Looks like the paper dragon is about to get some serious pain, as the Chinese economy no longer can hide the crap it was doing to pretend to have annual double digit growth. Too many Chinese firms are overextended and can’t repay their debt, so the Chinese government, whom had been playing games for decades to keep them up and running despite the fact they should have gone belly up, no longer has the wherewithal to do that. So it is bankruptcy for many institutions, including banks and green industries. Oh, they are trying to paint this as a good thing, but I call bullshit.
China is braced for a wave of industrial bankruptcies as its slowing economy forces companies with sky-high debts to the wall, the country’s premier has said.
Premier Li Keqiang told lenders to China’s private sector factories they should expect debt defaults as the world’s second largest economy encounters “serious challenges” in the year ahead.
Speaking after the annual session of the national people’s congress, Li Keqiang said: “We are going to confront serious challenges this year and some challenges may be even more complex.” He told lenders to China’s private sector factories they should expect debt defaults.
Li said China must “ensure steady growth, ensure employment, avert inflation and defuse risks” while also fighting pollution, among other tasks.
“So we need to strike a proper balance amidst all these goals and objectives,” he added. “This is not going to be easy,” he said.
Li’s warning followed the failure of Shanghai Chaori Solar Energy to make a payment on a 1bn yuan (£118m) bond last week. The default was the first of its kind for China and widely seen as pointing to the end of 11th-hour government bailouts for troubled enterprises.
Some analysts said the decision to let some indebted firms collapse was a sign the authorities had learned from the Japanese boom and bust experience of the late 1980s and early 1990s. Tokyo was plunged into two “lost” decades of stagnation after it prevented zombie companies from declaring bankruptcy – even blocking petitions from bondholders in the courts – when a property collapse exposed debts many times the value of their businesses.
However, figures this week revealed that Beijing is copying the Japanese tactic of ramping up public infrastructure spending to replace the steep slowdown in private sector investment. Fixed asset investment, a measure of government spending on infrastructure, expanded 17.9% during the first two months of 2014, the National Bureau of Statistics said.
China’s industrial production rose at its slowest pace in five years with surveys showing a faster slowdown than expected. Industrial output, which measures production at factories, workshops and mines, rose 8.6% in January and February year on year, which is the lowest pace of growth since the 7.3% annual growth figure recorded in April 2009.
The figures covered a two-month period owing to China’s lunar new year holiday week, which fell in both months.
Retail sales gained 11.8% in the two months from the year before, the lowest since an 11.6% increase in February 2011.
The pessimistic data surprised economists but followed indicators for manufacturing, trade and inflation that also suggested weakness in China’s economy.
If they had learned the lesson, they would not have let this go on for decades. What we have here is the government reaching the end of their rope and deciding they would rather survive, and of course not risk a catastrophic implosion that would cost them power, than keep pretending things are fine. The Chicomms had to keep these failed entities propped up so they could keep the rest of the world under the illusion that their economy was still growing steadily and by insane numbers. We are all going to be butt hurt because of this.