Showing posts with label Debt. Show all posts
Showing posts with label Debt. Show all posts

Monday, July 17, 2017

Reducing risk, at the expense of reform - Victor Shih

Victor Shih
China's leadership is setting a new economic agenda halfway July, and much of the measures focus on the reduction on risk, even if - says political scientist Victor Shih at Bloomberg - if that means announced financial reforms will be stalled.

Bloomberg:
China will proactively prevent and resolve systemic financial risks, and step up efforts to reduce leverage in the economy, the official Xinhua News Agency reported, citing Xi. He also called for greater accountability for regulators, saying it’s a “dereliction of duty” if they fail to spot and dispose of risks in a timely manner, and stressed that coordination of financial regulation should be improved, and weak links in supervision strengthened. 
“The heavy emphasis on risk prevention will put a damper on much-needed reform in the financial market,” such as developing derivatives markets, said Victor Shih, a professor at the University of California in San Diego who studies China’s politics and finance. “With the wording on holding regulators for any signs of instability, they will definitely err on the side of caution. But if regulations are too stifling, financial talent may leave the country.” 
Premier Li Keqiang also spoke at the meeting, calling for moderate credit growth and keeping liquidity “basically stable,” according to state television. He backed “professional, consolidated, penetrating” regulation of all financial businesses to reduce risks.
More at Bloomberg.

Victor Shih is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more political analysts at the China Speakers Bureau? Do check out this list.  

Friday, October 10, 2014

How can China reduce its debts? - Sara Hsu

Sara HsuChina has a longstanding tradition in creating huge debts, and the burden has been growing over the past year, as the government decided to bail out failing companies, rather than let them collapse. That system has to change, writes financial analyst Sara Hsu in the Diplomat.

Sara Hsu:
For the past year, analysts have noted that China’s debt has been steadily mounting. Currently, the debt to GDP ratio sits at about 250 percent. Much of the growth in debt originated from climbing local government debt, undertaken in order to build up infrastructure, as well as from increasing corporate debt, stemming in large part from the real estate sector. What are some potential resolutions to China’s debt woes? 
Local governments appear to have some resolution in sight, as they can now roll over their debt into municipal bonds. Although this does not address structural issues that would rule out the incursion of new debt going forward, it does provide significant relief to local governments that participate in the program. Many local governments, via their associated financing vehicles, have taken on new debt just to repay existing debts, and are therefore in dire need of a legitimate way in which to roll over their existing loans... 
At this point, it seems inevitable that some smaller property developers will collapse, but it is also likely that some developers will receive a bailout. Those who obtained trust loans and cannot repay them, for example, may find their funds paid by the local government or another entity, if history is any guide. Other developers may turn to the informal financial market of family, friends, and private money lenders to roll over their debt. 
Unfortunately, these resolutions to China’s debt woes are second-best. A better alternative would be to improve the bankruptcy process and allow companies to declare bankruptcy so that debt and assets can be dealt with efficiently. Even in the case of collapsed firm Zhejiang Xingrun Real Estate Co, local officials skirted the stigma of bankruptcy by dealing with winding down debt and assets themselves, rather than going through a more streamlined bankruptcy process. In cases where firms only face liquidity, rather than solvency, issues, the provision of short-term emergency loans (not bailouts) to less risky firms with conditionality may prevent liquidity issues from becoming more serious. 
Although China’s debt debacle has not yet caused a financial crisis, its coping mechanisms are less than ideal. Future reforms should remove government accountability for financial and non-financial firm failures and enhance the options facing troubled firms. These reforms are not a given, and are important changes to make as China’s economy becomes more market-oriented.
More at the Diplomat.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Are you interested in more financial experts at the China Speakers Bureau? Do check out our latest list.

Earlier this week, Sara Hsu joined the China Hangout and discussed the current state of the country´s financial situation.

Wednesday, December 11, 2013

The rising risk for private investors in trusts - Sara Hsu

Sara Hsu
+Sara Hsu 
Trust companies have been taking on much of the local debts haunting China's economy. And most of their debts come from domestic investors in China, who bear most of the risk, when things go wrong, writes financial expert Sara Hsu in this weblog.

Sara Hsu
The China Banking Regulatory Commission, which took over the regulatory role for the TICs in 2003, established many guidelines for their operation. A serious investigation into the TICs was launched in 2004, and a number of scandals were uncovered; by 2005, the number of TICs had unsurprisingly diminished. 
The reincarnation of TICs as trust companies is a result of a 2007 regulation that improved corporate governance and restricted the use of trust companies’ own assets. With the CBRC as a regulatory body, new regulations, and new names, trust companies became quite appealing to the Chinese public. Between 2008 and 2013, trust industry assets under management increased more than seven-fold. Without quite realizing that these companies have a tendency to encumber excessive risks, taking on loans that banks might be prevented from extending directly, the public has viewed trust products simply as deliverers of yield. 
The difference between the TICs and the trusts is that risk among trusts is concentrated among domestic, rather than foreign, holders of trust assets. CBRC officials have been adamant that (domestic) holders of shadow banking products, particularly wealth management products, are the ultimate bearers of risk. In an increasingly market oriented economy, allowing institutions and individuals who take on risks to bear the cost of the risks will likely be more commonplace. And why would the government prop up a flagging industry that has behaved badly in the past, should the economic climate turn sour? The simple truth is that it seems unlikely. The trusts are in danger of joining the TICs in yet another restructuring debacle. This may be the least surprising event in China’s restructuring mix.
You can read her full story here.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

Sara Hsu joined the +China Weekly Hangout on August 30 to discuss the perils of shadow banking in China.
 
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