China – More signs of a slowdown
China – More signs of a slowdown

More indications China has problems:

10 signs of economic trouble that China’s official data won’t tell

1. Makers of heavy equipment are facing troubles: Makers of heavy equipment are facing increasing difficult in collecting receivables. These companies provide vendor financing for buyers at increasingly generous terms, but it turns out that increasing number of buyers simply will not be able to repay the liabilities as the economy slows. There were even rumours that it that one of these companies was to lay-off 30% of its work force.

9. The arcane corners of (shadow) banking: Credit crisis in Zhejiang which pulls 600 companies into it: One company in Zhejiang of China gone bust. It wasn’t a big deal, until it is. It turns out that a lot of small and medium sized companies rely on “credit guarantors” to obtain bank credits. While normally you would think that such guarantors are some independent third party performing such service, it turns out that these companies in Zhejiang simply guarantee each other. So when one company went bust, banks pulled loans from every company that are guaranteed by the company that has gone. As the chain of guarantees continue to be exposed, it turns out that more than 600 companies are in it, and banks are trying to pull loans from all of these companies.

Chart 25 on Chinese investment as a percent of GDP in this presentation sums up the unsustainable nature of the China model.

To paraphrase an old saying:

If China catches a cold, will the likes of Australia sneeze?

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