On Friday, Chinese state media reported that China Credit Trust Co. warned investors that they may not be repaid when one of its wealth managementproducts matures on January 31, the first day of the Year of the Horse. The Industrial and Commercial Bank of China sold the China Credit Trust product to its customers in inland Shanxi province.
This bank, the world’s largest by assets, on Thursday suggested it will not compensate investors,stating in a phone interview with Reuters that “a situation completely does not exist in which ICBC will assume the main responsibility.”There's something rotten in Beijing.
Asia's stock markets are down 2% so far (Monday):
Asian stock markets tumbled Monday as investors factored in the possibility of slowing growth in China and a further reduction in U.S. central bank stimulus.The global sell-off that is roiling world markets was triggered by preliminary results Thursday of a survey showing that China's manufacturing would contract in January.Investors are also awaiting a two-day meeting by the U.S. Federal Reserve starting Tuesday, where officials are widely expected to reduce their monthly bond buying by another $10 billion to $65 billion. Turmoil in individual emerging markets such as Argentina, where the peso dropped 16 percent over two days last week, is also spooking investors.Stay tuned...
UPDATE: SOME SEE A SOFT LANDING:
China is walking a tightrope without a net. There is an acute cash crunch. Credit at a viable cost is being fiercely rationed. Foreign buyers with money in hand can – and are – buying up nearly completed buildings from distressed developers for a song.STAY TUNED...
The shadow banking system has risen to 30pc of all lending from 20pc in barely more than a year. The growth generated by each extra yuan of credit has fallen by three quarters from 1.0 to 0.25 in five years, evidence of credit exhaustion.
That was the gist of a fascinating gathering on China at the World Economic Forum in Davos, including CITIC Chairman Zhang Yichen, the president of the Chinese Academy of Social Sciences Wang Weiguang, and Blackstone chairman Stephen Schwarzman, among others.
It was Chatham House rules so they cannot be quoted by name (except for one), but I pass on a few general thoughts to readers.
"They are trying to deleverage without blowing the whole thing up," said CITIC's Zhang Yichen.
"The M2 money supply is 120 trillion RMB but that is still not enough cash because velocity of money is very slow, and interest rates are going up."
"My guess is that they will manage it. The US couldn't contain Lehman contagion but in China all contracts can be renegotiated, so it is very hard to have a domino effect. We'll see a slow deflating of the bubble," he said.