{"id":12671,"date":"2015-09-26T13:40:43","date_gmt":"2015-09-26T18:40:43","guid":{"rendered":"http:\/\/olduvai.ca\/?p=12671"},"modified":"2015-09-26T13:40:43","modified_gmt":"2015-09-26T18:40:43","slug":"chinas-credit-mystery-deepens-as-moodys-warns-on-shadow-financing","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=12671","title":{"rendered":"China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing"},"content":{"rendered":"

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing<\/a><\/h3>\n

Last month, we took a\u00a0detailed look<\/a>\u00a0at what we said could be a multi-trillion yuan black swan.<\/p>\n

\"\"<\/p>\n

In short, one of China\u2019s many spinning plates is the country\u2019s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of debt that totals some 35% of GDP and which has channeled trillions into speculative investments via the proliferation of maturity mismatched wealth management products.<\/p>\n

One of the problems with the system is that it allows Chinese banks to obscure credit risk.<\/p>\n

As Fitch noted earlier this year, some 40% of credit exposure is effectively carried off balance sheet in China\u2019s banking sector, making it virtually impossible to assess the extent to which banks are exposed.<\/strong>\u00a0When considered in combination with the unofficial policy whereby the PBoC forces lenders to roll bad debt thus artificially suppressing NPLs, a picture emerges of a system that\u2019s decidedly opaque. Here\u2019s what\u00a0we said<\/a>\u00a0back in May:<\/p>\n

\n
The percentage of \u00a0loans which are not yet classified as non-performing but which are nonetheless doubtful is much higher than the headline NPL figure and in fact, [Fitch] seems to suggest that some Chinese banks (notably the largest lenders) may be under-reporting their special mention loans.\u00a0But ultimately it\u2019s irrelevant because between bad assets that are ultimately transferred to AMCs, loans that are channeled through non-bank financial institutions and carried as \u201cinvestments classified as receivables\u201d, and off-balance sheet financing, nearly 40% of credit risk is carried outside of traditional loans, rendering official NPL data essentially meaningless in terms of assessing the severity of the problem.<\/strong><\/em><\/div>\n<\/blockquote>\n

Well don\u2019t look now, but according to Moody\u2019s, the practice of obscuring credit risk using one or more of the methods delineated above and outlined in these pages on any number of occasions looks to be getting worse. Here\u2019s\u00a0Bloomberg<\/a>:<\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing Last month, we took a\u00a0detailed look\u00a0at what we said could be a multi-trillion yuan black swan. In short, one of China\u2019s many spinning plates is the country\u2019s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[77,130,9302,175,7903,195,353,541,6876,9303,4318],"class_list":["post-12671","post","type-post","status-publish","format-standard","hentry","category-economics","tag-black-swan","tag-china","tag-chinese-banks","tag-credit","tag-credit-risk","tag-debt","tag-gdp","tag-moodys","tag-shadow-banking","tag-speculative-investment","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12671","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12671"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12671\/revisions"}],"predecessor-version":[{"id":12672,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/12671\/revisions\/12672"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12671"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12671"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12671"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}