The major issue which has come out of China in the recent past is the Henan Bank Scandal. Along with it there are other rumblings. The overall financial system in China is under scrutiny. Issues appear to be tight with a touch of loss of investor confidence and flight of expats. Accompanying this is that the creaky property sector is making its own noises. Zero Covid is extracting a toll on China as I had predicted it would. It has touched the overall health system. Is this the tip of the iceberg?
Headline : China’s Henan bank scandal not just a financial crisis, it may be a lasting political calamity: analysts
Excerpts : The Henan bank scandal, in which 40 billion yuan (US$6 billion) in deposits disappeared, is more than a Chinese banking crisis – it is a political crisis that could undermine people’s confidence in local governance and also other local banks, according to analysts…The blow to public confidence in financial stability and the government’s ability to protect their legitimate interests could be a long-term issue, unless the central government can find ways to promptly repay the depositors..“This is a credibility crisis involving not just a few rural banks in Henan province but a large number of grass-roots account holders across the nation. The economic loss is enormous,” Yang said.“From a Marxist framework, finance and economic risks are essentially political risks and that’s why many are concerned with containing the problem from spreading further”…The image of the local government was further tarnished after numerous reports said protesters had their health codes – which determine where people in China can go – turned red even though they were neither infected with Covid-19 nor close contacts of cases.
Headline : How China’s Henan bank scandal threatens a ‘crisis of confidence’ in nation’s financial system
Excerpts : Central bank vows to strengthen efforts to crack down on illegal financial activities during a period that could see ‘flare-ups of financial risks’..Small banks elsewhere in China, such as the rust-belt region of Liaoning, are also said to be susceptible to economic upheaval ‘if risks cannot be contained’..The banking scandal in China’s central Henan province could be merely the tip of the iceberg in terms of systemic risks, and its impact threatens to snowball if regulators fail to bring it under control while the nation is struggling to boost its economy, according to analysts…The protests subsequently escalated to a violent clash on Sunday. Protesters were surrounded by local police and were recorded being beaten by unidentified men in white shirts…Local authorities said they would start repaying some of the victimsup to 50,000 yuan (US$7,430) from Friday, but questions remain as to when or if depositors will get all of their savings back…The scandal comes at the time when China is being challenged by strong economic headwinds, and Beijing has repeatedly sounded the alarm in warning against exposure to financial risks, while also prioritising economic and social stability in the run-up to the 20th Party Congress later this year…Beijing is striving to meet its economic growth target of “around 5.5 per cent” this year. But in light of the nation’s strict coronavirus-control measures utilised in recent months, along with various other factors and uncertainties, many analysts have revised down their gross domestic product forecasts for the year
Comment : Ever since the Covid started, there have been news of small banks buckling in China. In the past two years 5-6 small banks have gone bust. However this is serious. It is indicative of a larger malaise. There are more financial flareups likely. Experts expect them. The question which comes to mind is – what is the extent of the malaise? Will the Chinese debt bubble finally burst? In my view this is the great bank robbery – china style. Very interesting times ahead for China watchers.
Headline : Chinese Homebuyers Across 22 Cities Refuse to Pay Mortgages ( this is a Bloomberg article)
Excerpts : Home loan payment halts may cause $83 billion of bad debt. China Construction Bank, Postal Bank, ICBC may be more exposed…Across China, homebuyers are refusing to pay mortgages as property developers drag on construction projects, escalating the country’s real estate crisis and risks of bad debt for banks…Buyers of 35 projects across 22 cities have decided to stop paying mortgages as of July 12 due to project delays and a drop in real estate prices, Citigroup Inc. analysts led by Griffin Chan wrote in a research report distributed on Wednesday…A Bloomberg index of China’s high-yield dollar bonds fell to the lowest in a decade as of Tuesday. Domestic bonds of large property developers, including Gemdale Corp. and Country Garden Holdings Co., also slumped to record lows.
Comment : China’s property sector continues to bleed. Connect with the banking scandals which are raging across the country. Things could go bad. All this is happening in a year when Xi Jinping is trying hard to get re-elected.
Headline : China debt: local governments target amateur investors in new round of risky credit expansion
Excerpts : Financial stress is pushing many local governments in China to gamble with potentially dangerous debt products aimed at retail investors…Direct social media marketing to retail investors has emerged as one approach to raising funds for infrastructure projects…Across China, a growing financial burden on local governments is pushing many to gamble with dangerous debt products aimed at retail investors, which are reigniting concerns about financial risk that Beijing has been at pains to keep under control.
