Finance

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• Chinese commercial banks have flocked to buying government bonds as Beijing's stimulus push has failed to spur consumers loan demand.
• Total new yuan loans in the 11 months through to November 2024 fell over 20% to 17.1 trillion yuan ($2.33 trillion) from a year ago, according to data released by the People's Bank of China.
• Chinese sovereign bonds have seen a strong rally since December, with yields plunging to all-time lows this month.

With consumers and businesses gloomy about the prospects of the world's second-largest economy, loan growth has stalled. Beijing's stimulus push has so far not been able to spur consumer credit demand, and is yet to spark any meaningful rebound in the faltering economy.

So what do banks do with their cash? Buy government bonds.

Chinese sovereign bonds have seen a strong rally since December, with 10-year yields plunging to all-time lows this month, dropping by about 34 basis points, according to LSEG data.

"The lack of strong consumer and business loan demand has led the capital flows into the sovereign bonds market," said Edmund Goh, investment director of fixed income at abrdn in Singapore.

That said, "the biggest problem onshore is a lack of assets to invest," he added, as "there are no signs that China can get out of deflation at the moment."

[...]

"There is still a lack of quality borrowing demand as private enterprises remain cautious with approving new investments and households are also tightening purse strings," said Lynn Song, chief economist at ING.

[...]

The slowdown in loans comes as mortgages, which used to fuel credit demand, are still in the stage of bottoming, said Andy Maynard, managing director and head of equities at China Renaissance.

Chinese onshore investors have to contend with a lack of "investable asset to put money in, both in financial market and in physical market," he added.

[...]

Zong Ke [portfolio manager at Shanghai-based asset manager Wequant] said the current policy interventions are merely "efforts to prevent economic collapse and cushion against external shocks" and "simply to avoid a freefall."

[...]

Archived link

“China’s economy has rebounded and is on an upward trajectory, with its GDP for the year expected to pass the 130 trillion yuan mark,” Xi Jinping said in his 2025 New Year message.

On December 26, China revised upward its gross domestic product figure for 2023 by 3.4 trillion yuan, a 2.7% adjustment. That puts the size of the Chinese economy that year at 129.4 trillion yuan or $17.73 trillion. Xi’s target for the size of the economy, therefore, is easy to reach.

There is, as usual, great optimism displayed by Beijing leaders about the size of the Chinese economy. Few of the official numbers make sense, however, as reported figures are hard to reconcile with, among other things, large cash outflows from the country.

For instance, China experienced the largest outflow from its financial markets in November, as Chinese banks wired $45.7 billion offshore. The amount, announced by the State Administration of Foreign Exchange, includes repatriation of foreign investment in China and Chinese residents’ purchases of offshore securities.

[...] The Wall Street Journal in late October reported that, based on its calculations, “as much as $254 billion might have left China illicitly in the four quarters through the end of June.”

[...]

There is [...] long-standing pessimism about the Chinese economy. Everyone seems worried about, for instance, a debt crisis. There is, of course, much to fear, in part because no one really knows how much indebtedness China is carrying. Everyone can sense that the total-country-debt-to-GDP ratio is dangerously high, however. After taking into account the so-called “hidden debt” and adjusting for inflated GDP reports, the ratio could be, according to my estimate, 350%. A higher estimate—say, 400%—is also possible.

[...]

So far, the Communist Party—both during Hu Jintao’s and Xi Jinping’s rule—has not exhibited the political will necessary to enforce painful solutions. Its continual failure to resolve the debt situation has meant the government has had no option but to resort to short-term and superficial measures, such as more debt-fueled stimulus.

[...]

Evasion of currency controls [which is what Beijing is practicing] is getting harder, but it is occurring nonetheless as people do not believe what Xi and his officials say about the economy. “Weakness in the yuan and local stocks, as well as the nation’s wide interest-rate gap with the U.S., are raising the risk of a vicious cycle of capital outflows,” Bloomberg notes. The plunge in property prices—property accounts for about 70% of the wealth of the Chinese middle class—a sputtering economy, and a deep concern over Xi Jinping’s neo-Maoist policies all contribute to gloom.

“It’s a grim situation for Chinese people,” says Anne Stevenson-Yang, author of Wild Ride: A Short History of the Opening and Closing of the Chinese Economy. The pessimism is encapsulated in the phrase “Doom Loop” economy. Many now say China has a “garbage economy.”

[...]

"A financial or political crisis still is possible if China’s huge debt overwhelms the banking system or if unemployment reaches such high levels that protests erupt nationally causing a major change in government policy," [another expert adds].

