The Chinese Banking Crisis Explained
Вставка
- Опубліковано 28 чер 2016
- == ASK ME A QUESTION ==
/ economista
/ tetracarbon
== SOURCES ==
Chinese banks sitting on $1.7 trillion debt time bomb mobile.abc.net.au/news/2016-05-24/chinese-banks-1.7-trillion-debt-time-bomb/7439844
Tue 24 May 2016
Finance in China: Big but brittle
www.economist.com/news/leaders...
May 7th 2016
China’s financial system: The coming debt bust
www.economist.com/news/special...
May 7th 2016
Free exchange: Red ink rising
www.economist.com/news/finance...
Mar 5th 2016
Xi Boosts Party in China’s $18 Trillion State Company Sector
www.bloomberg.com/news/article...
July 8, 2016
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Music produced by Material Wonders - materialwonders.com
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Happy Studies!
-Phillip
“Give the people bread and circuses and they will never revolt”
---- Juvenal, Roman poet AD 60 to 130
very good
Ha! But when that's taken away the masses will revolt. Look at Seattle. Mob violence already here
Wow this is now 2019 video was in 2016.
I think chickens might be coming home to Rooster!
Experts saying 2020 is going to be worse.
did we miss the ‘crisis’? where did it go
Trump train!
why did he call Tyrants as Leaders ?
Cause the west loves being told what is politically correct, and Mao invented political correctness.
If we know much at all, it is everything is cyclical! Last recession 2009 was single trigger. When next recession occurs it may become depression worse than 1928 with multiple triggers resulting in possibility and probability of multiple wars? The Perfect Storm..
Not much can be done just ride it out ang hope humans learn to survive and work with each other.
2019- low growth, Hong Kong protest, Pakistan trying to internationalise Kashmir, China leveraged belt and road with unpaid loans in Sri Lanka Pakistan Bangladesh! Malaysia! etc, USA China trade war starting to escalate. Migrant refugee crisis in every regions, brexit, far right and left polarising debates.... Sorry not looking good
Excellent analysis. Easy to undersatnd and a better review of Chinese conditions internally.
Do you think this may help open the door to an increase in trade between Australia the UK post-Brexit?
Maybe. Hard to say really. There are so many factors at play here. I've made plenty of "obvious" predictions about the Australian economy in the past and yet it keeps proving me wrong. I really can't understand why it's been so resilient. 2-3% year on year without fail. But always for DIFFERENT reasons.
We might be known as the lucky country - but I've got a problem wherever we just flat out rely on dumb luck as a strategy.
I think China's debt is a problem, but its not as big as a problem it seems. Firstly, if the debt is held domestically, it can be written off easily, there is no risk of currency devaluation and capital flight. The government can simply step in and go "all those NPLs? We'll buy em from you, off you go and keep lending".
Second, China's overcapacity problem has been around for decades, it's a little like the US military industrial complex problem. You have to direct the surplus labor somehow, in order to keep the economy going, and China's partial solution was to use the export led growth model also used by Germany/Japan/Korea/Taiwan etc. I think China's key issue here is not that there is overcapacity, but that they are too focused on exporting labor.
Love the explanation. Thanks Phillip!
Excellent and easy to understand. Thanks for the rundown .....from Canada!
Ya, let's hope China can keep things alive... how is that a good thing. There needs to be a major breakup to get rid of the corruption systemic within the Chinese system. Trump is doing this now. Putting the required pressure on the Chinese to make these changes.
Our country is corrupt also top to bottom every facet!
@@77.88. I totally understand what you are saying but I pray that is not true. There are many people in the system that want our Nation to be honest.
what is effect of chinese banking restrictions on malaysian property scenario for 2019-20
Just curious how your recent trade on Chinese currency RMB is doing?
This is one of the *best* explanations I've come across on this issue. Thank you!
Well done, mate. Interesting and educational.
Well explained. Thank you :-)
"OH WHAT TANGLED WEBS WE WEAVE WHEN FIRST WE PRACTICE TO DECEIVE!" Truer words have never been spoken!!
Except that it is NOT happening.
