Connect with us

bank

Is China’s Debt Higher Than We Thought?

Avatar

Published

on

Is China's Debt Higher Than We Thought?

Goldman Sachs Group Inc. has been doing its math, and it suggests an increasing discrepancy between what credit creation in China may actually be and what the Chinese TSF thinks it is. 

The question is, how big is the difference and how worried should you be?

Growing Debt in China is No New Phenomenon

According to this chart from Business Insider, in the last five years China has gone up more than 50 percentage points worth of debt:

p4.1

Business Insider says that having debt that’s over 200% of the GDP is not so unusual, but how fast it happened to China is concerning, especially when economic growth is not keeping up with the trend.

What is the TSF, and How Does It Relate to Debt?

The TSF, or total social financing, is a number that Chinese authorities created in 2011 to measure credit creation in China. 

Until now, many have been using the figure to try and get a grip on just how much financing really is happening in China. 

However, M.K. Tang of Goldman Sachs has just published a note that seriously undermines trust in the measure’s reliability.

He and others at Goldman Sachs say that the figure simply does not match the numbers turned out by their proprietary way of measuring credit and suggests that the discrepancy is part of a larger trend of China being less than forthright about the financial situation.

[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]
[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/warrenbuffet/index” link_target=”_blank” link_text=”Click Here To Find Out What It Said…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]Warren Buffett Just Told His Heirs What He Wants them To Do With His Fortune When He Dies. [/ms_featurebox]
[ms_divider style=”normal” align=”left” width=”100%” margin_top=”30″ margin_bottom=”30″ border_size=”5″ border_color=”#f2f2f2″ icon=”” class=”” id=””][/ms_divider]

What Goldman Analysts are Doing to Get Their Numbers

Money in China is complicated, as are China’s ways of measuring it. 

Given the TSF’s apparent inaccuracy, analysts with Goldman are taking a different route to finding the information they seek. 

They look at the money flowing from households and companies into investments.

Measured this way, China created 24.6 trillion yuan—the equivalent of ($3.7 trillion) in the past year. 

According to the TSF, they only created 19 trillion yuan. 

It’s a huge difference and more than enough to cast doubt on the TSF as an accurate measure.

The following chart illustrates the point quite clearly:

p4.2

As you can see, the dark blue line indicating Goldman Sachs’s estimate far outstrips the light blue bars of the TSF’s estimates.

So, China Almost Certainly Has an Issue with Truthfulness in its Economy

CNBC points out that it has come to light that Beijing is making every attempt to control what China and the rest of the world believe is going on with its economy, which they would like to portray as bullish. 

Also, even reports that are more accurate about bearish tendencies have taken the line that numbers like the TSF are accurate. 

Be it cultural differences or outright dishonesty, the Chinese have not represented themselves accurately, and their numbers are now in doubt.

Also, said numbers are almost certainly worse, rather than better than China purports.

How Much of a Problem Is This Really?

In the same report, CNBC posits that basic differences in the way China operates will prevent the kind of collapse that many fear. 

The Chinese are much more collectivist in culture, and their financial system is expected to follow instructions from the top—in this case Beijing—more than it is to be profitable. 

Since the top is also supposed to look out for the bottom, China is much more likely to restructure its debt in ways the United States simply wouldn’t.

On the Other Hand, Fitch Believes that China is Headed for Big Trouble

According to the Telegraph, Fitch believes that China will experience instability and stunted growth if it does not cut back on issuing credit.

Fitch analysts believe that current lending practices are making the country’s system more vulnerable. 

And China is definitely not growing its GDP much right now, as demonstrated by the following graph:

p4.3

The GDP has not really grown since 2010—indeed it has mostly dropped or narrowly maintained.

Goldman Also Cites Circular Lending as a Problem

China currently has a scheme going where banks lend to nonbank financial institutions instead of actual people or businesses. 

It’s good for the bank’s profits but keeps the money trapped in the financial system instead of moving it out into the real world to strengthen the economy.

Clearly, Goldman has a number of concerns about China’s credit system and economy, and they are not alone in their concerns.

Goldman is Only Getting More Worried and Says So Outright

Goldman says they are more concerned than ever about China’s credit problems and sustainability, and the so-called shadow-lending that the TSF failed to measure at all makes them even more nervous. 

They consider it to be poor regulation and an invisibility of possible breaking points in the system.

Conclusion

While there is a possibility of China restructuring its debt, it is starting to look more and more like it is cruising for an economic bruising. 

The latest news from Goldman Sachs, while somewhat dismal, only confirms fears that people already have—that China is headed for a massive collapse due to the way it is running its economy.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

bank

How To Teach Your Kids About Credit Cards

Avatar

Published

on

If you have kids in college, this article is for you. Teaching kids about credit cards is one of the most important tools you can give them The world of credit cards can be confusing and giving your kids a little education might save them a lot of headache and debt.

