China debt on the rise and likely to hit $1 trillion or more by year's end.
The amount of debt China owes foreign lenders ? to those who are inclined to believe what the government says ? is approaching the $1 trillion market. ?It will be there, if it is not already, before the end of the year.
As of March, it hit $764 billion, up from $736 billion in February, the State Administration of Foreign Exchange said on its website on Friday.
Outstanding short-term foreign debt, due within one year, rose to $565.68 billion from $540.93 billion at the end of last year.
The country has over $3 trillion in cash reserves. More than enough to service its borrowing or wipe it out entirely and still have a few trillion left over for a rainy day.
China is not a large overseas borrower, but is seen increasing its use of foreign capital markets in the years ahead as the economy matures. ?By comparison, the U.S. total debt obligations are over $17 trillion. It is unclear exactly what are China?s overall debt obligations.
Investors have bee mildly concerned over China?s debt levels, from federal to municipal to corporate debt. ?This year, for the first time ever, a Chinese solar company defaulted on a $531 million debt. ?Suntech Power is now in bankruptcy protection.
Over the last week, China investors got another scare with the People?s Bank of China, their central bank, said it would not be helping out small to mid-sized lenders who took on too much credit risk. ?The market panicked. Stocks fell. And then the Bank said that it would indeed help with liquidity where needed, and has even offered banks some cash protection over the last forty eight hours, according to published reports quoting Central Banker?Zhou Xiaochuan.
On Saturday, the Chinese Banking Regulatory Commission smoothed over the liquidity crunch concerns when it added its voice to the chorus and said that there was adequate reserves set aside at banks to cover problems with non-performing loans.
Commission chairman Shang Fulin said the recent liquidity crisis ? which sent money market rates soaring to 11% in a country used to rates around 3% ? would not affect the stable operation of Chinese banks. He acknowledged that some banks needed to improve their liquidity and risk management and promised to strengthen regulation for wealth management products and commercial banks. He urged banks to improve transparency of the wealth management products being offered, which suggests an ongoing concern in the capital city with municipal level shadow banking and investment that invests pension fund money into government pet projects and assets that have zero return.
All is clearly not well in China banking. ?But many close China watchers at banks like Barclays Capital believe the country can weather this. ?They have faith in China regulators and Beijing leaders to keep financial problems under control.
Huang Yiping, chief economist for Barclays in China, described the economic policy framework of Premier Li Keqiang as ?no stimulus, de-leveraging?and structural reform?. These are key components of what Huang calls ?Li-Economics?.
?We think Li-Economics?is exactly what China needs to put its economy on a sustainable path, which we estimate is around 6 to 8 percent annual growth for the next 10 years,? Huang said during the Global Think Tank Summit in Beijing this week.
China has resisted calls for more stimulus. ?The markets have been betting on it and never got it. ?It?s been one of the reason why Chinese equities have been such a bore all year.
The iShares FTSE China (FXI) exchange traded fund is down 19.6% year to date, the second worse performing BRIC market after Brazil. The iShares MSCI Brazil (EWZ) is the worst, down 21.58% YTD. ?All of the BRICs are underperforming the MSCI Emerging Markets Index so far this year.
Source: http://www.forbes.com/sites/kenrapoza/2013/06/29/china-foreign-debt-approaches-1-trillion/
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