How exactly do you know what part of the 15 trillon assets of combined deposits on Chinese state banks are obligations and not actual money?
very informative! Would like to hear impact of this on countries like Venezuela, slightly weaker members of EU, lower Arab world and Pakistan where lot of Chinese money goes as loans or investment as they call it. What do u think?
Well, all that capacity is part the belt road project. But its 2016 and no body knows that.
Hey Phillip, excellent presentation - it'd be great to have an update? :-) especially with all the brown stuff heading towards the fan these days...
The original issues I talked about are still present, although there are now other more complicating factors. At the time I was talking there wasn’t a trade war in progress. Nevertheless the poor investments and overcapacity still exists.
For example: www.afr.com/markets/equity-markets/beware-china-s-dodgy-bank-bailouts-20190809-p52fng (AFR Paywalled)
Dear Phillip Wong thank you, we heard ABOUT IT question how the government can solve it
is it true that china assets are at 49T and 45T were put on the books since 2008?
Hi Phillip, This video was so great, but is pretty old now. Can you do an updated one? Kind Regards, Lee
Hi Lee! I would LOVE to! Unfortunately my dissertation is due at the end of December, so I won’t be (publicly) making any new video until 2019. I’m on Twitter and facebook quite a bit so you can chat to me there if you wish. =). I’ve got a ton of new and fun topics that aren’t just on the businesses s geo-politics, so I’m itching to get back into my UA-cam game after my thesis submission. Tell me on FB/Twitter what issues you think are really important. =)
To answer your questions - YES! Trump has really changed the game since I made this video. China has chosen the “slowly slowly” response which is - to be honest- their standard response to any painful reform. Usually. So the problem still exists today as much as it did 2 years ago, but now there are different pressures brought to bear. A lot of people are expecting China to collapse. Yeah, no way. That’s not likely. A lot of Chinese people are just saying this westerners kicking dust in China’s face. Yeah, not really. I can just as easily point out all the structural problems of America, or Australia, or India, or Vietnam ...etc. I’m much more moderate. The big changes are in the things we DON’T usually talk about. EG China stopped importing scrap paper and plastics a few months back. Well, holy crap, most municipalities stopped operating local recycling and so now Western countries now have to deal with our own waste. This isn’t good or bad, but it’s a big change. Yes it’s one industry, but there are many changes like it have have broader impacts. Another example is the fact that NZ has pretty much banned foreigners from buying and hoarding land in a bid to stop their housing market going full Toronto. Good? Well, it depends on who you ask. =). So much to talk about Lee!
@@Tetracarbon Thanks so much for the replies Philip. I'd be delighted if you could find time to make some more u-tube bids related to international economics. You have a real skill in your ability to explain these things, and your passion for the topics is fantastic. : )))
OMG... this was the best explanation of chinese banking crisis... Thanks a lot
Very good video. I especially like that you ask for a like at the end of the video and not like so many others who ask for a like and subscribe at the beginning when the audience hasn't even heard the video yet, Good job; great information.
Phillip, that was informative and very well done. Please make more about this topic and about China and property especially the property bubbles in Australia, China and around the world.
+ryan cliff where are you located? If you are in Australia (as am I) I actually think there is NO BUBBLE in Sydney and Melbourne on the whole. Yeah - it's goddamn madness but the net migration and increase in population wealth mean that so long as the Australian government doesn't radically change any policy, I can't see property falling any time soon.
Not great news for people in their 20s. :/
Man, I need to kick out this stupid research paper and I will get back to making awesome videos. :)
Great video! How did you gather this information?
mx2323 sources in the description. I didn't cite academic sources on corporate governance theory because I felt that this might not be appropriate on this channel, but you can always have search Google Scholar.
The information was very well put thank you.
Kindly tell me why no one does anything about this?
Thank you, great overview, cleared the head, aligned all the pieces....!
Thank you Mr Langdon. Please note that while this video is getting a bit of attention again, it’s an old video. The information here was correct at the time, but it is now dated. I will publish more work on China and international business, so perhaps a subscription might be worth it if you’d like to see more. Also, if you have other interesting questions, please ask in the comments.