Students need to learn credit card lessons

BY JULIE JASON

Do you have children in college? Have you talked with them about how to handle credit?
When I wrote about this topic in 2008, students were inundated with credit card offers. According to Benjamin Lawsky, who, as a special assistant to the New York state attorney general, testified before the U.S. House of Representatives’ Subcommittee of Financial Institutions and Consumer Credit, “marketers set up tables in high-traffic spots on campus, such as cafeterias, student unions, bookstores, and other campus buildings … [and at] campus events including freshman orientation, activity fairs, athletic events and graduation fairs.”

Then came the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act).

Now, companies cannot sign up individuals under the age of 21 without a co-signer or proof of personal financial resources. Marketers offering incentives like pizza can no longer do so while at “an institution of higher education” or even within 1,000 feet of the school. They also may not make such offers “at an event sponsored by or related to” the school. Pre-approved offers of credit to individuals under the age of 21 also are prohibited.

Still, card offers are being made, and students need to know whether to act on them. You can expect that student credit cards will have less favorable terms than those offered to people who have a credit history; students are higher-risk borrowers.
Further, students, even those over age 21, may not understand that missing a payment or making a late payment not only increases the cost of credit, but also creates a negative credit history, something everyone should work to avoid.

“A bad credit history can make it harder for you to get mortgages, car loans and credit cards in the future,” explained Matt Schulz, a senior industry analyst at CreditCards.com, a credit card comparison website.

“If you do get them, crummy credit can also cost you a fortune over the years in the form of higher interest rates and fees. It can also stand in the way of getting a job,” explained Schulz.

What can a parent do?
Since going away to college is the first step toward independence, you want to be sure that you respect your child’s need for self-sufficiency. But that doesn’t mean he or she has to go it alone. There are simply too many serious, long-lasting repercussions.

Communication and planning are key.

First, before your child leaves for school, talk to him or her about the benefits and the detriments of getting a student card. Establishing a credit history is a benefit. So is learning the discipline of paying bills on time to avoid a negative history.

Second, research options together with your child. Look online at CreditCards.com (search for “student cards”), WalletHub.com (click on “Credit Cards,” then “College Student”) or creditkarma.com (go to “Credit Cards,” then “Student”). Consider the fees, rates and penalties of different cards, and make a joint decision on the type of card that might make sense. For example, you might consider prepaid cards or secured cards. Prepaid cards work like debit cards. No credit is extended. You prepay the card, and when the balance is low, you fund it. Secured cards require a cash deposit that acts as the credit line for the account. This allows a credit limit to be established, without risk to the bank.

Third, decide on an acceptable monthly budget and what to do if it isn’t followed.  Talk about how you would like your child to communicate with you if that happens.

Fourth, determine whether you and your child agree that he or she should not accept credit card offers before reviewing them with you.

Fifth, agree on how the two of you should check in with each other. Will you talk each month about finances, perhaps setting a date in advance? Will you encourage your child to let you know about challenges before they become problems?

In the beginning, your child will benefit from some gentle guidance. You don’t want him or her to be adrift in a financial morass that could have been avoided with a little planning and care. Financial literacy calls for learning a new skill, and it is not reasonable to expect a child to go on this financial journey alone.

For information on the impact of the CARD Act, read the Consumer Financial Protection Bureau’s report (the Card Act Report), which you can find at https://www.consumerfinance.gov.

* * *
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit www.juliejason.com/events.

(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.

Continue Reading

bank

JPMorgan Chase’s China License a Huge Win

Avatar

Published

on

The financial sector seems to be alive and well under Donald Trump’s new administration. For all his talk of demonizing Wall Street, Trump seems to have taken a shine to banks and their executives. And even though President Trump has a rocky relationship with China, one of his closest banks just did something no bank has ever done before – receive a license to underwrite corporate bonds in China’s interbank bond market. Will other banks be far behind?

Is the JPMorgan Chase’s Relationship With the President the Reason for the Historic License?

JPMorgan Chase is living large. The bank’s CEO, Jamie Dimon, has a particularly close relationship with our new president, and was in fact Trump’s first pick for Treasury Secretary. The bank is up about 24% since the election. Last week, President Trump signed an executive order to loosen regulatory restrictions on banks and lenders by targeting the Dodd-Frank act, essentially giving JPMorgan the opportunity to double its lending, which is already near an all time high. Now, the largest U.S. lender just got entry into China’s $6.4 trillion bond market – the third largest in the world. Is it all connected? Is Dimon’s relationship with Trump to credit for its good fortune?

Yes and no.

Dimon is a close advisor and friend to Trump, meaning that for all his promises to clean up Wall Street, Trump’s actions are all currently focused to help the financial sector. But though Dimon can advise Trump, it’s ultimately up to the bank itself to chart its own course. And JPMorgan has done a stellar job of that.

The bank was granted a business license in September of 2016 to operate a fully owned fund management business in China thanks to the Chinese Central Bank’s decision to loosen entry restrictions. That license led to its approval to underwrite corporate debt in the China market, which is JPMorgan’s bread and butter. The bank earned about half of its investment banking fees from debt-underwriting last year, meaning that it now has the ability to double its revenue with one new market.

