China's Credit Bubble About to Implode
According to Ambrose Evans-Pritchard of the Telegraph, Fitch analyst Charlene Chu has concluded that China's growth is fueled by a credit bubble that is unlike anything the modern world has ever seen. This debt bubble is leading to massive overbuilding, Chu says. And when it finally bursts, as debt bubbles always do, China will be looking at a Japan-style depression and deflation.Here’s what’s behind the Chinese cash crunch
What does the spike in rates mean? Large banks are increasingly leery of tapping into their pools of cash to lend to each other. Recent reports that China Everbright Bank failed to repay a short-term loan to Industrial Bank Co. aren’t helping. Industrial Bank says that report is “untrue and exaggerated.” But short-term lending markets suggest other bankers are skeptical.5 signs that China is about to fall off of a debt cliff
A government crackdown on fake trade invoicing likely caused a sharp drop-off in exports, which rose 1% year-over-year in May, compared with 14.7% in April. (Export traders overstate export orders to take out cheap loans in Hong Kong, funneling those loans into shadow banking investment products, which offer higher returns.) That means export growth (and economic growth overall) has been much less than China’s headline data suggest.China has a new aggressive action plan to reduce pollution, but will it be enough?
To put this into perspective, pollution in industrializing China is actually less, per person, than in Europe during its own industrialization. But unlike 19th century Europe, China has access to technology that can make electricity from the sun and the waves. It’s just not transitioning fast enough to keep up with the country’s breakneck pace of growth.