Tag Archives: credit crunch

China’s Regulators Show Their Nervousness About Real Estate Defaults

ALLOWING TWO REAL estate development firms to raise capital through private share placements hints at stress the property sector is putting on China’s shadow banking system. Tianjin Tianbao Infrastructure and Join.In Holding will be the first such firms that regulators are allowing to raise funds this way since authorities started to let the air out of the property bubble in early 2010.

Nor are the pair likely to be the last. Fears are growing of further property defaults among cash-strapped developers following the near-collapse of a small, privately owned developer, Zhejiang Xingrun Real Estate, earlier this week. Officials stepped in after the company was unable to meet payments on 3.5 billon yuan of debt, two thirds of it owed to banks. Earlier this month, China saw its first domestic bond default since the the corporate bond market was opened up in 1997.

The Shanghai Securities News reports that since the middle of last year more than 30 listed property firms have sought permission to raise a total of 90 billion yuan ($14.5 billion) of new captial. Many developers facing tight credit conditions, a slowing economy, and overbuilding in smaller cities have reportedly turned to the shadow banking system, but the high rates they are paying to borrow there only double down on the risk of defaults.

Earlier this week, the central bank and China Construction Bank were reportedly discussing the bailout of a developer owing 3.5 billion yuan — believed to be Zhejiang Xingrun — that had borrowed informally at rates of 18-36%. Zhejiang Xingrun is based in Ningbo, one of the cities where government data released earlier this week showed home prices falling. Another is Wenzhou, a shadow banking centre. Two of Zhejiang Xingrun’s owners have been detained by police for what is being described as illegal fundraising.

Separately, the central government’s 2014-20 urbanisation plan released earlier this week calls for a national property database to be set up. This would be a precursor to a new property tax to fund the urbanization plan and to allow local government finance to be reformed. However, it will likely face local footdragging from the many officials who have squirreled away ill-gotten wealth in the form of real estate — even if some of that real estate is starting to look less valuable.


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Banking Up The Profits

What’s the difference between Chinese and western banks?No write-offs and more lending than authorities like versus huge write-offs and less lending than authorities like.

The FT reports that Chinese banks will be announcing record profits for 2007 over the next few weeks. One domestic media report put pre-tax profits for all domestic banks at Rmb610bn ($85.4 billion), an 83% cent increase from a year earlier.

The question for 2008 is how will they deal with government efforts to cool the economy and reign in credit. For U.S. banks, the question will be how will they deal with government efforts to stimulate the economy and alleviate the credit crunch.

Different worlds.

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Is The Credit Crunch A Prelude To A Crash In China?

Interesting question posed by John Plender in the FT a couple of days ago : Is the credit crunch a prelude to a crash in China?

History suggests, Plender argues, that it could well be. He says that the credit crunch is a symptom of the liquidity bubble in China — a hiccough in  a huge global recycling of liquidity that is the markets’ response to huge macro-economic imbalances.


China is still at an early stage of development, it may be a case of many bubbles and many crashes. The only question is whether the impact is felt globally, as in 1929, or mainly domestically, as with Japan in the 1990s. The longer policy remains inflexible, the greater the likelihood of a global backwash. 

In this anniversary month of some of the great market crashes — 1929, 1987 — this piece provides a reality check to the soaring prices on the Shanghai stock exchange and runaway growth in the economy.

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