Watch this news clip from CNBC where JPMorgan Chase’s CEO, Jamie Dimon talks about President Trump’s reforms:

Thanks to China loosening entry restrictions, JPMorgan won’t be the only U.S. headquartered bank in town for long. But between that time and today, the lender should see ample profits and develop some competitive barriers to entry for other banks. Between the China license and the repeal of Dodd-Frank, expect shares of JPMorgan Chase & Co. (JPM) to rise UP.

 

The executive order for the repeal of Dodd-Frank Act has been signed, see the whole story here!

 

Follow us on Facebook and Twitter for more news updates!


The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


Featured image via The Richest

Continue Reading

bank

More Bad News From Wellsfargo CEO Resigns

Avatar

Published

on

SAN FRANCISCO–(BUSINESS WIRE)– Wells Fargo & Company (NYSE:WFC) announced today that Chairman and Chief Executive Officer John has informed the Company’s Board of Directors that he is retiring from the Company and the Board, effective immediately. The Board has elected Tim Sloan, the Company’s President and Chief Operating Officer, to succeed him as CEO, and Stephen Sanger, its Lead Director, to serve as the Board’s non-executive Chairman, and independent director Elizabeth Duke to serve as Vice Chair. Sloan also was elected to the Board.

Wells Fargor CEO John Stumpf Resigns

Sloan’s appointment to CEO and election to the Board are effective immediately. He will retain the title of President.

Sanger said, “John Stumpf has dedicated his professional life to banking, successfully leading Wells Fargo through the financial crisis and the largest merger in banking history, and helping to create one of the strongest and most well-known financial services companies in the world. However, he believes new leadership at this time is appropriate to guide Wells Fargo through its current challenges and take the Company forward. The Board of Directors has great confidence in Tim Sloan. He is a proven leader who knows Wells Fargo’s operations deeply, holds the respect of its stakeholders, and is ready to lead the Company into the future.”

, a 34-year veteran of the Company, joined Wells Fargo in 1982 as part of the former Norwest Bank, becoming Wells Fargo’s CEO in June 2007 and its chairman inJanuary 2010.

“I am grateful for the opportunity to have led Wells Fargo,” said. “I am also very optimistic about its future, because of our talented and caring team members and the goodwill the stagecoach continues to enjoy with tens of millions of customers. While I have been deeply committed and focused on managing the Company through this period, I have decided it is best for the Company that I step aside. I know no better individual to lead this company forward than Tim Sloan.”

Sloan said, “It’s a great privilege to have the opportunity to lead one of America’s most storied companies at a critical juncture in its history. My immediate and highest priority is to restore trust in Wells Fargo. It’s a tremendous responsibility, one which I look forward to taking on, because of the incredible caliber of our people, and the opportunity we have to impact the lives of our millions of customers around the world. We will work tirelessly to build a stronger and better Wells Fargo for generations to come.”

Sloan joined Wells Fargo 29 years ago, launching a career that would include numerous leadership roles across the Company’s wholesale and commercial banking operations, including as head of Commercial Banking, Real Estate and Specialized Financial Services. He became president and COO in November 2015, when he assumed leadership over the Company’s four main business groups: Community Banking, Consumer Lending, Wealth and Investment Management and Wholesale Banking. Previously, he headed the Wholesale Banking group after serving as the Company’s Chief Financial Officer and, prior to that, as the Company’s Chief Administrative Officer.

Sanger has been a member of the Wells Fargo Board since 2003, serving as its Lead Director since 2012. Sanger also chairs the Governance and Nominating Committeeand is a member of Human Resources Committee and Risk Committee. He was CEO of General Mills, Inc., a leading packaged food producer and distributor, from 1995 until 2007. He served as chairman of General Mills from 1995 to 2008. He also serves on the board of Pfizer Inc.

Duke has been a member of the Wells Fargo Board since 2015. She served as a member of the Board of Governors of the Federal Reserve System from 2008 to 2013, where she served as Chair of the Federal Reserve’s Committee on Consumer and Community Affairs and as a member of its Committee on Bank Supervision and Regulation, the Committee on Bank Affairs, and the Committee on Board Affairs. She also previously held senior management positions at banks including Wachovia and SouthTrust.
Watch this video from CNN Money and find out what Elizabeth Warren says about Wells Fargo CEO to resign.

Amazon Expands Grocery Biz With Convenience And Drive Up Stores. Check this news here!

Follow us on Facebook and Twitter for more news updates!


The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


Featured image via Business Insider

Continue Reading

Trending

Copyright © 2019 The Capitalist. his copyrighted material may not be republished without express permission. The information presented here is for general educational purposes only. MATERIAL CONNECTION DISCLOSURE: You should assume that this website has an affiliate relationship and/or another material connection to the persons or businesses mentioned in or linked to from this page and may receive commissions from purchases you make on subsequent web sites. You should not rely solely on information contained in this email to evaluate the product or service being endorsed. Always exercise due diligence before purchasing any product or service. This website contains advertisements.