[...]

China has the means to solve its problems, but Xi Jinping is determined to pursue 1950s-type solutions that only aggravate the situation. Money, therefore, will continue to flow out.

The Russian ruble plunged nearly 7% to trade at more than 110 per USD, the lowest on record excluding the short-lived selling immediately after Russia launched its invasion of Ukraine, as more sanctions against Russia dampened the outlook for inflows of foreign capital. The US sanctioned Gazprombank, the last major financial institution without penalties, to halt the transfer of payments from foreign markets to pay for Russian gas.

The ruble remained under pressure from Moscow relaxing capital controls as a weaker currency aids the Kremlin’s ability to finance its budget. Mandatory forex conversion for export revenues fell 25% from earlier in the year, significantly reducing demand for rubles.

Russian central bank intervenes to stop currency free fall

Russia's central bank said on Wednesday [27 November] it would stop foreign currency purchases in order to ease pressure on the financial markets after the rouble weakened beyond 110 to the U.S. dollar, 119 to the euro, down by one-third since early August.

The central bank said it had decided not to buy foreign currency on the domestic market from Nov. 28 until the end of the year, but to defer these purchases until 2025.

"The decision was made to reduce the volatility of financial markets," the regulator said in a statement. Since Russia was blocked from using the dollar and euro, it has made foreign exchange interventions using Chinese yuan.

Russia published new economic data on Wednesday highlighting the latest signs of overheating in an economy retooled for the purpose of fighting the war in Ukraine, which has sucked workers out of the labour force.

[Edit typo.]

Archived link

On Sept. 13, the Central Bank of Russia raised its key interest rate to 19% and warned of further hikes to come. The Central Bank claims the move was necessary to combat inflation, which it attributes to an alleged excessive rise in domestic demand.

However, there is an alternative viewpoint. According to economist Valery Kizilov, it was the Central Bank itself that fueled inflation by unjustifiably expanding the monetary base for years while simultaneously encouraging a credit boom. Russia has grown accustomed to living with an inflation rate of close to 10%, negligible real growth, and interest rates on loans exceeding 25% per year.

Breaking away from this course is difficult, writes Kizilov, and those caught up in the euphoria tend to ignore the risks and disregard the future.

cross-posted from: https://lemy.lol/post/21933249

Any ideas for alternative US tax forums or discussion boards similar to say Reddit Tax? Ideas?

Wondering if anyone here has used and what their experience has been. They do not appear in the lists of commonly hyped providers most of the time.

Normally I use FreeTaxUSA, but this year after entering most everything I found out it did not handle Estate state pass-through withholding.

So I spent yesterday on OLT entering everything again. They seem to handle more stuff at the cost of more complexity. Anyway got it all in this time. Still waiting for some final source documents but may file with OLT this year.

Anyway, wondering if anyone has done a full prep and filing with them and their experience. Thanks.

For the past ~15 years I have tried for the most part to boycott:

• American Express for being an #ALEC member (which supports #climateDenial and obstructs public healthcare, public education, immigration, gun control, etc), and for participating in the #Wikileaks donation blockade
• Visa for pushing the #warOnCash (member of #betterThanCashAlliance.org and offering huge rewards to merchants who refuse cash), for participating in the #Wikileaks donation blockade, and for blocking Tor users from anonymously opting out of data sharing on their credit cards
• Mastercard for pushing the #warOnCash (member of betterThanCashAlliance.org), for participating in the #Wikileaks donation blockade, and for blocking Tor users from anonymously opting out of data sharing on their credit cards

Discovercard has always been a clear lesser of evils. So Discovercard has earned the majority of my business whenever cash is not possible. But now I hear chatter that #Discovercard might merge with a shitty bank that had an embarrassing data leak by an Amazon contractor: #CapitalOne. I was disappointed when Samual Jackson promoted #CapOne. Capital One supported Trump’s Jan.6 insurrection attempt among other things.

So what’s left? JCB (Japanese) and UnionPay (China). JCB pulled out of the US like 10 years ago. People outside the US can get a #JCB card but then IIRC it uses the Discovercard network in the US and the #AmEx network in Canada.

I already favor cash whenever possible. In other cases it will be hard to choose the lesser of evils between CapOne and Mastercard.

update

Found an insightful article detailing a loophole that the fed gave to Discovercard which is why Capital One intends to buy it.

Or does the government already do this? If so, can anyone explain like I'm five?

Despite the looming debt pile, local governments are also under pressure to drive spending on science and technology as Beijing is increasingly shunned by the West.

