Thu Jun 20th, 2013 at 11:26:38 AM EST
There's quite a buzz around the state of Chinese banking at the moment. This is from Ambrose Evans-Pritchard:
FITCH: China's Credit Bubble Is A Record - Business Insider
China's shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.
The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.
"The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation," said Charlene Chu, the agency's senior director in Beijing.
"There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signaling," she told The Daily Telegraph.
Evans-Pritchard goes on:
Fitch warned that wealth products worth $2 trillion of lending are in reality a "hidden second balance sheet" for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses.
(...) The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990.
(...) "There is no way they can grow out of their asset problems as they did in the past. We think this will be very different from the banking crisis in the late 1990s. With credit at 200pc of GDP, the numerator is growing twice as fast as the denominator. You can't grow out of that."
Meanwhile, interbank lending is tightening fast. Over the last 10 days, the overnight rate of the SHIBOR has jumped from around 6% to over 13% today, and the 1-week rate has gone from 5% to 11%.
There are folks here who can interpret this better than I can. Is this a lot of fuss about nothing, or at least something China can handle?
Or are we up for another major shock?