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China’s banking problems are snowballing — fast

24 January 2014

The world’s largest bank by assets, Beijing-based ICBC, has announced it won’t take full responsibility for a trust investment worth 3-billion yuan (£300 million) that may go bust. In other words, one of China’s ‘big four’ banks may be linked to a default on a loan pretty similar to the sort that started the Lehman crisis in 2007.

In fact, it may be worse, due to the lack of transparency. The troubled Chinese loan was sold through a trust company that belongs to the nation’s vast and opaque shadow-banking system, which offers credit to companies that might find it hard to raise money otherwise. Many of these trust loans are of the convoluted, ‘structured’ kind that sparked Lehman’s downfall and rocked the world. China’s total shadow-banking debt now equals $4.8 trillion — when you consider that Beijing now holds a record $1.3 trillion in US Treasurys, you can see the global wave of financial unravelling that may arise.

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Even if the state and municipal governments, along with ICBC, agree to cobble together a last-minute bailout, it’s only a matter of time before we see the first trust loan defaults emerging, shaking faith in China’s increasingly creaky banking system. Earlier this year, George Soros pointed out ‘eerie resemblances’ between the Chinese and American cases (though he did mention differences too).

Politically, this will shake the unspoken pact that China’s tiny elite of Communist Party officials has made with its 1.4 billion citizens for the past two decades— that while there may be lack of political freedoms, the economy will continue to grow faster, higher, stronger. This is why Beijing is now so keen to promote a sense of Chinese civilisational myth, of China’s cultural prominence, of its ‘Confucian’ values. It needs something intangible to hold the nation together if the material world fails.

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  • jas

    i hope china would be a free of crisis country, specially in banking…

  • Makroon

    “Civilisational myth and Confucian values” eh ?
    That sounds like Singapore to me, another country working with the “authoritarian in exchange for rising living standards” bargain.

  • bugshead

    Sloppy article with no research or analytical merit. Reads like something that a junior analyst would get slapped for. Crap – –

    • Makroon

      Derivative from the usual US apocalyptic press.

  • HookesLaw

    Is Ms tans expertise in finance? Is the failure of a product designed to raise money for a collaped coal mine (the
    mine collapsed after its owner was arrested in
    2012 for illegally collecting deposits) going to bring the Chanese economy down?
    I do not see this as being as big a problem as Tan says I do not see it snowballing and not fast.
    No doubt the Chinese economy will have its cycles like all others. I am sure some of its people are more than stupid enough to make bad investments. It is growing from a low base so we should not be surprised if the growth %age rate is high.

  • Tom Tom

    With $4 Trillion salted away in BVI companies I hardly think Chinese elites need worry…..they will be at Davos enjoying the company of the 85 whose wealth equals that of 3.5 billion proles.

  • zanzamander

    Wait till all the Chinese investment funds in SIPPs and ISAs begin to unravel.

  • Reconstruct

    Oh please! Do you really imagine that China’s financial regulators haven’t been alive to this for three years at least? Yes, without doubt a swathe of these loans are going to go down, and responses cobbled together. But this just isn’t news: it is, however, one of the reasons that China’s regulators have arranged it so:
    i) China’s banks have a loan/deposit ratio of just 69% (vs 115% for UK banks in 2008),
    ii) why the PBOC has set deposit reserve ratios at 20%, and why
    iii) why there’s such a large banking spread (1yr deposits 3%, 1yr prime lending 6%).

    Is there loads to worry about in China? Yes, certainly. Which is why China’s leadership spends so much of their time worrying obsessively. It’s what they do.

    • Tom Tom

      Chinese statistics are the best….the most truthful….from a Communist Party built on integrity

      • Makroon

        Forgive them father, for they know not of what they speak.

      • the viceroy’s gin

        You should get an award for that post.

  • Daniel Maris

    “This is why Beijing is now so keen to promote a sense of Chinese
    civilisational myth, of China’s cultural prominence, of its ‘Confucian’
    values.” China has been promoting Confucian values for a couple of decades at least now.

