The Chinese, the major purchasers of our debt, have been getting increasingly antsy about the possibility that we might monetize our debt, or start playing Weimar Germany to their France & England. Those nerves have been blamed for the recently rising spot yield for 30-year Treasuries, and the increasing doubt attending to recent Treasury auctions.
There may be another possibility. The Chinese have been funding this debt in part because they hope that a stimulated and recovering American economy will help drag their export-driven economy out of its own slump. However, their own Keynesian stimulus has been subject to the same sort of inefficiencies and failures that have been predicted for ours here:
Could it be that China is now worried that it might need to shore up its own banks' balance sheets, and is holding back money for that purpose?
There may be another possibility. The Chinese have been funding this debt in part because they hope that a stimulated and recovering American economy will help drag their export-driven economy out of its own slump. However, their own Keynesian stimulus has been subject to the same sort of inefficiencies and failures that have been predicted for ours here:
The report "has some substantial findings," said Xianfang Ren, an analyst with IHS Global Insight. She said the issues it raised -- funding delays and not enough stimulus for small- and medium-size enterprises -- are big problems that have long been suspected. The report also raised the matter of speculative bill financing, which occurs when borrowers use loans not for working capital but to buy stocks or speculate in other assets.China has begun issuing rules to try to prevent this, but Fitch has begun sounding warnings about Chinese banks' balance sheets:
This, even as HSBC and Citigroup scale back their lending in China.In a report on China's banks published Thursday, Fitch said it is seeing warning signals from the Chinese banking system. Chinese lenders have been downgrading more "special mention" loans, those that are considered about to default, to nonperforming status, marking them as bad debt, said Charlene Chu, a senior director at Fitch Ratings China and an author of the report.
Chinese banks also have been increasing provisions for losses on unimpaired loans, indicating that "the banks themselves see greater losses down the line in loans that are currently performing," Ms. Chu said.
The report added to earlier warnings from the credit rater that lending quality in China is weakening.
Could it be that China is now worried that it might need to shore up its own banks' balance sheets, and is holding back money for that purpose?