Also, the next video I'm scripting is about the *Belt and Road Initiative* . If you have question about the BRI, please ask! I might feature it in the script.
any opinion on the bank runs in china and the banks that are getting nationalised
Cant prop up a fake system with debt forever.
One year later, what is happening now?
Very clear and concisely put. Thanks for the explanation.
Really great presentation. In fact, it was so good I was actually taking notes. The only question is this, this video was done in 2016. Moving forward to 2020, four years later, where is the present video for today's China crisis?
Please advise.
Hey. Fair question. I’m writing and shooting a video now on the Chinese Belt and Road Initiative.
Update: banking systems are still disconnected from the West so no contagion risk like there was during the GFC. Western banks have been well capitalised and acting at economic shock absorbers during COVID19, not shock causers as they were during GFC. Australia is now a major net exporter to China. Roughly, for every $1 of goods we buy from China we send them $1.20-$1.40. Add in education and our trade surplus gets bigger. I’m not aware of major reforms to SOEs, so they took the slowly slowly approach (which is a pretty consistent strategy or China). There are new risk factors for BRI projects.
I’m going to gamble early and say that if China is the first to find a vaccine to COVID, they probably won’t weaponise it by withholding the formula. I’d guess they will probably give it away for free in a way that maximises the image of the Party being the savour for human kind.
Frank Castellano also, sources are in the description.
What happened to All the Peoples Money (Chinese bank deposits) HSBC had 2/3 highest ever Cash Deposited on Record?
Excellent content Phillip, Thanks
How about a video that factors in the current US/NK situation and possible outcomes.
Phil Haycock I am working on one right now. Not kidding!
yes, like to hear your take on this , Brexit happens or not coz i hear that Nigel Farage is planning to take a team of British businessmen with him to meet President Trump.
Where are we now with this?
Thank you for this. God bless!
Nice vid keep up the good work
=) I've thought about making a "Sth China Sea Explained" video ... but I'm wondering if I'll find myself on a Chinese "no fly list" some day.
I just came back from China traveling to some first tier city, and I also had some chat with taxi drivers as they are the reliable source to obtain some inside infor about the Chinese economy.
All said, " Buhao meaning no good "
Seven days a week 10 hours a day earn only 5000 renminbi...One said!
Very nice presentation, articulate and entertaining.
Wonderfully incisive video! thanks!
So did it ended up playing out?
Thanks, you allow the rest of us noneconomic students to grasp a clear word picture! Nicely done!
just jim
Well presented. Thank you.
We need an update?
Excellent video. Thank you.
(your economics videos) How do you think it will all end? Do you think that the world will cease to trade with China? ......or that China's currency will eventually become valueless as the world loses confidence in it?
There's pretty much zero chance of any of that happening. And it's not something anyone should seriously wish for either as it would be incredibly destructive. And not just to the "West" (i.e. America and the Anglo-sphere) but to the rest of the world as well. The rise of China has been overall a good thing for humanity. We ought applaud the the fact that a billion people have been lifted out of poverty. No, this doesn't inevitably have to lead to conflict.
@@Tetracarbon Hi Philip, You misunderstand the intentions behind my question. I certainly do not 'wish' for it to happen. My hope is for freedom, happiness and a good life for all people. My question is simply around what I see as likely direct consequences of massive amounts of made up money and debt spread throughout the world.
Hitler started building roads steel mills all part of the plan to be able to move troops fast and he built up his military Air Force Navy sound familiar
And that is exactly what the CCP is doing now. War is just around the corner. Australia should stop supplying minerals and resources to China, as they are being predominantly used for the military industrial complex to execute their plans for world domination.
Hitlers troops, for the most part, walked off to war-otherwise they rode a horse
Interesting take
You are right all along. Can't believe this is 4years old.
4 years later. Nothing has happened
interesting vid.
