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Shadow banking is not the issue 張化橋

http://blog.sina.com.cn/s/blog_50c88c400101kmjr.html
The real problem behind China's shadow banking;
 
  Joe Zhang says China's massiveshadow banking sector is only a reflection of the real issue - thepersistent, unbridled growth of credit as a result of negativeinterest rates and financial repression.

http://www.scmp.com/comment/insight-opinion/article/1249826/real-problem-behind-chinas-shadow-banking

Joe Zhang,

    InChina today, the term "shadow banking" has a negative meaning. Overthe past year, the China Banking Regulatory Commission has issuednumerous policy directives to try to contain its explosive growth.Xiao Gang , the head of the Chinese securities watchdog, calledshadow banking "a Ponzi scheme" in an opinion piece he penned lastyear while still serving as chairman of the Bank of China.

But why is shadow banking still all the rage, despite thehostile regulatory environment?

This will risk an economic recession,but it may be what is needed to avoid the next global financialcrisis

In the past two to three decades, China has implemented anextremely inflationary monetary policy. Since 1986, for example,its money supply has grown at a compound annual growth rate of 21.1per cent, and its bank loan balance by 18.2 per cent. Of course,Chinese citizens have not become richer as fast, and much of thegrowth is merely a monetary illusion.

Why did credit grow so fast for so long? Apart from a robusteconomy, the reason has been the regulated and negative realinterest rate. Due to financial repression, demand for loans hasbeen artificially boosted, as bad investments become feasible onsubsidised credit. Indeed, it has been a vicious cycle.

First, the fast growth of loans worsens inflation, which weakensthe purchasing power of money. To facilitate the same amount ofbusiness, corporate China needs more credit. And as more credit isreleased into the economy, the purchasing power of money shrinksfurther. I call this an iterative escalation of credit andinflation. There is a constant shortage of credit no matter howfast credit grows. The reason? Bank loans are impossible to refuseas they are heavily subsidised. Homebuyers and speculators knowthis all too well.

The Chinese government frequently talks about prudent monetarypolicy but does not really have the political will to tightencredit for fear of job losses and a recession. Even in April, thebroad money supply (M2) has grown at 16.1 per cent compared to thesame time last year. That is a very high rate on a high base. Chinais still inflating rapidly despite repeated declarations of creditcontrols by government officials.

The results of financial repression are visible everywhere, fromindustrial overcapacity to excess real estate construction, and theunstoppable growth of shadow banking.

Over time, the Chinese statistics (particularly on inflation)have lost credibility among citizens. Despite high inflation thatis widely believed to be somewhere between 5 and 10 per cent ayear, Chinese depositors are paid an average of 2 per centinterest. Naturally, they want better deals. While many have chosento speculate on property, others have embraced shadow banking,including microcredit and wealth management products. Afterconsistently deflating for two consecutive decades, the domesticstock market remains very expensive, with banking stocks being thepossible exception.

Negative real interest rates on bank loans constitute a subsidyfor borrowers. Unfortunately, access to finance is neither equalnor fair. State-affiliated companies and well-connectedprivate-sector borrowers take the bulk of funds for loans, leavingvery little for small businesses. The underprivileged have toresort to the curb market, involving trading outside the officialstock markets, pawnshops, microcredit firms and high-cost fundsarranged by trust companies.

In other words, China's shadow banking is a reflection of thefinancial repression. The high interest rates prevalent in shadowbanking activities are a result of the low rates in the formalbanking sector.

Financial repression has accentuated the uneven playing fieldfor the two types of borrowers. Normal bank loans carry a 6 percent annualised interest rate, while the shadow banks typicallycharge 15-30 per cent per annum.

If Beijing really wants to help small businesses, or deflate theproperty bubble, it should raise interest rates steadily. As aresult, the growth rate of money supply will decline to 7-8 percent within two to three years. Yes, this will risk an economicrecession, but a recession may be exactly what is needed to avoidthe next global financial crisis. This time, unlike in 2008, thecrisis will be made in China.

China's iterative escalation of credit and inflation has severesocial consequences, too. Ordinary savers are punished, and areleft further and further behind by the rising prices of assets suchas property. If President Xi Jinping wants Chinese people torealise their own "China dream", he must tame the credit monster.Shadow banking is only the shadow, not the monster waiting in theshadows.

Joe Zhang was chairman of Wansui Micro Credit Company inGuangzhou from 2011 to 2012, and is author of a new book, InsideChina's Shadow Banking: The Next Subprime Crisis?

This article first appeared in theSouth China Morning Post print edition on May 31, 2013 as A monsterproblem.
Shadow banking is not the issue 張化 化橋
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China's private sector still in shadow of the state 張化橋

http://blog.sina.com.cn/s/blog_50c88c400101o93k.html

China's private sector still in the shadow of the state

   South China Morning Post,19 Dec. 2013

In an essay published eight years ago (Financial Times;October 5, 2005), I said that China's private sector was in theshadow of the state.

