China Confronts Full-Blown Financial Crisis
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Published on Jun 23, 2013
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Since June, the most serious "money shortage ever"
has shaken China's finance industry.
Banks have to borrow money from each other to
deal with a serious cash shortage.
Across China, local Chinese Communist Party authorities
are facing huge debts, but are failing to pay them off.
Financial experts, professionals, and economists
have commented that,
"China is now facing a full-blown financial crisis."
On June 23, in many of China's cities,
including Shanghai, Beijing and Wuhan,
there are failures in withdrawing money from
local Industrial & Commercial Bank (ICBC) agencies.
The ICBC has alleged that it was due to
a problem in computer system upgrading.
Netizens, however, suspect that China's banking
industry is facing a "shortage of money".
China is staging bank runs, which are characteristic of
a financial crisis.
Nandu.com reported that on June 20,
cash loan rates increased among banks in China.
The highest daily loan rate has reached 30%.
However, lots of banks still failed to
raise enough money.
The public is asking how there could be a cash shortage?
Where has the money from all these banks gone?
Experts say that bank money has all been used in "loans".
China's banks have been emptied by local fiscal debts,
enterprise debts, and money transferred overseas.
Thus it has led to a cash flow shortage in China's banks,
according to expert observers.
(Deputy Director, Unirule Institute of Economics)
Feng Xingyuan: "Currently in China, shadow banks
have actually garnered a large amount of money.
But where has the shadow banks' money gone?
This is massively related to local government debts.
Local governments-sponsored investment and
financing companies, have owned whopping liabilities.
Business performance has dramatically dropped and,
coastal regions are experiencing manufacturing crises.
Sometimes, enterprises have tight cash flows,
they are in need of more money.
Another reason is that hefty amounts of money have
been transferred, or carried out of China. "
How much is China's local government debt?
The figure is 3.85 trillion yuan, according to
the latest official figures, released on June 10.
China's official media quoted Dong Dasheng,
deputy director of the National Audit Office.
Dong has estimated that China's current local fiscal debt
is between 15-18 trillion yuan.
Furthermore, local CCP authorities have boosted GDP by
starting a large number of construction projects in recent years.
These include office building and other public works.
Excessive construction has deepened the local fiscal crisis.
(Senior business consultant) He Junqiao: "The issue of
local fiscal debts has been exposed by media in recent years.
Back a few years ago, only a
few economic professionals were aware of this.
Local government debt is very serious now,
no money is available for infrastructure."
Local governments have set up plenty of
Banks would offer loans to these government-sponsored
companies, with up to as much as they applied for.
This situation has caused a build-up of serious
bad debts within banks.
Feng Xingyuan: "Now a lot of local government-sponsored
financing companies pay off old debts with new loans.
This has sharply deteriorated bank assets.
A large part of these loans is derived from debt default.
That is, local governments can't pay off debts,
this is also a common problem in other regions."
Financial experts have indicated that ordinary citizens'
bank deposits cannot bear the huge local fiscal debt.
Whilst printing money
cannot help cover the loophole, either.
Nearly half of local fiscal debts
have become due in 2013 and continue into 2014.
So there is the present "money shortage",
the most serious ever in China's financial history.
Feng Xingyuan: "Now the risk is gradually unfolding.
This risk is actually growing day by day,
as a debt repayment peak has arrived.
If local governments default, the first casualty
will be construction corporations.
Banks will be the next to be affected,
they will face bad debts, probably."
Feng Xingyuan adds that China's fiscal crisis is likely to
spread throughout the financial system.
Whilst it is known that CCP authorities always have
reduced transparency in dealing with crises.
In other words, a crisis has emerged,
but CCP authorities have not yet made it public.
Experts generally agree that a financial crisis has
broken ground in China.
All the while, mainland Chinese have not yet
been made aware of this fact.
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