note on source: We don't link to The Epoch Times very much, maybe a dozen times in total, and especially not on China related matters. They are so anti-communist that they have published stories from some guy, his name escapes me, who has been predicting the fall of the Chinese empire since 2002.
And though the frequency and depth of "fāke™" news at Epoch Times is nowhere near that of the Washington Post or NBC or the New York Times it is easier to just find a different source if there is something we wish to link to.
In this case though I think we are good. The writer, Christopher Balding has shown himself to be knowledgeable about China (formerly a Professor at Vietnam's Fulbright University and nine years at Peking University's HSBC School of Business in Shenzhen.)
If interested in a juxtaposition of Balding and American "fāke™" news, see after the jump.*
As Chinese banks creaked
and groaned under the weight of increased demands to lend and large
amounts of undeclared bad loans, it only became a question of time
before bank bailouts began. Well, the bank bailouts in China have begun.
Despite
hyperbole over unprecedented risks to the Chinese financial system from
pundits, a rickety Chinese banking system and bailouts are very
precedented. In the early 2000s, China faced a rising tide of bad loans
that threatened to overwhelm its banking system. From roughly 2004 to
2006, China undertook a massive recapitalization of its banking system
covering national- and city-state-level banks.
The recapitalization occurred through two primary channels. First,
Beijing created four state-owned “bad banks” that were capitalized with
state money, which then purchased bad loans from banks. These banks have
a decidedly mixed record. Some of the loans ultimately were repaid as
China enjoyed rapid growth from 2005 to 2020. However, large amounts of
these loans haven't been repaid and exist as zombie assets that are
unlikely ever to be repaid at even heavily discounted rates. Today,
these bad banks range from officially bankrupt to teetering on the edge
of bankruptcy.
Second, many local governments stepped in to buy
assets from banks to keep them from collapse. Here's how the deals
generally worked. The local government would buy a large amount or all
of the bad debt, so the banks wouldn't have the bad loans in their book
and could continue making loans at a very long-term low or zero interest
rate. The bank would then repay the loans based upon a specific hurdle
or event, such as going public with a specific portion of earnings or
repurchasing the bad debt in tranches.
Since large amounts of the
bad loans were linked to public projects and the government needed the
banks to keep making loans, there was a symbiotic need for each other.
The downside was that the debt was never written down, or assets
disposed of, as the government never addressed the underlying problem of
bad debt. So when the bank was repaying its bad loan debt or
repurchasing them, nothing had fundamentally changed about the bad
debts.
China
was able to tackle a significant amount of its previous bad debt by
simply outgrowing its bad debt, not by actually adjusting valuations,
writing down or writing off loans, or addressing banking practices.
Outgrowing bad loans is uncommon on individual bad loans and incredibly
rare at a macroeconomic level.
China hopes to repeat this feat as
it starts addressing bad loans in the banking sector less than 20 years
after the last time Beijing tried to recapitalize the banks.
Just
recently, Hong Kong-listed Shengjing Bank from the northeastern province
of Liaoning announced that it had sold 176 billion yuan ($24 billion)
worth of bad loans to the Liaoning provincial government. However, a
closer look at the transaction reveals a lot of movement and little
substance.
A man walks by the head office of China's largest private lender, Minsheng Bank, in Beijing on Feb. 25, 2002. (AFP/Getty Images)
The deal between Shengjing Bank and Liaoning is straightforward and
just serves to paper over and delay dealing with the fundamental
problem. No actual money is changing hands in the transaction between
Shengjing Bank and Liaoning. Liaoning Asset, under the local department,
is simply receiving a package of loans and investments and then issuing
15-year notes for the 176 billion yuan back to Shengjing Bank, which
carries a 2.25 percent interest rate. In effect, Shengjing Bank is
passing off its bad loans to the local government, hoping to get repaid
in 15 years while accepting a minimal interest payment well below the
official rate.
Shengjing Bank undertook this asset disposal in
order to “enhance the asset quality of the bank.” However, on the
surface, this is a puzzling move if we accept its published records as
factual. According to Shengjing Bank’s half-year report, it had a
nonperforming loan ratio of 3.17 percent, which actually declined from
the 2022 level of 3.22 percent. Additionally, Shengjing Bank supposedly
has bad loan provisions of 4.5 percent, meaning it has set aside 1.5
times as much as its bad loans to cover bad loans.
The amount of
the loan sale also seems puzzling. The 176 billion yuan asset sale to
Liaoning Asset comprises 16 percent of all Shengjing Bank's assets, and
the loan portion comprises more than 20 percent of all loans on its
books. Put another way, Shengjing Bank is offloading more than five
times the amount of bad loans it reports, even as it reports plenty of
provisions to handle bad loans.
The problem is actually deeper and
more hidden than the official financial statements make it appear.
Until late 2022, Shengjing Bank's largest shareholder and one of its
largest clients was real estate developer Evergrande. In fact, in late
2022, Shengjing Bank filed a lawsuit against Evergrande for more than 32
billion yuan ($4.4 billion) in unpaid loans.
That 32 billion yuan in unpaid loans is important beyond the fact
that Evergrande is unlikely to repay those loans any time soon. In its
first-half financial results, Shengjing Bank listed only 3.7 billion
yuan ($507 million) in loan losses and has less than 20 billion yuan
($2.7 billion) in bad loans in total. So, somehow, Shengjing Bank can't
collect more than 32 billion yuan from a client that's in default and
declaring bankruptcy, but it lists only 20 billion yuan in bad loans in
its entire portfolio.
