Chinese Financial System Is On The Brink of Collapse

Chinese Financial System on the Brink of Collapse

Nouriel Roubini said some time ago that 30% of Chinese bank loans will become non-performing, which will shake the foundation of the banking system in China. Well, it seems that he knew what he was saying, unfortunately. According to a report by PriceWaterhouseCoopers cited by ZeroHedge, matured and overdue loans reached 489 billion yuan ($77.6 billion) at the end of the second quarter of this year.

At the end of 2011, these loans, likely to become overdue, was only 112.9 billion yuan ($17.8 billion), which means that in just six months, the amount of overdue loans increased by 333%. These loans can not yet be declared bad because the definition of bad loans takes into account credit and interest overdue for more than 90 days and/or where judicial proceedings have been initiated against the operation or the debtor.

Even if they can not be considered non-performing loans (NPL), the enormous growth of these loans is dangerous because it is the first and biggest sign that China’s financial system is on the verge of a major earthquake.

Growth based on excessive credit

Roubini’s opinion was shared by the rating agency Fitch, which warned that it might downgrade credit rating of China because the bad loans. This statements do not appear to be unfounded, since banks do not want or can not lend money for construction projects that will later fail. An example an interesting comparison: for four years, China has built about one billion square meters of housing buildings per year. The area required for real owners – people moving from the countryside to the city, for example – is only 700 million square meters per year.

Chinese Economy Lost $3.79 Trillion in Illicit Financial Outflows Since 2000, Reveals New GFI Report

10-25-12

The Chinese economy hemorrhaged US$3.79 trillion in illicit financial outflows from 2000 through 2011, according to a new report [ HTML | PDF ] released today by Global Financial Integrity (GFI), a Washington, DC-based research and advocacy organization.   Amidst increased domestic concern over inequality and corruption, GFI’s study raises serious questions about the stability of the Chinese economy merely two weeks before the once-in-a-decade leadership transition.

“I’ve studied the proceeds of crime, corruption, and tax evasion for decades, and the magnitude of illicit money flowing out of China is astonishing,” said GFI Director Raymond Baker.  “There’s no other developing or emerging economy that even comes close to suffering as much in illicit financial outflows.”

China Loses Trillions in Dirty Money

A new report by Global Financial Integrity shows that over the last ten years, China has lost $3.79trillion in money smuggling.

This includes money lost in corruption, crime, or tax evasion – and it creates a constant outflow from the country that continues to grow.

In 2000, for example, $204.7 billion in dirty money flowed out of the country. Over a decade later, in 2011, this had more than doubled to $472 billion – 8.3 percent of the nation’s GDP.

Often it occurs through trade mispricing. Traders will record inflated prices, shaving funds off the top. According to the report, this action was highest in the trade of nuclear reactors, boilers, machinery, and electrical equipment.

From Reuters:

“The magnitude of illicit money flowing out of China is astonishing,” said GFI director Raymond Baker. “There is no other developing or emerging country that comes even close to suffering as much in illicit financial flows.”