I am convinced that many Chinese bank loans are not truly loans as you and I understand them. They are equity participations with downside risk but no upside potential. Paying loans back is subject to an unspokenn rule: "pay what you can, when you can, as long as we have a seat on your board of directors and can see your books." There are no firm Chinese accounting rules requiring that state banks deem a loan nonperforming. State owned banks are not answerable to shareholders. The Bank of China stands behind any state owned bank hit by a run, by giving a state owned bank all the currency it needs to satisfy panicked depositors. And what will the Chinese do with their panic cash? Deposit it eventually, in another state owned bank, that's what!
Mr Wong seems to believe that Chinese nonfinancial decision makers have not invested in the best capital projects on offer. I am agnostic about that claim. I prefer to say that over 2009-16, China invested frantically even in situations when no project contemplated had a positive net present value. Spending for equipment and structures adds to GDP even if the investment cannot ever make a profit. I suspect that Chinese accounting practices can be manipulated to disguise the fact that a firm, public or private, is running at a loss.
I agree that a massive failure of corporate governance lies at the heart of the looming Chinese crash.
Really great video but i was wondering, you say that the chinese people are not really able to invest in the stock market because they can't trust the numbers. Why do they can't trust the numbers ? Is it because of the numerous market manipulations ? Thanks
A lot of it has to do with the quality of audit information. Over the past 10 years the quality of audit has gone from “patchy and getting better” to actually very impressive on a global scale. I am impressed with research on audit quality coming out of China. I can not always say the same for Vietnam (a market for which I have personal contacts in accounting and audit).
It is hard to say something about the sophistication of Chinese finance 5 years ago that is still true today. It is a rapidly changing environment.
The annual reset for 50,000 RMB to be converted to other currencies by investors on 1 Jan 2017 may be troublesome which drains bank capital but at the same time under IMF rules with the RMB to be included in the basket of SDR currencies since Oct 1 2016, it has to be a freely usable currency ie convertible into other currencies. Wont this mean that China may renege on the IMF agreement by halting capital flows out.
You are doing great review of 5he Chinese ccp economy. I thought it would be more understandable if you pause a bit so that in between thinking will happen for the viewers
Good analysis.
cant they just change the #s?
It couldn't happen to a more deserving entity, the CCP. :D
@Alex Mercer Hey! We're not useless!
will it be worse than US banking system in 2008?
Any update on the Chinese banking crisis? No? No problem, I can wait just like what I did after reading Gordon Chang's book about 10 years ago.
Fair point. So the video is now year old and there has been is no economy crashing even such as wide spread run on the banking. Nevertheless the private debt build up is still a concern, and the Debt:Return risks are still true today.
Nevertheless just because the crash didn't happen, doesn't mean that there wasn't/isn't a serious risk.
I guess there are legitimate fears as we have seen runs on LOCALISED banks, but the government has done well to manage these risks, and occasionally used lender-of-last-resort powers. China's way in the past was the "slow" option I mentioned, and that is "to trade out of the problem". China's recent cuts to steel production are a cautious of this. www.reuters.com/article/us-steel-eu/china-to-cut-steel-capacity-but-excess-output-still-expected-eurofer-idUSKBN18703O The US way would be a more bruising "just-fire-everyone-and-let-the-whole-industry-go-bankrupt". The upside of the US system is that adapts pretty fast. The down side it that wipes out entire sections of the community. To be honest, this careful approach is something that China has done exceptionally well to manage.
Yes there's a risk, but damn they've done well to step through some pretty amazing problems in the past. That's a super impressive feat!
Think it's really important we try to understand the complexity of the situation. I am not attacking China or the party, rather, I'm commenting on business risks. Unfortunately when I read the comments, most people are either "BOO CHINA SUX" or "How DARE you attack China!" Ulgh. Honestly, we can do better to understand each other complexly.
and building islands.....
a great analysis
well done
GREAT video cheers from Portugal 🇵🇹
Have you analysed Indian economy?
India is fascinating! =) The problem for me is that India is really hard to say anything super meaningful about because “India” is not just one single homogeneous ‘thing’. India is diverse and fractured, amazingly ahead and so far stuck behind. It’s hard to say anything with any sort of total accuracy. =( Mind you, this video has been widely misinterpreted. I was talking about a specific problem, that is internal to China, and also relevant at the time (i.e. 2 years ago). The comments however were very much on the “CHINA IS BEST” or “CHINA IS EVIL” slant. Which is a shame because I wanted to be more nuanced than that.
