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You are mostly correct. The largest retail banks in China are SOEs, so called State Owned Enterprises. However while these banks are the backbone of the retail

by jpgvm 3y ago

You are mostly correct. The largest retail banks in China are SOEs, so called State Owned Enterprises. However while these banks are the backbone of the retail banking sector the rural banks and investment banks are increasingly more relevant when doing business in China because the state owned banks are very risk adverse and operate with gigantic capital reserves. It's an interesting system because it basically insulates the retail banking sector from any and all shenanigans however has led to explosion of risk in the private sector. China has been trying to pare back this risk and leverage of the financial sector for over 10 years but every time they start some global crisis starts and they have to stop.

disgruntledphd2 3y ago
To be fair, they don't really want to. Lots of interest groups against it. Heaven is high and the emperor is far away, as they say.
godzillabrennus 3y ago
The multi trillion dollar real estate bubble in China was state funded…
- jpgvm 3y ago
  State enabled would be a better way of looking at it. The state (well more correctly the provinces) have been incentivised to perpetuate this real estate bubble because they derive a ton of their funding through the sale of land. Actually -funding- the developers is an entirely different matter however. They are partially funded through pre-purchases of off-the-plan apartments, this is then leveraged mostly through bonds, primarily sold to said private banking sector but largely to off-shore buyers seeking high yield corporate paper. The SOEs and large Chinese banks like ICBC, BOC, HSBC and insurance/finance provides like Ping An have largely kept their distance for the last decade - in part because of that risk adversity and very large safety capital requirements that prevent them from owning such high risk debt. China -did- learn their lessons from 2008, unfortunately they have fallen victim to other ways of generating extreme financial leverage. Right now the de-leveraging is still happening, the Three Red Lines stipulations have been relaxed somewhat in the last few months to try ease up pressure on the real-estate market during global downturn but are still limiting debt expansion in the sector. I would say they have successfully staved off a crash/collapse but I would expect the real-estate market in China to enter a long period of stagnation at this point.

by jpgvm 3y ago

disgruntledphd2 3y ago

To be fair, they don't really want to. Lots of interest groups against it. Heaven is high and the emperor is far away, as they say.

godzillabrennus 3y ago

The multi trillion dollar real estate bubble in China was state funded…

jpgvm 3y ago
State enabled would be a better way of looking at it. The state (well more correctly the provinces) have been incentivised to perpetuate this real estate bubble because they derive a ton of their funding through the sale of land. Actually -funding- the developers is an entirely different matter however. They are partially funded through pre-purchases of off-the-plan apartments, this is then leveraged mostly through bonds, primarily sold to said private banking sector but largely to off-shore buyers seeking high yield corporate paper. The SOEs and large Chinese banks like ICBC, BOC, HSBC and insurance/finance provides like Ping An have largely kept their distance for the last decade - in part because of that risk adversity and very large safety capital requirements that prevent them from owning such high risk debt. China -did- learn their lessons from 2008, unfortunately they have fallen victim to other ways of generating extreme financial leverage. Right now the de-leveraging is still happening, the Three Red Lines stipulations have been relaxed somewhat in the last few months to try ease up pressure on the real-estate market during global downturn but are still limiting debt expansion in the sector. I would say they have successfully staved off a crash/collapse but I would expect the real-estate market in China to enter a long period of stagnation at this point.