Provincial governments accounted for at least 60% of the total government expenditure on technology in 2022, the Rhodium Group said in a report in December 2023.

Chinese finance news group Caixin Global reported that China’s local governments made bond interest payments worth $174 billion last year alone. That was a record figure — up by almost 10% from 2022.

An improvement in the financial health of local governments will be challenging this year as well, as the world’s second largest economy continues to struggle in its post-Covid recovery, the property market slump drags on and the state of Chinese developers continues to worsen.

Cross-posted from: https://beehaw.org/post/11486860

A huge problem with China’s economic model over the past two decades has been the fact that it has been a debt-based finance model massively concentrated on real estate speculation beyond what the economy can digest.

The problem is that real estate, especially apartments in China, for more than two decades, appeared to be a guaranteed money maker for owners as well as builders and banks and above all, local government officials. Prices rose annually in the double digits, sometimes by 20%. Millions of middle-class Chinese bought not just one, but two or more apartments, using the second as investment for future retirement.

China’s land is owned by the Communist Party, at the local level. It is leased long-term to construction firms who then borrow to build. For CP local government officials, revenue from local real estate land leasing and their infrastructure projects is their major revenue source.

China's macro leverage ratio, or total outstanding non-financial debt as a share of its nominal GDP, climbed by over $560 billion to reach 287.8 percent last year, more than twice the roughly 120 percent of its economic rival the U.S. The new data would put China ahead of Japan, previously the world's most indebted country, whose sovereign debt accounted for about 220 percent of its GDP by the second quarter of 2023.

[Edit typo.]

China is embarking on its biggest consolidation in the banking industry by merging hundreds of rural lenders into regional behemoths amid growing signs of financial stress.

After engineering mergers of rural cooperatives and rural commercial banks in at least seven provinces since 2022, policymakers pinpointed tackling risks at the $6.7 trillion sector as one of its top priorities for this year. That means another wave of consolidation is on the way across the nation.

China’s banking industry has been weighed down by a litany of troubles over the past years, including a deepening slump in the real estate market and an overall fragile economy. The 2,100 banks in the rural cooperative system saw their bad-loan ratio stand at 3.48% at the end of 2022, more than twice as high as that for the whole sector.

"It’s where risks are the most concentrated among smaller financial institutions, so China is pushing the reform at a faster pace,” said Liu Xiaochun, deputy director of think-tank Shanghai Finance Institute. “And one key solution to resolving the risks is through mergers and reorganizations.”

The stakes are high politically as well. Hundreds of people protested in central Henan province in 2022 after a multi-billion-dollar scam at several local lenders left them clamoring for their savings.

Jason Bedford, who predicted earlier troubles at China’s regional banks that rocked markets in 2019, said the rural cooperatives are “probably the least transparent part of the banking system.” China has disposed of bad debt equivalent to about 13% of its gross domestic product in its last big cleanup of the banking system during 2016 and 2022, he said.

“We’re left with only a toxic tail of significantly smaller institutions,” said Bedford, a former analyst with Bridgewater Associates and UBS Group AG. While the contagion risk across the financial system is seen limited, these lenders can be “very disruptive” within their specific regions should they blow up.

While China’s multi-year crackdown on risks has halved the total number of high-risk lenders to 337 by June, some 96% of them were small rural commercial banks and credit cooperatives as well as village and county banks, according to the central bank.

First created in early 1950s, the cooperatives were in their early days mutually-funded, collectively-owned institutions by farmers in socialist communes. The majority of them had been transformed into rural commercial banks over the years.

While the system plays a crucial role in lending to underdeveloped areas, many had long struggled with weak profits, soured assets and lax governance. The group has also been operating in a more difficult environment since 2019, when China’s push for more loans toward small and medium-sized enterprises triggered a price war with bigger banks.

Lack of oversight and proper governance at these lenders has been a persistent issue. Some rural cooperatives are operated essentially as a “cash machine” for big shareholders, the central bank said in its 2023 financial stability report. Some had also deviated from their policy role of servicing the rural and agricultural areas by extending big loans to other areas to achieve growth.

The latest push to merge lending cooperatives got underway in 2022, when regulators called on transforming 25 provincial-level cooperatives created in the early 2000s into modern financial enterprises to further cut risks.

The government had since authorized seven provinces to consolidate their over 500 smaller lenders either through mergers or a shareholding structure, according to data compiled by Bloomberg. While the mergers created bigger financial institutions, they aren’t necessarily stronger because the transactions weren’t always done in a market-oriented approach.