Banking crisis and the impact on the likelihood of war?
Four years later, how the perspectives have changed... Your video seems to be talking about a Galaxy far far away...
Great video!
Wumao gonna hate but this Aged like WINE
Pain
Interesting.🤔
How does gold play into all of this
It largely doesn’t. Gold is an alternative to hard currency but it is less flexible, doesn’t yield a return (in fact the yields on holding gold is negative since you have to store the stuff). And the problem isn’t that the banks aren’t holding liquid assets. They are, but many of their loans are underperforming.
So yeah. Gold isn’t really a factor to consider here.
It's so scary to watch these people who claim to be experts and who obviously don't even know what money is.
No. What is scary is to hear these people that act as if a hundred trillion on unfunded liabilities is no problem, and the solution is more of the same.
@@larrytischler8769 if they understood (instituted) a real money process those unfunded liabilities could never grow to that magnitude. In fact there would be no such thing is unfunded liabilities.
Can you do an update on this video?
I’m doing a video right now on China’s belt and road initiative.
@@Tetracarbon Thank you!
Phillip-- Thank you for the excellent video essay of four years ago. What we need now is an update, especially with people like Trump and Bannon bumping along, looking for attention.
If the US, as a matter of economic policy pulled the plug on Chinese banking, what effect would that have on the Chinese economy? And given the interconnectedness of the global economy, what effect would that have on the global economic development?
Yeah. Not really. As I discussed in the video, and also in the sources cited in the comments, I don’t think US has any power to pull any plugs on Chinese banking. The banks are funded from domestic savings. The video is now two years old but for the most part it is still accurate.
In any case, I’m disappointed to see the world very quickly disconnect. By throwing up barriers we are now forgoing the gains from trade and deliberately slowing all of our economies - both Eastern and Western.
The problem is that this unpicking of connections increases the chance of conflict as each side thinks they can go it alone. I don’t know about you, but if you were alive during 1900 and you knew the future of the 20th century, would you feel hopeful for the future?
I am concerned.
PJ Clarke, I hope you take these comments as friendly! I don’t agree with your premise, but you have asked a good question all the same! :)
@@Tetracarbon , Sir I would never take your comments as anything else. I didn't know, which is why I asked. I follow the economic (or supposed) crisis on a variety of forums. My premise in asking was to see if there were any alternative to war. By this I mean if the economic crisis reaches a critical level due to the failure of the Chinese Banks to reduce their debt because an over reliance consumer rather than investment spending, could the Chinese themselves bring about the change in government in the same way the collapse of the Soviet Union brought change to Russia and Eastern Europe?
Ok, that’s a whole lot clear. Short answer: yes.
I don’t think a change in government away from the CCP is super likely in the short term. This is different to the collapse of the Soviet system you mentioned. The Soviets (and surrounding states reliant on aid from the USSR) were all bankrupt. But the collapse wasn’t inevitable. The leadership chose to allow change, but it didn’t quite work out the way they predicted. I don’t see that same openness to reform inside the CCP (not that anyone knows WTF is going on inside the CCP). Also China is, on the whole, growing stronger, not weaker. Finally, we’ve have banking crisis’s all the time in the west and this hasn’t lead to a massive shift in style of government. Well, I suppose except that one time that resulted in Nazis, but there was more to that story. Still, a banking problem will lead to economic pain. Pain can create social discontent. Usually banking crises are not enough to lead to a revolution in the form of government. It might contribute to change, but alone it is probably insufficient to drive change.
So while there might be pain ahead, I’m not predicting any major downfall.
Volume too LOW, turn it UP PLEASE.
This is big.
Totally unsettling
Please produce a video on current crisis (virus), and how global market would react to it since most nations heavily rely on Chinese imports. Request from your past student!
Green Goblin says to China and it's on coming banking financial crisis,..." Misery, Misery, Misery, that's what you've chosen,..."
Damn!!!!