I can make the same argument today with one significantdifference: the state sector's dominance in China has grownconsiderably in the last eight years.

The last decade has almost completely undone the reforms of thetwo previous decades.

The consensus in the West is that China's state sector iscorrupt, inefficient and ideologically inferior, so it must belosing ground against private enterprise which is steadily chippingaway at the communist, state-backed old guard.

That is just not the case.

The playing field is unfair andaligned against the private sector. Moreover, there are many hybridjoint venture companies in China that blur the distinctions betweenthe two sectors

Nicholas Lardy, in a recent Bloomberg Brief piece,compared the financial performance of China's state sector with theprivate sector. Citing the National Statistics Bureau, his numberswere predictable: last year, the state sector return on assets(ROA) was merely 4.6 per cent and well below the private sector's12.4 per cent.

I think those numbers are biased and wrong.

The biggest components of the state sector are the banks, whichaccount for almost half of the domestic stock market valuation, andabout half of the total net profit of all the listed companies.Other big components in the stock market, or in the unlisteduniverse for that matter, are state-controlled big insurancecompanies, big oil corporations and telecommunicationsoperators.

Chinese banks have an average return on equity (ROE) of about 20per cent – twice the level of their global peers. Insurancecompanies do well in general, and telecoms operators enjoyexorbitant privileges. How can the state sector underperform theprivate sector in financial terms?

Of course, you can argue that the banks' profits are entirelydue to the government's control of interest rates. That is a trueand fair assessment, but the fact remains that the state sector hasa much higher ROE than the private sector.

Lardy's use of ROA is meaningless because banks by definitionare highly-geared business and their ROAs are low in nature (around2-3 per cent). The nature of the banking business is such that youcannot usefully compare bank ROA with other sectors. ROE is theappropriate benchmark.

The other problem with Lardy's comparison is that tens ofthousands of private sector companies go bankrupt, or voluntarilyclose each year. Once that happens, they exit from the statistics.So there is a 「survival basis」. But you do not hear any state-ownedenterprise being shut down.

Uneven playing field
The state sector not only benefits from the economies of scale, butalso from the economies of scope. The state sector as a whole islike a giant conglomerate company that benefits fromdiversification, the low cost of plentiful funding and politicalfavours.

The playing field is unfair and aligned against the privatesector.

Moreover, there are many hybrid joint venture companies in Chinathat blur the distinctions between the two sectors.

Finally, the state sector takes on many social functions, andtheir existence and activities provide a positive spillover effectfor the whole economy and society.

While liberal commentators may disagree with this, the statesector is designed to achieve more than just financial ratios.

Utilities, (power, water, natural gas and public transportation)for example, where the state sector dominates, are not charged atfull price because of affordability and other social reasons. Thatdrags down their financial returns, but the financial ratios do notreflect their efficiency.

More stateinvolvement

It is wrong for liberal economists to say that the dominance ofthe state sector goes against the public's wishes.

In China, the public wants more, not less, involvement by thestate sector. The public wants a bigger state sector to tackle themany challenges China faces, even if many of these challenges areby-products of the state sector (inequality, overpopulation andpollution).

Even the recent third plenum does not mention the privatesector, a point Lardy acknowledges.

The official data shows that the government tax revenue as apercentage of gross domestic product almost doubled from 12 percent a decade ago to 22.3 per cent last year. This is almost awholesale reversal of the economic liberalisation of the previoustwo decades.

But Western economists do not mention this uncomfortablefact.

The state dominates strategically important sectors – essentialinfrastructure and sectors with pricing power – while the privatesector is left to fight it out in fiercely competitive sectors suchas low-end manufacturing, retail, service industries and (some)real estate.

The writing is on the wall: the score of the past decade's matchof the private sector versus the state sector in China is 「privatesector - zero」 and 「state sector - one」.

Joe Zhang is a corporate adviser based in Hong Kong, and theauthor of Inside China's Shadow Banking: The Next SubprimeCrisis?

China's private sector still in shadow of the state 張化 化橋
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Shadow Banking再現?

2015-01-08  NM

 

近日內銀股升到嘭嘭聲,識睇,一定睇埋呢輪一樣掃內銀掃到手軟、急速冒起嘅安邦保險。安邦保險近月成為民生銀行、招商銀行大股東,又持有工商銀行A股,佢仲喺海外收購有百年歷史嘅老牌酒店Waldorf Astoria。(Waldorf 除咗係美國駐聯合國大使官邸,亦係好多總統首相下榻嘅酒店,唔嘢小也!)跟手又收購老牌比利時保險公司同銀行。計吓數,舊年一年已使咗逾六百億!呢間公司○二年註冊資本五億,而家急增至六百一十九億,總資產達七千億元,真係好疊水。