There are a few key points about the
Liaoning–Shengjing Bank bailout. First, this basic structure is the
historical pattern for Chinese bank bailouts. Little or no money
actually changes hands, bad assets are moved to some other legal entity,
and nothing is done to address the underlying asset value or banking
practices. Consider this a generalized framework for future bank
bailouts.
Second, even with rapid growth, large amounts of debt
and assets remain from the last Chinese bank bailout nearly 20 years ago
during a period in which China enjoyed historically unrivaled growth in
the history of mankind. China is highly unlikely to enjoy such luck a
second time, meaning more bad assets will pile up in the financial
system and on government balance sheets. Even with the interest rate at a
significant discount, Liaoning will struggle to repay this debt in 15
years with any type of reduction in asset value. If these are real
estate and public infrastructure assets, the most likely pool of bad
loans sold, then this has merely deferred the day of reckoning at a
higher cost.
Third, this entire case cuts directly to why Chinese
and international investors don't believe published economic and
financial data or that the government won't stand behind major
investors. Shengjing Bank's financials clearly don't come close to
reconciling with its own financial problems, and Beijing is bailing out a
bank that it desperately needs. Investors won't believe financial and
economic data but will continue to believe that the government will
always come to the rescue.
As Chinese banks continue to need
assistance, this is just the beginning of what's sure to be an enormous,
expensive, and lengthy process.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
*Back in 2020 Professor Balding released a 64 page report on Hunter Biden's dealings in China. This was prior to the New York Post's scoop on the laptop that formerly belonged to Hunter Biden. Here's the report at the Internet Archive.
A few days before the 2020 Presidential election, October 29, NBC News published this story:
How a fake persona laid the groundwork for a Hunter Biden conspiracy deluge
A
64-page document that was later disseminated by close associates of
President Donald Trump appears to be the work of a fake "intelligence
firm."
One month before a purported leak of files from Hunter
Biden's laptop, a fake "intelligence" document about him went viral on
the right-wing internet, asserting an elaborate conspiracy theory
involving former Vice President Joe Biden's son and business in China.
The
document, a 64-page composition that was later disseminated by close
associates of President Donald Trump, appears to be the work of a fake
"intelligence firm" called Typhoon Investigations, according to
researchers and public documents.
The
author of the document, a self-identified Swiss security analyst named
Martin Aspen, is a fabricated identity, according to analysis by
disinformation researchers, who also concluded that Aspen's profile
picture was created with an artificial intelligence face generator. The
intelligence firm that Aspen lists as his previous employer said that no
one by that name had ever worked for the company and that no one by
that name lives in Switzerland, according to public records and social
media searches.
One of the original posters of the
document, a blogger and professor named Christopher Balding, took credit
for writing parts of it when asked about it and said Aspen does not
exist.
Despite the document's questionable authorship and
anonymous sourcing, its claims that Hunter Biden has a problematic
connection to the Communist Party of China have been used by people who
oppose the Chinese government, as well as by far-right influencers, to
baselessly accuse candidate Joe Biden of being beholden to the Chinese
government.
The document and its spread have become part of a wider effort
to smear Hunter Biden and weaken Joe Biden's presidential campaign,
which moved from the fringes of the internet to more mainstream
conservative news outlets.
An unverified leak of
documents — including salacious pictures from what President Donald
Trump's personal attorney Rudy Giuliani and a Delaware Apple repair
store owner claimed to be Hunter Biden's hard drive — were published in
the New York Post on Oct. 14. Associates close to Trump, including
Giuliani and former White House chief strategist Steve Bannon, have
promised more blockbuster leaks and secrets, which have yet to
materialize.
The fake intelligence document, however,
preceded the leak by months, and it helped lay the groundwork among
right-wing media for what would become a failed October surprise: a
viral pile-on of conspiracy theories about Hunter Biden.
Behind Typhoon The Typhoon Investigations document was first posted in September to Intelligence Quarterly, an anonymous blog "dedicated to collecting important daily news," according to its "about" section. Historical domain records show the blog was registered to Albert Marko, a self-described political and economic adviser, who also lists the blog on his Twitter bio. When asked about the provenance of the document, Marko said he received it from Balding.
Balding,
previously an associate professor at Fulbright University Vietnam who
studied the Chinese economy and financial markets, posted the document
on his blog on Oct. 22, seven weeks after it was initially published.
"I
had really not wanted to do this but roughly 2 months ago I was handed a
report about Biden activities in China the press has simply refused to
cover. I want to strongly emphasize I did not write the report but I
know who did," Balding said in an email.
Balding later claimed to NBC News that he wrote some of the document.
"I
authored small parts of the report and was involved in report
preparation and review. As a researcher, and due to the understandable
worry about foreign disinformation, it was paramount that the report
document activity from acknowledged and public sources," Balding said.
"Great care was taken to document, cite, and retain information so that
acknowledged facts could be placed in the public domain."
Balding said Aspen is "an entirely fictional individual
created solely for the purpose of releasing this report." Balding did
not name the document's main author, saying "the primary author of the
report, due to personal and professional risks, requires anonymity."
Balding
claimed that the document was commissioned by Apple Daily, a Hong
Kong-based tabloid that is frequently critical of the Chinese
government. A spokesperson for Apple Daily confirmed it had worked with
Balding on the document....
If you look at the report it seems to be well documented and except for a couple minor details has stood the test of time regarding scrutiny of the Biden clan and their dealings with China.
NBC was joined by China's CGTN propaganda organ a couple days later:
