Tuesday, September 27, 2016

Classic dark matter hooey on peoples china and social burden of corporate debt .......to swallow or not to swallow a big hunk ?

"As previous episodes of banking crises show, the sharp build-up of credit in the Chinese economy suggests a very high probability of a crisis in the next few years. Whether a crash can be avoided or not depends critically on the policy response of the Chinese government. In the three major banking crises that hit the country in the 1980s and 1990s, the one-party state was extremely willing to absorb part of the private sector losses. It now needs to act quickly to reduce corporate debt, strengthen bank balance sheets, and move the economy away from credit-fuelled investment in the ‘old economy’ and towards consumption. Debt-for-equity swaps, bank recapitalisations and the establishment of a market for the NPLs are all options on the table. Such a restructuring process of the banking system would result in a period of slower growth due to the credit contraction, but it would lead to a more sustainable growth model in the medium term. If, instead, the government continues to promote rampant credit growth, forcing banks to keep alive struggling state-owned enterprises, misallocating resources and deferring the necessary structural rebalancing, then a crash would seem to be unavoidable."