Reorient is a financial services group in Hong Kong
Reorient provides a 62 page view of China's economic transformation
Why does this matter ? Because China's Banks are collectively over thirty times bigger than Lehman's was.
It took the world a few years to recover from the worst of the 2008 financial crisis. A financial crisis that was 30 times larger could take about five to ten years for a world recovery.
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Reorient Group argues, the old Chinese smokestack economy (dependent on low-value-added manufacturing exports and fixed-asset investments in infrastructure, mining, and real estate) is fading away and may drag somewhat on the banking sector; but nonperforming loans, even if the actual numbers are several times larger than officially reported figures, are still manageable; and accordingly, the banks may be undervalued instead of posing a systemic risk. John Maudlin in his China series, believe bad debts, if properly classified, could add up to nearly 20% of GDP.
Maudlin notes that China’s rapid credit expansion over the last five years puts it in the top five credit booms of the modern era. He argues it will be very difficult to make the transition without a great deal of pain.
Conventional wisdom suggests that China’s bank leverage ratios are more than manageable, whether they actually will be ultimately depends on whether China’s banks are reclassifying and rolling all but the worst loans.
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Reorient provides a 62 page view of China's economic transformation
Why does this matter ? Because China's Banks are collectively over thirty times bigger than Lehman's was.
It took the world a few years to recover from the worst of the 2008 financial crisis. A financial crisis that was 30 times larger could take about five to ten years for a world recovery.
Reorient Group argues, the old Chinese smokestack economy (dependent on low-value-added manufacturing exports and fixed-asset investments in infrastructure, mining, and real estate) is fading away and may drag somewhat on the banking sector; but nonperforming loans, even if the actual numbers are several times larger than officially reported figures, are still manageable; and accordingly, the banks may be undervalued instead of posing a systemic risk. John Maudlin in his China series, believe bad debts, if properly classified, could add up to nearly 20% of GDP.
Maudlin notes that China’s rapid credit expansion over the last five years puts it in the top five credit booms of the modern era. He argues it will be very difficult to make the transition without a great deal of pain.
Conventional wisdom suggests that China’s bank leverage ratios are more than manageable, whether they actually will be ultimately depends on whether China’s banks are reclassifying and rolling all but the worst loans.
Read more »
