12 ms·
Two Large Chinese Borrowers Miss Bond Payments, Sources Say
- mooreds 8y agoWow. Wonder if this is the canary in the coal mine for the Chinese economy slowing down.
- geggam 8y agos/China/Global Everything is connected and this level of debt has never been seen before. Next decade should be an interesting ride
- OscarTheGrinch 8y agoBuy at the bottom.
- khuey 8y agoBecause of Chinese capital controls they're connected less than one might expect.
- seanmcdirmid 8y agoWell, unless you are into Vancouver real estate.
- standardUser 8y agoAbout as likely as the last 10,000 times the Western media has predicted the collapse of the Chinese economy.
- Xixi 8y agoThere are experts predicting economic recessions in the US every single day, no need to bring a West/East nationalistic divide to it. They are mostly wrong about US too, but it doesn't mean that recessions don't happen. It just means that experts in general are extremely bad at figuring out when crisis happen. There will always be a couple of lucky experts who got it right and will make a career out of it... Some day China will go through a major economic crisis too, claiming otherwise is an extraordinary claim requiring extraordinary evidence. Figuring out when it will be hit by a crisis will probably be obvious... post-facto.
- xvilka 8y agoThis doesn't mean crisis will change much after a recovery, like it didn't in US, many European countries, etc.
- benj111 8y agoYes but if you get it right then you're a genius, and get a book deal, and an even better paid job, whereas if you're wrong, everyone forgets. It's a free lottery ticket. My considered opinion is we'll go into recession in July 2020, obviously based on prevailing macro economic trends, not blind guesswork.....
- ivalm 8y agoOn the one hand, talk about Chinese bond market blowing up are at least 8 years old at this point. On the other hand, combined with slowing growth, this might be a catalyst for some broader debt crisis [0]. US corporate borrowing is also ATH [1] and even for consumer debt we are currently at the highest autoloan delinquency rate ever [2]. [0] https://chinapower.csis.org/china-face-looming-debt-crisis/ https://chinapower.csis.org/china-face-looming-debt-crisis/ [1] https://www.wsj.com/articles/corporate-debt-is-reaching-record-levels-11546099201 https://www.wsj.com/articles/corporate-debt-is-reaching-reco... [2] http://fortune.com/2019/02/12/americans-late-on-car-payments/ http://fortune.com/2019/02/12/americans-late-on-car-payments...
- onlyrealcuzzo 8y agoWhy is it an alarm bell if China is still growing at basically the fastest rate in the world? Is China's inflation super high that it needs a faster growth rate than other countries for some reason? China's population growth is quite low, so I don't see why it would need a faster rate of growth. I'm always confused why people make such a big deal of China growing at ONLY 5% a year. If the US grew at 5% this year, we'd be dancing in the streets! Edit: Thanks for the comments, you guys are amazing!
- deleted 8y ago[deleted]
- geezerjay 8y ago> Why is it an alarm bell if China is still growing at basically the fastest rate in the world? How much is that growth due to spending loans on non-productive investments? Building ghost towns also contributes to growth.
- vkou 8y agoI speculate that most of the growth is due to the urbanization of the population. China's population isn't growing... But it's urban population is exploding[1]. Any other country that was seeing a 5% YoY adult population growth would be expected to see at least 5% YoY GDP growth. Why would China be any different? [1] And city dwellers in China sure as hell aren't living on a dollar a day. They are living nearly-first-world lifestyles.
