# Hmmm... Could China implode?



## invision

Just saw this... Thought I would share...

http://www.bloomberg.com/news/2013-...r-first-time-in-23-months-on-cash-crunch.html

China Debt Sale Fails for First Time in 23 Months on Cash Crunch
By Bloomberg News - Jun 14, 2013
China's Finance Ministry failed to sell all of the debt offered at an auction for the first time in 23 months owing to a cash squeeze that threatens to exacerbate a slowdown in the world's second-largest economy.

The ministry sold 9.53 billion yuan ($1.55 billion) of 273-day bills, less than the 15 billion yuan target, according to Chinabond, the nation's biggest bond-clearing house. Agricultural Development Bank of China Co. raised 11.51 billion yuan in a sale of six-month bills last week, less than its 20 billion yuan goal.

Banks are hoarding money to meet quarter-end capital requirements at the same time as capital inflows are easing amid a worsening economic outlook and speculation the Federal Reserve will rein in monetary stimulus. The seven-day repurchase rate, a gauge of interbank funding availability, has more than doubled in the past month and the Hang Seng China Enterprises Index (HSCEI) of shares slid today for a record 12th day in Hong Kong.

"The cash crunch is curbing demand for bonds," said Chen Ying, a fixed-income analyst at Sealand Securities Co. in Shenzhen. "The crunch may persist if the central bank doesn't come out to inject more capital into the financial system. If it lasts longer, it may affect issuance of both government and corporate bonds."

The average yield at today's bill sale was 3.76 percent, according to two traders who are required to bid at the auctions. That compares with a 3.14 percent rate yesterday for similar-maturity existing securities, according to data compiled by Chinabond. The ministry's last failed auction was a sale of 182-day bills in July 2011.

Outlook Dims

The cash shortage comes after China's economic expansion held below 8 percent for the past four quarters, the first time that has happened in at least 20 years. Morgan Stanley, UBS AG and Royal Bank of Scotland Group Plc are among at least eight global banks and brokerages that cut 2013 growth estimates for the nation this week. The World Bank slashed its forecast to 7.7 percent from 8.4 percent, a June 12 report showed.

The People's Bank of China added a net 92 billion yuan to the financial system this week, down from 160 billion yuan in the five days through June 7, according to data compiled by Bloomberg. The monetary authority refrained yesterday from draining cash for the first time in three months as money markets reopened after a three-day holiday. The last time it used reverse-repurchase agreements to inject funds was Feb. 7.

Swaps Climb

"If the central bank doesn't conduct reverse-repurchase agreements or short-term liquidity operations to inject capital, cash supply will stay tight for the rest of the month," said Cheng Qingsheng, a bond analyst at Evergrowing Bank Co. in Shanghai.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, climbed 13 basis points, or 0.13 percentage point, to 3.79 percent as of 4:30 p.m. in Shanghai, according to data compiled by Bloomberg. It touched 3.85 percent, the highest level since September 2011.

Yuan positions at local lenders accumulated from sales of foreign exchange, an indication of capital flows into China, rose 66.86 billion yuan in May, the central bank reported today. That is the smallest gain since November.

Capital Flows

The State Administration of Foreign Exchange last month stepped up scrutiny of flows to prevent speculative funds from entering the country disguised as trade payments. Cash is also flowing out of developing nations as investors bet the Fed will scale back quantitative easing, a policy that spurred demand for riskier assets. Investors pulled $5.8 billion from emerging-market equity funds in the week ended June 12, Citigroup Inc. reported today, citing EPFR Global data.

The yuan rose less than 0.1 percent today and this month to 6.1308 per dollar in Shanghai. It strengthened 1.5 percent in the January-May period and has retreated 0.2 percent since reaching a 19-year high of 6.1210 on May 27.

The seven-day repo rate jumped 51 basis points today to 6.90 percent, a weighted average by the National Interbank Funding Center shows. The yield on the 2.62 percent government bond due April 2014 dropped five basis points to 3.12 percent.

"We are still bearish on the liquidity outlook because banks will turn more cautious toward the end of June due to the need to fulfill loan-to-deposit requirements and we will also head into another tax payment season in July," said Pin Ru Tan, an interest-rate strategist at HSBC Securities Asia Ltd. in Hong Kong.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at [email protected]

To contact the editor responsible for this story: James Regan at [email protected]

®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.


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## hiwall

The duct tape fixes that all countries are doing with their economies is going to fall apart. It is the same dismal economic story in every country. I still say that this is the year it all falls apart.


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## invision

hiwall said:


> The duct tape fixes that all countries are doing with their economies is going to fall apart. It is the same dismal economic story in every country. I still say that this is the year it all falls apart.


