The China story is not getting any rosier.
From The Economist, October 15:
The industry’s covid-era hangover could be about to intensify
When jinzhou bank, in north-eastern China, showed signs of distress at the start of the year, state media suggested that a billionaire named Li Hejun might be behind its problems. Mr Li, a solar-panel tycoon, was once China’s richest man. His firm was known to have tight links to the bank. And it was not long after word spread that he had been arrested that Jinzhou Bank suspended trading in its shares and told investors it would restructure its operations.Oddly, the bank’s finances look to have been in good shape. Its overall bad-debt level was low in the first half of 2022, the last period for which detailed information is available. Although one concerning figure sticks out—more than 50% of its personal-business loans had become non-performing—this type of loan comprised just 1% of its total. Small- and micro-enterprise loans, which make up about half of the bank’s loan book, appeared normal, with only 3% having gone sour.
But is this the whole story? In theory, there is no meaningful distinction between personal-business loans and small- and micro-enterprise loans, says Jason Bedford, a veteran banking analyst. The two types are used in similar ways and should offer similar risk. In practice, though, there is a crucial difference: small- and micro-enterprise loans remain covered by a covid-era moratorium allowing banks to avoid recognising bad debts. Thus it is possible that a large portion of Jinzhou’s lending book is unrecognised bad debt. The bank has said almost nothing about its condition since earlier this year.
If hidden bad debts such as these lurk at Jinzhou Bank, they may lurk elsewhere, too. This is a worrying prospect, for Chinese finance is already beset by problems. Local governments are struggling to repay lenders at least 65trn yuan ($9trn) in off-balance-sheet debts. Many of the country’s largest property developers have already defaulted on offshore bonds and owe trillions of yuan-worth of unbuilt homes to local residents. China’s largest wealth-management firms have started to default on payments owed to investors. Given that these types of hidden debts have so far attracted little attention, Jinzhou’s troubles ought to come as a warning.
Problems with loans to the smallest companies began with the onset of covid-19. As China’s economy shut down in January 2020, the central bank put a moratorium on the repayment of loans for small- and micro-enterprises until June that year in order to halt a wave of defaults. After less than three months of the policy, officials estimated that about 700bn yuan in payments had been deferred. The moratorium has been extended several times since then, with officials citing the continued impact of covid. No estimate for the total amount of unpaid loans exists and banks will not be required to disclose them publicly until next year.
The moratorium has also coincided with another state initiative. In order to stimulate the economy, the central government has leaned on banks to extend loans to the smallest firms, and to do so at the lowest possible interest rates. Although such policies have been tried for years, banks have been resistant, preferring to lend to the large, often state-owned firms with which they have relationships already. This time the policy has worked, however. A crackdown on the banking industry, culminating in the arrest of the president of one of China’s largest commercial banks last year, has made bosses more willing to follow official edicts.
....MUCH MORE
If interested see also October 11's "China Bank Bailouts Begin"
There was another big arrest announced today: "Former Bank of China boss arrested on corruption charges"
Additionally the Shanghai - Shenzhen 300 stock index is down 37% over the last going-on-three years and shows no sign of having yet found a bottom. A bounce at the prior low (the chart says 3508 but I thought it was a bit lower) would be helpful for folks long the Chinese markets:
Hong Kong: "Where Have the Traders Gone? A $4 Trillion Market Is Stuck in a Rut"