- chollida1 8y agoIMO, not all that informed, This is the Chinese government picking winners and losers as it tries to deleverage itself from what it did in 2008. (As a side note, China doesn't get enough credit for what it did in 2008 to stabilize the global markets. It and the US literally spent their way out of what could have been a very brutal global recession) Last year they bailed out HNA. Lots of chatter that HNA was bailed out because it had done some very high profile deals in the first world and China wanted to protect its reputation. https://www.bloomberg.com/opinion/articles/2018-01-24/hna-shuffle-heralds-start-of-the-great-china-bailout https://www.bloomberg.com/opinion/articles/2018-01-24/hna-sh... The good news for the world is that Chinese corporate debt isn't held that much outside of China, due to tge double whammy of 1) investors valuing their chance of payback on a default like sovereign debt(large haircuts, very little leverage to get any say in the proceedings) 2) investors valuing the chance of a default like a corporate bond( much higher than sovereign defaults). This means it has the worst of both worlds from a risk perspective but does pay a larger coupon. And if you are a distressed credit investor you have the same problem that is now an issue in most markets. You can be right about the default chances but the government could still swoop in and bail out the company making your fundamental analysis worthless. The Chinese debt market tanking isn't going to hurt markets in a first order way. What could cause grief would be a scenario like the mid =80's where Japan almost on a dime stopped spending money around the world and brought it all back home to help fight their recession. If China starts selling global assets, like housing in major cities around the world, and starts to decline their treasury holding rather than rolling them, then look out.
- dajohnson89 8y agoDon't they have large holdings of US treasury debt? Wouldn't a credit crunch in china pressure them to redeem their bonds, putting the US govt in a bind?
- free652 8y agoThey can't redeem US securities, they have to wait for maturity or sell to a different entity.
- Animats 8y agoUh oh. Wintime, which is a coal mining operation, owes about US$46 billion. They did a financial restructuring last year, and now they can't make the payments on that. "Wintime's original plan was to borrow to fund acquisitions and expand into areas including finance and logistics." That didn't end well. China has "modernized" their bankruptcy system since 2007, with a more pro-creditor legal system and new bankruptcy courts. China now allows defaults, creditor-in-possession operation ("Chapter 11" in the US), and most of the other creative stuff seen in US debt finance. Now companies in China can try all the stupid debt side stuff we see in the US. But without enough people who've seen it before on the lending side to evaluate credit risk. In 2016, President Xi Jinping began putting emphasis on reining in financial risks. The tolerance for creative financing was reduced. Wintime's expansion plans may have been caught by this.[1] [1] https://www.smh.com.au/business/markets/looks-like-a-ponzi-scheme-china-s-debt-mountain-is-growing-20180719-p4zsdh.html https://www.smh.com.au/business/markets/looks-like-a-ponzi-s...
- avar 8y ago> (Chapter 11" in the US), and most of the other creative stuff seen in US debt finance. Now companies in China can try all the stupid debt side stuff we see in the US. In the wake of the recovery of the 2008 financial crisis much was written about how these sorts of structural bankruptcies in the US left everyone better off than the bankruptcy laws in e.g. much of Europe. Here's one such article: https://www.forbes.com/sites/hbsworkingknowledge/2013/03/25/how-chapter-11-saved-the-us-economy/ https://www.forbes.com/sites/hbsworkingknowledge/2013/03/25/... Why do you think policies like chapter 11 are stupid?
- 8ytecoder 8y agoChapter 11 bankruptcy is probably the single most factor at the forefront of American entrepreneurship and how the US propelled to be the strongest economy in the world. I have a feeling GP is talking about the lack of expertise in China to handle it correctly.
- Judgmentality 8y ago
- paulpauper 8y agoThe S&P 500 is up 40pts today, although unrelated, is evidence that the market is not concerned. Missed bond payments happen all the time. In 2014-2015 many oil and drilling companies missed payments when oil prices fell. This sector is very volatile. .
- dageshi 8y agoI think the US markets aren't concerned because Chinese corporate bonds are basically internal to China. In otherwords, USA exposure to Chinese credit problems isn't that great?
- hangonhn 8y agoThis is actually a positive development in the long run. A few years ago my father, who lives and invests in China, boiled down the basic investment strategy in China to: invest in big companies because the government will always bail them out. If that's what everyone believed then you can see how some very poor decisions can be made and debts can balloon without end. Disasters like these will remind Chinese investors that there are risks. There are no free lunches and be prudent about your investments. This is part of the process of modernizing the Chinese economy.
- haveanother 8y agoHave another.
- ziont 8y agoWhy is this link keep getting posted repeatedly? 16 hours ago it was already submitted here : https://news.ycombinator.com/item?id=19140804 https://news.ycombinator.com/item?id=19140804 Strangely, it was quickly hidden and one of the comments pointed to this explanation of how shadow banking works in China and the potential risk. https://www.youtube.com/watch?v=auiGFRmD0tg https://www.youtube.com/watch?v=auiGFRmD0tg Essentially, these two large borrowers missing bond payment is a signal of worst to come. It's not a question of if or when such crash will come but who will go down first and the big question: Can Chinese leadership be able to survive this time around? Deng Xiaopeng's remedy to deteriorating grip on the country was market capitalism, but now that it has proven to be largely a failure with half a billion Chinese living in poverty or barely what is considered Standard living in the west, with no political free will and expression protected, how long can the people bare it? There are already signs of simmering tensions between the state and people. Much like leading up to the Tianmen Square incident 40 years ago in 1989, we are seeing similar themes - the rise of student activists with little to nothing to lose, a deteriorating economy now on the verge of misnky effect, now with a KGB puppet applying pressure via trade sanctions.... I estimate some major event taking place after the North Korea-America summit, the outcomes of that meeting will determine what chips China will use to get America off it's back..... yup, you guessed right, another nuclear test this year along with ICBM/SLBM tests, launching skirmishes in NLL zone.... OR another tianmen square unfortunately...as Chinese leadership realizes America's not about to go easy, it will have no choice but to kill it's own citizens who will riot when they los their jobs and savings. The domino chips are all set in place, and it's just waiting for that final push.
- benj111 8y ago"now that it has proven to be largely a failure with half a billion Chinese living in poverty" What? China has risen to superpower status, and become one of the biggest economies in the world in the space of a generation. Are they as rich as the US per capita? No, but they're on the right trajectory, and getting there quicker than most other nations did. Don't forget nearly all these city dwellers are first generation, if they don't remember living in a wood hut, without electricity, running water or toilet, their parents do.
- narrator 8y agoYup, the investors are going to lose their money. So what. This won't start cascading bank failures though because the PBOC can print as much money as they want to recapitalize the banks without burdening the taxpayer. This is a fundamental difference between the western and european systems and is why China hasn't had a Japanese style deflation, even though it has been predicted every year since the early 90s. Analysts have been getting it wrong for almost 30 years, yet they refuse to question their models because credit cycles are believed to be physical laws of the universe, when really they are artifacts of western financial policy. Namely, fractional reserve banking and all money as debt which the Chinese government doesn't follow. I know what you're thinking now. "Fractional reserve banking" and "all money is debt" is a dog whistle for libertarians. Thus, this guy must be a gold bug, etc. No. I am saying that this is fiat currency, and that's ok. It's just not managed in the screwy boom-bust way that we have in the west that's specifically made to separate people from their assets every 8 or 9 years. Not everything China does is a good thing, but their financial system hasn't crashed in decades, so empirically it is a lot more stable.
- matt4077 8y agoThis must indeed be first comment ever using the terms „fractional reserve bank“, „printing money“, „fiat“, „gold“, and „debt“, but not „inflation“. Which is really a shame because it’s the obvious result. And also a very good way to specifically separate people from their assets. And also pensions.
- neilwilson 8y agoInflation issues are also down to another western belief - venerating 'price competition' as the only pure way to resolve resource conflicts. The Chinese don't work that way. If there is a conflict for resources, those with the power just take them. If there is compensation offered for that, those without the power just get given it - and probably consider themselves lucky. The Chinese show you can have a system where you set a price, even one as low as zero, and then use coercive power to force people to take that price. Those with power don't need to get into price competition. And if they don't get into price competition, then prices won't go up. Inflation is killed at source.
- chiefalchemist 8y agoHow much of this is legit missing, and how much of it is a ploy (?) to restructure payments? That is, is a temporary hit to reputation / confidence acceptable if the longer term benefit to the bottom line is significant enough?
- matt4077 8y agoGood luck trying to get cheaper financing after missing a few payments.
- chiefalchemist 8y agoYes and no. In the case of China and the Chinese gov, well that's not Wall Street.