咁啲錢點嚟o架?睇揸弗人咩料囉,市場一直傳由鄧小平外孫女婿吳小暉牽頭,開國元帥陳毅個仔陳小魯、朱鎔基個仔朱雲來、首創集團董事長劉曉光等等有份,即係紅二代。

再睇睇安邦嘅P & L,佢哋保險收入來源十二億五千萬,當中99.3%都係「分紅業務」,其他如壽險、意外險同健康保險,總共只佔0.7%。呢啲分紅業務就即係理財產品,安邦會搵大量內銀代銷。即係賺到錢,又走去投資內銀股。內銀升價,資本又可以借俾安邦發展,實行塘水滾塘魚。

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踢竇白沙灣隱密談情竇

踢咗竇咁耐,無理由唔踢啲談情私竇。位於西貢三星灣的白沙灣遊艇會,夠晒隱蔽,連李澤楷同緋聞女友撐枱腳,都係揀呢度。呢個會英文名叫Hebe Haven,Hebe喺希臘神話中象徵青春女神,簡直切合埋主題啦!遊艇會歷史有四、五十年,聽落遊艇會好似富豪級玩意,但實則入會資格相當大眾化,個人會籍只需六皮,公司會籍亦只係十二萬,遊艇會之中絕對係平民價。而個會睇準後生仔鍾意玩水上運動,為咗年輕化,小宗問過,二十六至三十歲組別會籍半價,只需三皮,二十一至二十五歲組別半價再半價,只要一萬五千。再後生啲,十八至二十一歲嘅,六千蚊搞掂!筍就筍,不過waiting list兩年咁耐。遊艇會中嘅餐廳,午市揀set lunch就最抵,價錢由七十八蚊到一百四十八蚊。以咁嘅價錢,包前菜(沙律/湯)主菜同飲品,算抵食。餐廳保留殖民地時期留落嘅傳統英式裝潢,個bar仲有個大鐘,last call / last order時侍應會敲一下鐘向饗客示意,好british!不過唔知係咪日久失修,部分地板出現少少凹陷。今次試個西檸雞飯,西檸雞好厚炸漿,咬落漿住口;牛扒套餐件牛扒亦只不過不失,不過來談情嘅,食咩都咁好味。呢度會員大半係金髮碧眼嘅外國人,配合四面靚景有山有海,藍天白雲,仲以為去咗南法海岸添! 難怪小小超唔怕偷影,成日來偷……呀唔係,係談情。爽喎!

胡應湘伯爺點發跡

上輪灣仔跌錢事件,執到錢嘅一班街坊就好似發咗場春秋大夢,還嘅還、匿嘅匿。最搞笑係有人將錢放喺屋企床下底,以為最危險嘅地方最安全,點知人贓並獲! 呢件事令小宗諗番起段舊聞。嗱!而家大地產商胡應湘,係人都知佢伯爺胡忠揸的士起家,後來儲落多部的士成為「的士大王」。傳聞有日佢揸的士,有個客大懵,留低咗大堆花旗紙(美金)喺佢處。個客後來當然報警,但警察摷到去胡忠屋企,搵埋床下底,咩都搵唔到!結果事情不了了之。過咗一段時間,胡忠就有錢大力投資,成就咗之後嘅故事。早年傳到街知巷聞時,胡應湘曾走出來代父否認澄清。其實講真,如果有筆橫財都無智慧用來投資,反而攞去過大海,咪一樣一場空,你話係咪?

劏房波嫁女貫徹新亞精神

劏房波做外父,聖誕後三日於四季擺嫁女酒。不惜紆尊降貴,親自打電話俾新亞校友,請佢哋撥冗光臨,以增榮寵,更加拍晒心口,一定準時八點開席,絕無花假。結果?咪一樣搞到九點幾都未起到筷。 非但餓親班校友,連689亦一樣領嘢。所以話呢,啲人慣咗手勢,一次冇句真,就永世都冇句真;即使嫁女請飲亦唔例外,話之你係神明子孫又點啫。莫非劏房波要藉呢餐嫁女酒等班校友毋忘「餓我體膚勞我精」嘅新亞精神 ?

金牙大狀講嘢法國大餐競委會

班人以惠康、百佳、華潤瓜分超市天下,指證香港有寡頭壟斷,由是成立由胡紅玉擔大旗之競爭委員會以保障消費者利益。點知委員會尚未嚟得切運作,成個市場已經俾林偉駿之759阿信屋翻轉。寡頭壟斷云乎哉?俗語有云,冇鬼唔死得人。同樣,冇政府干預唔會有壟斷。林老闆喺四年間開咗超過兩百間鋪,引發優品360等爭相效顰。零食以至超市有否壟斷,睇怕都唔使多講矣。點解佢哋可以輕易入市?政府冇架起門檻阻止佢哋入市囉。本來無一物,何處惹塵埃?個市本來充分競爭,班人則以促進競爭為名搞干預。結果會係乜?胡主席為咗證明其存在價值,你估佢會任得市場自己搞掂,抑或諸多干預呢?

Shadow Banking 再現
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