China’s shadow-banking industry threatens its financial system
Shares in xinhua trust, a Chinese shadow lender, are selling for rock-bottom prices. The outfit went bankrupt in May, becoming the first Chinese trust to fall in more than two decades. Since then chunks of the firm have been put up for sale on Taobao, an online e-commerce platform, at a 30% discount. Its company cars were recently added to the auction, which has been mandated by a court. A bargain-hunter could snap up Xinhua trademarks for just 12,000 yuan ($1,650).
The lender’s demise was a warning: the same forces that brought it down are now ripping through China’s trust industry, which has assets of 21trn yuan. The country’s economic growth has been weaker than expected, and property developers are caught in a daunting wave of defaults and restructurings. China’s trusts, which channel funds from investors to infrastructure, property and other opportunities, are exposed to both developments. Although Xinhua’s bankruptcy has been straightforward, a bigger blow-up may be on the way at Zhongrong, one of the country’s largest trusts, which missed client payments in mid-August. Panicked investors fear more firms will be ensnared, and that collapses will lead to further economic problems.
China’s Economic Crisis Won’t Be Contained to China
The last thing that a sickly German economy needs is a lost economic decade in China, its largest trade partner. Germany’s exports of goods and services to China amount to almost 4 percent of German GDP, and the revenue of its Chinese affiliates accounts for a further 6 percent of GDP. A German economic setback triggered by the Chinese economic crisis has the potential to drag down the rest of the euro zone economy and set off another round of debt crises.
All of this makes it difficult to understand why, in his recent Jackson Hole speech, Jerome Powell did not so much as mention the Chinese economic crisis. But then again, perhaps one should not be surprised that the Federal Reserve paid no mind to China’s economic woes. In 2008, it was also asleep at the wheel at the onset of the Great Recession triggered by the Lehman bankruptcy.
China's yuan is weakening vs the dollar to near the lowest since 2007. pic.twitter.com/eX0X3qBX4E
— Lisa Abramowicz (@lisaabramowicz1) September 5, 2023
h/t mark000
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