One case is Liaoshen Bank Co., which China created in 2021 to absorb dozen lenders with soured balance sheets. The lender still had a bad loan ratio of 4.67% as of end-2022, according to its filing, compared with 1.85% for city commercial banks on the whole.

“The reform will have to really tackle the problems instead of sweeping them under the rug,” said Liu, who in early years of his career oversaw some rural credit cooperatives for Agricultural Bank of China Ltd. in Zhejiang. “Legacy issues could cripple the operations of newly formed institutions if they’re simply covered up, and in a worse case induce more problems and bigger hazards.”

Conflicts may also arise on internal management level, as all parties brought together, strong or weak, will now have to carve up one big cake, according to Shen Meng, a director at Beijing-based investment bank Chanson & Co.

“You don’t really get a big ship by just bundling ten dinghies,” Shen said. “The fundamental issues are still left unresolved."

China’s benchmark CSI 300 Index plunged to a five-year low early last week. The index has now lost a fifth of its value in the last nine months as investors dumped stocks amid concerns over the country’s economy. Hong Kong’s main share index has also been hit by the rout, with its value down 44pc over the past five years.

Beijing has been battling to reverse the decline through policies such as cutting bank reserves.

The drop followed a 4.4% profit fall in the first 11 months from the same period a year earlier, according to data from the National Bureau of Statistics (NBS).

Last year's profits decline was chiefly due to sharply lower factory-gate prices, driven by over-capacity in some industries, said economist Nie Wen at Hwabao Trust in Shanghai.

Industrial profits will likely rise by between 5% and 6% this year, as a slight improvement in demand and historic lows in inventories in China, Europe, the United States and Japan will lead to a rebound in industrial prices, Nie said.

A new study published in Nature observed that stronger political connections in private listed real estate firms in China positively correlate with increased levels of excessive debt and heightened debt repayment pressures, culminating in an accumulation of credit risks.

The main reasons for private real estate companies’ excessive debt in order to expand investment are as follows.

First, politically connected enterprises are more likely to obtain financing and increase the book-free cash flow, while the over-investment theory believes that the increase in book-free cash flow means an increase of over-investment probability.

Second, real estate has always been an important growth point of the local government’s economy, “GDP doctrine” before the economic transformation and upgrading often makes local government require its associated real estate enterprises to expand investment more blindly.

Third, the professional knowledge of senior executives transferred from government departments is often lacking, and they are more likely to pursue short-term interests and over-invest. Eventually, excessive liabilities will be formed.

China’s real estate sector may get another massive shock in just a few days.

On Monday, China Evergrande Group—the massively indebted developer whose troubles arguably triggered China’s real estate crisis in the first place—will face a critical liquidation hearing in Hong Kong.

Evergrande defaulted on its offshore debt in December 2021, which sparked a liquidity crisis in the real estate sector that pushed several other Chinese developers to default as well. It’s only gotten worse from there: Evergrande reported combined losses of $81 billion in 2021 and 2022, and it lost $4.5 billion in the first half of 2023. Then the developer filed for bankruptcy protection in the U.S. last August. And in September, Chinese authorities detained Evergrande’s onetime billionaire chairman, Hui Ka Yan, for “illegal crimes.”

Real estate is critical to the Chinese economy, at times contributing as much as 30% of the country’s GDP. Property is also an important store of wealth for Chinese households.

"I’ve been in China for 27 years, and this is probably the lowest confidence I’ve ever seen,” says Shaun Rein, founder of the China Market Research Group.

Among the more tremulous sectors of the Chinese economy, Rein identified the country’s once-bloated real estate market, which accounts for roughly a third of China’s economic activity and has been tumbling sharply since Beijing’s broad-stroke crackdown on the debt levels of mainland property developers. Real estate giants Evergrande and Country Garden have become key casualties of the clampdown.

″[Buyers] think housing prices might continue to drop, so even if there’s pent-up demand for housing, a lot of home buyers are telling us, we’re not going to buy this month, we’re not going to buy this quarter, because we’re scared prices are going to drop another couple [of] percent in the coming months,” Rein says.

Cross-posted from: https://feddit.de/post/8237015

In some sectors in Germany, a small number of specialised IT service providers serve a large proportion of banks and insurers. That is why this year BaFin is paying particular attention to the risks that emerge from this kind of market concentration, the German Federal Financial Supervisory Authority (BaFin) says in a report.

BaFin has identified a total of seven risks that it considers most capable of jeopardising the financial stability or the integrity of the German financial system. It will pay particularly close attention to these risks in 2024. The report “Risks in BaFin’s Focus” also details the action BaFin is taking to mitigate these risks.