  • BarkingAtTreehuggers

    $300 million? Why is this news? The US print $85 billion every month.

    • CharlietheChump

      And that’s exactly what the Chinese will do to cover this hole, but what else is out there?

      • BarkingAtTreehuggers

        The news that the ICBC is now the largest bank by assets, perhaps?

      • Tom Tom

        They have already pumped $23 Trillion into their economy to add to the $16 Trillion the Fed had blown

  • sarahsmith232

    Really hope this is just a one off – Reasons why China will never come to make our far larger than their ones feel inadequate – article. The American right-wing media never stops with these, frantically grasping for any bit of a straw that can convince them that the inevitable Chinese domination will never take place.
    Please to the Spec’, like this publication, please don’t go and copy the ‘Foreign Affairs’ style publication, those type of non-stop articles are so pathetic.

    • tastemylogos

      Oh do go away with your lzy right wing’ labels. I doubt you could even define what this opaque, fluid term actually means. People like you remind me of Rick from the Young Ones, with his, ‘You Fascist’ insults. Completely oblivious to its meaning but some how so sure of a misplaced sense of his own ‘political awareness’.

      CNN covered this story too, it is rather big news. Washington Post finance correspondant covered it in depth too. Are these ‘Right Wingers’ too?

      Do get lost, buy a bloody book and pour some fking knowledge into that empty head of yours.

  • Dean Jackson

    “Since at least the early 1970s, the Communist party of China has been poised to create a spectacular but controlled “democratization” at any appropriate time. The party had by then spent two decades consolidating its power, building a network of informants and agents that permeate every aspect of Chinese life, both in the cities and in the countryside. Government control is now so complete that it will not be seriously disturbed by free speech and democratic elections; power can now be exerted through the all-pervasive but largely invisible infrastructure of control. A transition to an apparently new system, using dialectical tactics, is now starting to occur.” — Playing the China Card (The New American, Jan. 1, 1991).

    For those unfamiliar with this subject, the “collapse” of the USSR in 1991 was a strategic ruse under the “Long-Range Policy” (LRP). What is the LRP, you ask? The LRP is the “new” strategy all Communist nations signed onto in 1960 to defeat the West with. The last major disinformation operation under the LRP was the “collapse” of the USSR in 1991.

    The next major disinformation operation under the LRP will be the fraudulent collapse of the Chinese Communist government. When that occurs, Taiwan will be stymied from not joining the mainland. This is why China is buying up gold all over the word. It is believed that China currently has 3,000 [metric] tonnes of gold. When China has 6,000 [metric] tonnes it will have the minimum gold reserves necessary for its currency, the yuan, to replace the United States’ dollar as the world’s reserve currency, that is after the fraudulent collapse of the Chinese Communist government (the United States gold reserves is approximately 8,133.5 [metric] tonnes).

    The “collapse” of the Chinese Communist government will be preceded by (1) a manufactured economic depression; followed by (2) a manufactured little war with Japan, where China will be the losing party.

    • Daniel Maris

      B-b-b-b-onkers!!! The ultimate “cunning plan” – I am going to commit suicide so you think I am dead – in fact I will be dead which means you will be fooled completely.

      • Dean Jackson

        Good God. Are you the product of the English public school system?

    • Reconstruct

      Good grief! I never knew! Now it all makes sense.

      • Dean Jackson

        Also watch for the collapse of the European Union, where Europe will then join Russia in a new union, from the “Atlantic to Vladivostok”. This will accomplish two goals for Communist strategists, (1) the further isolation of the United States; and (2) the disbanding of NATO:


        “Editor’s Note: The phrases ‘From the Atlantic to the Urals’, ‘From the Atlantic to Vladivostok’ and ‘From Vancouver to Vladivostok’ are interchangeable in the strategists’ lexicon. In the course of his Nobel Peace Prize Lecture, delivered in Oslo in June 1992, Gorbachev said: ‘Our [sic] vision of the European space from the Atlantic to the Urals is not that of a closed system. Since it includes the Soviet Union [sic], which reaches to the shores of the Pacific, it goes beyond nominal geographical boundaries’. Note that Gorbachev, who had been out of office for six months, referred to the Soviet Union, not Russia. In an interview on Moscow Television on 19 November 1991, Eduard Shevardnadze continued speaking as though he was still Soviet Foreign Minister: ‘I think that the idea of a Common European Home, the building of a united Europe, and I would like to underline today, of great Europe, the building of Great Europe, great, united Europe, from the Atlantic to the Urals, from the Atlantic to Vladivostok, including all our territory, most probably a European-Asian space, this project is inevitable. I am sure that we will come to building a united military space as well. To say more precisely: we will build a united Europe, whose security will be based on the principles of collective security. Precisely, collective security’. These statements by key implementers of the strategy reflect the central strategic objective of asserting ‘irreversible’ Russian/Soviet hegemony over Eurasia, thus establishing the primary geographical component of the intended World Government.” — ‘The Perestroika Deception’, by KGB defector Major Anatoliy Golitsyn.

    • Ringstone

      Curses, foiled again! My cunning plan revealed! Mwahahaha!
      Yours Truly
      New World Order.

      • Dean Jackson

        It was the following that gave it away:

        What do you see next to the masthead?

        What’s the title of the newspaper?

    • HookesLaw

      The tin foil is wearing thin on your hat.

      • Dean Jackson

        “The tin foil is wearing thin on your hat”

        Tinfoil actually absorbs anti-truth magnetic fields that prevents one from seeing Lenin’s image and the four Soviet nationality emblems next to the masthead of the Russian Ministry of Defense’s official newspaper, AND also see that the newspaper is STILL called “Red Star”! This means, of course, that it is you who is wearing tinfoil, and obviously you don’t know it!

        • FrenchNewsonlin

          Tried the Scientologists?

          • Dean Jackson

            I tried something simpler…pictures from Russian military property. They’re quite revealing. Sometime you might actually want to look into, when you’re not too busy making ignorant remarks.

    • Jupiter

      The black helicopters will be arriving at your house imminently.

      • Dean Jackson

        Yes, I saw those helicopters in Russia. However, those helicopters, along with all other Russian military aircraft, are STILL using the Soviet roundel on their wings/fuselages, proving that the collapse of the USSR was a strategic ruse:



        “Krasnaya Zvezda” is Russian (no kidding!) for “Red Star”, the official newspaper of Soviet and later Russian Ministry of Defense. The paper’s official designation is, “Central Organ of the Russian Ministry of Defense.” Note the four Soviet emblems next to the still existing Soviet era masthead, one of which pictures Lenin’s head, the man who removed the independent Russian nation from the map, supplanting it within the new nation called the USSR (the USSR being the nation that was to one day include all the nations of the Earth, incorporation taking place either by violent revolution or deception)! Those Soviet emblems and Lenin’s head can’t still be next to the masthead of the Russian Ministry of Defense’s newspaper due to their association with the Soviet Union and its ideals of world revolution; the nations of the world constituting the Soviet Union!

        The fraudulent “collapse” of the USSR (and East Bloc) couldn’t have been pulled off until both political parties in the United States (and political parties elsewhere in the West) were co-opted by Moscow & Allies, which explains why verification of the “collapse” was never undertaken by the West, such verification being (1) a natural administrative procedure (since the USSR wasn’t occupied by Western military forces); and (2) necessary for the survival of the West. Recall President Reagan’s favorite phrase, “Trust, but verify”. Notice that not one political party in the West demanded verification, and the media failed to alert your attention to this fact, including the “alternative” media. When determining whether the “former” USSR is complying with arms control treaties, what does the United States do to confirm compliance? Right, the United States sends into the “former” USSR investigative teams to VERIFY compliance, yet when it’s the fate of the West that’s at stake should the collapse of the USSR be a ruse, what does the United States do to confirm the collapse? Nothing!

        If you rely on the media to inform you of what’s actually taking place in the world, you’ll be uninformed. You have to do your own research, and pay attention to the DETAILS!

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