBC) said it had no plans to use its own money to repay investors. The product, promising 10 per cent yields consisted solely of bad loans to and equity in coal miner Shanxi Zhenfu Energy Group who collapsed in 2012 and has ceased production.

“A default was bound to lead to systemic risks that China is unable to cope with, so in that sense a bailout is a positive step to stabilize the market,” said Xu Gao, the Beijing-based chief economist at Everbright Securities Co. “delaying the first default means risks are snowballing,” he said.

Tight secrecy surrounds the details of the mysterious saviour, but the Financial Times reports on China media’s belief that the bailout involved ICBC, China Credit Trust Co and the government.

It is estimated roughly 4 trillion yuan of trusts will mature this year, with many expected to have repayment problems.

» GFC2 – Will it be made in China? (Wealth Management Products) – Who Crashed The Economy, 30th June 2013.

» ICBC Offers Clients Option to Recoup Funds From Trust – Bloomberg, 28th January 2014.




18 Comments

  2. I would say there’s about 100% chance Australia will be bailing out banks before the end of the yeah.

  3. I thought China was under a totalitarian Communist ideology regime? How hypocritical that they have surpassed even the most Capitalist countries in the world. I guess that’s politics for you. Its not what the individual believes in, its how all political ideology manipulates the individual into believing what the system wants you to believe

  6. @ DX

    and our farming market: How can it be possible for foreign farm owners to make a success of farms when local, multi-generational farmers can’t? At some stage Aussie’s will be buying back these farms for cent’s on the dollar.

    Sure it’s confronting that our farms are less and less Aussie owned, but seriously, it’s the same disaster that residential housing is: Just don’t get caught on the wrong side of the slide

  7. @THEO, there’s a joke in China that goes “We’ll take the next right turn, but we’ll leave the left indicator on”.

  9. News has been running a story on Ordos. I wonder when these bad debts come due?
    http://www.theaustralian.com.au/news/inside-chinas-biggest-ghost-city-ordos-through-the-eyes-of-red-bull-skateboarders/story-e6frg6n6-1226814264205

    Bloomberg says China’s housing bubble is now too big, it can’t crash. The social unrest will be too great. FHB should march to Tiananmen Square and show them social unrest.
    http://www.bloomberg.com/news/2014-01-30/china-can-t-afford-to-let-its-housing-bubble-pop.html

  10. In other words this bailout is the equivalent to the Bear Stearns bailout in early 2008.

    I guess we wait for the Chinese equivalent of Lehman now?

  14. Australia housing bubble will burst ayntime now. Just take a look at the OZ economy and the household debt which is well over 180% of disposable income. This is horrendous and can’t be sustained. RBA is having a huge problem. If they cut cash rate further it will exacerbate the housing bubble and if they hike cash rate it will hurt OZ export. Watch out inflation will go above 3% soon and this will force RBA to hike cash rate which will in turn pop the housing bubble. Good Luck Australia. Chinese hot money is exiting Australia as they need cash back home in China.

  15. China’s banks ‘could trigger global meltdown’
    http://www.theage.com.au/business/china/chinas-banks-could-trigger-global-meltdown-20140203-31vov.html

    60 minutes just ran a story about all the Chinese buying investment properties in Australia. If I was Chinese, I would also be panicking and rushing to get my money out of China before it crashes.

    What will this do to Australia property prices in the short term? Does it have parallels with the Japanese in the 1980s before their credit bubble popped? The Japanese were panic buying Gold Coast property in the 1980s.

  17. Glen,
    Chinese buyers are not a sustainable source of funding to OZ property market. They are not buying in panic but with other purposes, such as money laundering. They have many other assets to store their stunning amount of cash carried out of the exchange-controlled border. Why property becomes No.1 priority? Previous discussions over the Foreign Investors’ Board’s incompetency could partially answer the question.

  18. I just read an article in the Telegraph where it stated that even non-residents (mainly Chinese), are now eligible to claim the $5,000 home owners grant, adding even more fuel to the property price insanity gripping NSW (mostly in Sydney).

    What I can’t understand is, is that unemployment is rapidly rising(a week doesn’t go by where you here some large company either moving offshore), or going broke. If there is no job security, and wages not keeping up with the price of living, how can people even afford these large mortgages?

    The amount of mortgage stress around Australia, especially in cities like Sydney, must be going through the roof.

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