Local government revenue from land sales has tumbled this year due to a slump in the property market, while many regions have had to cut taxes to rescue their economies from Covid-19 outbreaks in recent months….Unable to borrow directly from banks due to Beijing’s deleveraging campaign, some cash-strapped local authorities are turning to increasingly risky means to raise money.
Comments : Another facet of China’s economic stress. All these indicators just confirm that the Chinese economy is not a runaway express but a passenger train with many halts whose steam may be running out!
Headline : Chinese city’s health system buckles under Covid debt strain
Excerpts : Huludao authorities say they cannot increase funding to hospitals because of blow to city finances…Staff elsewhere report big drops in income as non-emergency surgery put on hold..A city in northeastern China has highlighted the strain of Covid-19 measures on local health systems, with authorities saying debts were rising far faster than their capacity to repay them…In a statement released last week, the health commission of Huludao, Liaoning province, said the debts were mainly the result of the pandemic, with higher costs for preventive equipment and lower income from the government..“The Covid-19 outbreaks in the city this year in particular had a huge impact on the normal operations of public hospitals, resulting in sharp rise in debt levels,” the commission said…The problems in Huludao could be the tip of a national public health iceberg…A National Health Commission report on the performance of public hospitals in 2020 found a general increase in operational costs and financial pressure in the system because of Covid-19 controls…Among the country’s top-tier hospitals, 43.5 per cent reported losses in 2020, up more than 25 percentage points on the previous year. The number of medical services also fell.
Comment : It was always reported that China’s health system was creaky. The CCP felt that in case the virus spreads into rural areas, the health system will not be able to handle the strain and it will collapse leading to a greater crisis. That was one of the main drivers of the Zero Covid policy. Well its coming true in another form. All these drops of misery add to the ocean of an unhappy Chinese economy.
Headline : China premier stresses data security after alleged leak affecting 1 billion Chinese residents triggers concerns
Excerpts : Premier Li Keqiang called on government bodies to ‘defend information security’, which has become a rising concern as authorities collect more citizen data…The comments come after what could be the largest ever data leak for China, with data sets showing names, birth dates, ID numbers and other sensitive information…a data set allegedly containing the information of 1 billion Chinese residents appeared last week on the hacker community Breach Forum. The poster, using the handle “ChinaDan”, said the data included names, addresses, identification numbers and mobile phone numbers. The person was charging 10 bitcoin, or about US$200,000, for the full data set.
Comment : Expect more leaks to happen. This will become a thriving business soon. The larger issue is – is this the breach in the great info wall of China?
Headline: Coronavirus: new variants raise questions about sustainability of China’s zero-Covid policy
Excerpts : Experts urge Beijing to focus on reducing deaths and hospitalisations by vaccinating the elderly…Local authorities pressured to achieve both zero-Covid and growth, but emergence of new Omicron spin-offs like the BA2.75 is worsening uncertainties…Whether China can maintain its zero-Covid policy and track down every single infection in the community is being questioned after infections caused by a more infectious strain of Covid-19’s Omicron variant, known as BA. 5, were reported in Xian, Tianjin and Beijing last week…Whether China can maintain its zero-Covid policy and track down every single infection in the community is being questioned after infections caused by a more infectious strain of Covid-19’s Omicron variant, known as BA. 5, were reported in Xian, Tianjin and Beijing last week…Analysts say China’s zero-Covid policy is not only unsustainable, but also unnecessary, given the two sublineages have not caused a major surge in hospitalisations and deaths in other countries, and they have called for Beijing to focus on reducing deaths and hospitalisations by vaccinating the elderly
Comment : Whether Zero Covid is sustainable or unnecessary is irrelevant. It is a political issue more than a health issue. Recently, Xi Jinping went to great lengths to explain as to why he will persist with Zero Covid. Till the re-election there is no chance of a relook. After that it will be irrelevant since the damage will be permanent.
Overall Comments: Fact. China’s economy is slowing significantly. Fact. China’s global influence is waning. Fact. New facets of Chinese tribulation are coming out. Fact. Unrest previously brushed under the carpet is popping out. Fact. New leaks in the Chinese society are cropping up. Deduction. Your guess is as good as mine but the Chinese fish is rotting. A rotten fish is poisonous to eat. Morale of the story. Keep far away from China and its products.
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