I am thinking 2015... Multiple reasons, but the can should hit the wall by then IMO


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## readytogo

*Everything that glitters is not,China.*

A weak foundation will soon collapse.
http://money.cnn.com/2013/05/12/news/economy/china-debt/index.html

Now this is another news, good news that we all should follow.
http://www.themadeinamericamovement.com/


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## invision

readytogo said:


> A weak foundation will soon collapse.
> http://money.cnn.com/2013/05/12/news/economy/china-debt/index.html
> 
> Now this is another news, good news that we all should follow.
> http://www.themadeinamericamovement.com/


Yeah but in paragraphs 2-4:

Swiss bank UBS calculates that central government debt was equal to 15% of the economy at the end of 2012. That number spikes to 55% when debt racked up by local governments and agencies is included.

If corporate and household debt is also counted, China's total debt load balloons to more than 200% of gross domestic product.

Plenty of countries have more debt by that measure, including South Korea, Japan and the United States. But compared to other developing economies, China is at the top of the range.

It is saying china is a developing country - they have the 2nd largest economy next to US.... And Japan, South Korea are worse off???

I just don't know...


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## BillS

China's national debt is $2.3 trillion. China has foreign currency reserves of $3.4 trillion. China's official gold reserves are 1,054 tons. At $1400 an ounce that's $47 billion.

http://www.nationaldebtclocks.org/debtclock/china

http://www.tradingeconomics.com/china/foreign-exchange-reserves

http://www.businessinsider.com/countries-with-largest-gold-reserves-2013-4?op=1

So to keep it simple, China could pay off their national debt when their foreign currency reserves. I don't see them as being in trouble from that standpoint.


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## invision

BillS said:


> China's national debt is $2.3 trillion. China has foreign currency reserves of $3.4 trillion. China's official gold reserves are 1,054 tons. At $1400 an ounce that's $47 billion.
> 
> http://www.nationaldebtclocks.org/debtclock/china
> 
> http://www.tradingeconomics.com/china/foreign-exchange-reserves
> 
> http://www.businessinsider.com/countries-with-largest-gold-reserves-2013-4?op=1
> 
> So to keep it simple, China could pay off their national debt when their foreign currency reserves. I don't see them as being in trouble from that standpoint.


Heck it sounds like they are in better shape than the rest of the world... Thanks for the information... By head scratch was because the article considers them to be a developing economy... Really? IMO they are not a developing economy...


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## LincTex

invision said:


> Really? IMO they are not a developing economy...


They are totally duping the rest of the world.

Some places/orgs still consider China a 3rd world country and allow them more emissions credits... I mean, REALLY?


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## invision

LincTex said:


> They are totally duping the rest of the world.
> 
> Some places/orgs still consider China a 3rd world country and allow them more emissions credits... I mean, REALLY?


Yep, we even sent them $14+ Million in foreign aid... I mean that isn't even one Obama vacation, but seriously? We gave them $14 million in aid? We could have used that money to keep White House tours open, or hell borrowed 14 million less from them... Developing country my ....


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## Immolatus

> So to keep it simple, China could pay off their national debt when their foreign currency reserves. I don't see them as being in trouble from that standpoint.


While technically correct, this implies that their foreign currency reserves will hold their value, which is doubtful.

To the OP:
This shows to me that China oddly enough isnt on the US/EU/Japan bandwagon of coercing/forcing/manipulating their own entities (banks, central banks, member nations) to buy up their bonds. My understanding is that without said internal 'aid' *none* of the worlds bond auctions would meet expectations.
Here, the F3D buys most of the bonds. In the PIIGS, the federal gubts will bail out/lend/give money (with help from the ECB) to the banks so the banks can then buy up the bonds in a big circle jerk. In Japan I believe that pensions are required to hold gubt bonds.
We (us on this forum) are a bad example, but think about it. Would you lend the fedgov any money? To the PIIGS, Japan, _China_?


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## Marcus

China's stability is predicated on an implicit bargain between the government and its citizens. That bargain involves continued growth in the standard of living in return for no political agitation for a freer society. So what could cause a dissolution of this bargain?

A collapse in world trade due to a world-wide depression would adversely affect resource countries (China controls most of the Rare Earth Metals market.) Since exports would collapse, no one would want to buy (or be able to afford) Chinese exports. China's trade surplus over the last 12 months was 276.4 Billion USD in an economy of roughly 10 Trillion USD so net exports account for 2.5% of their economy which isn't a big deal. However, gross exports are 2.1 Trillion USD or roughly 21% of their economy which makes China's economy very sensitive to world trade. Their managed economy hasn't really ever witnessed a severe downturn (the government used infrastructure projects to keep the economy going after 2008) so what would happen is anyone's guess at this point. I surmise that most China experts expect some sort of political stability issues if/when their economy slows down. FWIW, China ranks 117th in per capita income at 4400 USD.
http://www.tradingeconomics.com/china/balance-of-trade
http://www.tradingeconomics.com/china/exports


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