I love this channel
An excess of unwise fixed-asset creation based on bad loans sounds like the USA in 1929. The problem is that without real businesses to use the assets, they suck up circulating capital until there's none to run even sound ones. If you spend all the money on the lemonade stand, there's none left to buy lemons, so there's no business.
avro549B I quite agree. That is a simple analogy and quite an apt one in this circumstance.
Basically there is nothing wrong with debt if profits cover interest. It is pretty clear that there are many projects in China that are obscenely profitable, and then there are others that were built in speculation without a clear purpose or business case. It isn't hard to find information on the ghost cites of empty appartments. If these were occasional it wouldn't matter.
As with many things in economics, it is about getting the mix right.
Still waiting for China financial crisis in 2019
This video was made 2016 it is now 2019, can you comment on what China did in the past 3 years.... are they managing it right ?
You can’t fairly compare companies that are backed by the state with those that are backed by the banks and families - even if you are able to invest in any of these companies the risks involved should logically make that idea unattractive but imo anyone who invests in state “controlled” (for that is effectively what they are) companies is especially asking for trouble
I hope they can't keep things afloat
Thanks. That was a very informative presentation. Have you considered the implications of China implementing a Petro-Yuan? The U.S.A. economy has boomed for almost 50 years by forcing everyone to buy their oil with U.S. dollars. Can China effectively export their debt bubble by supplanting the Petro-Dollar with the Petro-Yuan?
The Yuan is nowhere near as safe or strong as the Dollar..
Answer is no most likely not. You’re welcome.
And the FED and EZB are doing what exactly if not artificially propping up US and European economies and governments?
Oh the ECB? Not quite the same. Their expansion is different in nature, as their balance sheet expansion is all monetary policy. The point I make here is one of corporate governance arrangements which are not present in English speaking countries.
And does not make it right. One big difference is the US dollar and Euro values float on the international market. RMB does not. Neither does Hong Kong Dollar exactly since it is tied to US dollar. RMB has almost no international trade value, the root of many of China's problems because they cannot pay their bills with their money.
坚持崩溃一百年不动摇…16年的视频啊 哈哈😄
AND FOREIGN COMPANIES ARE RUNNING OUT OF CHINA ,AT RECORD SPEED!!
Strangely this video is 3 yrs old , but all comments are new .
Yeah I know. Some how the gods (I.e. Google algorithms) smiled upon me for some reason.
Make better business with the smaller,smarter nation's,like Vietnam and Taiwan, let go of big bully nation's that are a bit of a drain on trade
It's now happening.
What aboutvghost cities ?
They're poorly made and look bad like most things Made in China.
pay a visit to those ghost cities and u will find they are full of ppl now. y r u guys just that gullible?
In America the same was done by the fed to the banks
I liked it apart from the last bit where you said let’s hope they can keep it all afloat.
After a global pandemic my patience is wearing pretty thin with that tyrannical regime.
Indulging on illusions can only lead to one thing. Disappointment and anger. Can't wait to see what happens when the alarm bell rings.
Phillip, This is the best summary of the Chinese economy I have seen. However, I think the effect of dramatic a Chinese economic slowdown is grossly exaggerated. China tends to import mostly raw materials. As such, there is very little foreign labor in these imports. Hence, the effect on the non-china labor markets should be negligible.
The greatest non-China losses will be experienced by the western banks and corporations that invested in China. -- Something they should not have done in the first place, simply because the China did not have the legal systems in place to protect the foreign investments. These entities knew the risks, took the risks and, accordingly, should have to experience the losses.
Can you re-discuss China's problem in this pandemic times? I just realized that this was 3 years ago after I watched this video, however, your topic here is still relevant.
Gerry de la Cruz the sort answer is “debt is still a problem. Bank capitalisation is still probably weaker than is should be”. Still three years on some projects that lost money (belt and road projects into Egyptian coal fired power for example) haven’t gone as planned, but they haven’t caused a run on the banks as much as some financial analysts worried.
Any new recent updates...
Yeah. Next version is ready. I need to release it
Whoops. Wrong video. I was talking about my software.