Jim Chanos: China’s banking system is loaned up
“The banking system is loaned up,” said Jim Chanos during an interview at the recent SkyBridge Alternatives Conference. The risk facing China’s (FXI) (YINN) system currently is that “debts are still growing twice to three times as fast as the economy,” said Chanos. The acclaimed short seller believes that a lot of loans in China are simply new loans issued to keep the old loans current. China’s financial system has thus, fallen prey to Ponzi finance. During a recent Bloomberg Interview at the annual SALT (SkyBridge Alternatives) Conference, Chanos confirmed his short on China (YANG) (FXP) (CHAD).
Under the aegis of President Xi, the CBRC (China Banking Regulation Commission) is currently on a mission to curb the surmounting $28 trillion debt load that’s currently weighing down the economy at large, while posing the greatest risk to its financial system. A risk many on Wall Street are likening to the 2008 mortgage bubble in the US.
Kyle Bass: Will all hell break loose in China?
Among the first to fall prey to the CBRC’s regulatory crackdown is China Minsheng Bank (CMAKY) (CGMBF). The bank was recently exposed for a $240 million fraud involving the sale of unauthorized entrusted investments to its customers. The Chinese regulator has also charged Anbang Insurance Group, a leader among insurers in the sale of wealth management products, for the improper sale of two investment products.
Simply stated, entrusted investments are the funds that a bank raises through wealth management products (or WMPs), and then issues out to third-party managers in order to get higher returns; in effect taking these liabilities off their balance sheets. A surge in the creation and issuance of such entrusted investments has led to the greatest risk facing China’s financial system currently. Read, Will ‘All Hell Break Loose’ In China? Kyle Bass Sees Beginning of China Credit Bubble Burst.
Consequently, the bond market in China is in a correction phase right, with bond yields touching their two-year highs, as discussed in the next part of this series.