China's Banking System Headed for Crisis, Reports Say | Hacker News Reader

China's Banking System Headed for Crisis, Reports Say

asiasentinel.com

45 pointsmathgenius27 comments

We’ve had articles on China’s impending financial collapse for over two decades at this point. So call me skeptical.

I wonder if this is because the US tends to take a hands-off approach until it’s too late, usually prompting an overcorrection, while China seems at least a bit more proactive.

I’m very curious if anyone has credible studies explaining how the Chinese financial sector seems to survive through the persistent claims of impending failure.

Australia owes a considerable portion of national income to China, has done for at least three decades and keeps a close analytical eye on the country.

Various Australian PM's have been dismissive towards China for popularist political reasons, aside from that the China watching below the surface tends to be good.

In the national press recently (last week) we have:

As Beijing quietly heads into economic oblivion while Washington lights up, expect tougher times ahead

https://www.abc.net.au/news/2024-07-23/china-approaching-eco...

which outlines how playing the long game has worked to China's advantage for some time, and how the scale of recent turns in fortune make for a ditch that could take time to reach the bottom and time again to climb out.

> which outlines how playing the long game has worked to China's advantage for some time

It makes sense, doesn't it?

The US seems to be destroying itself apart from within, and if the US falls or became weaker than China, Australia + NZ and other western countries who deal in the Pacific don't have much of a chance.

It's the best possibly strategy China could choose: Just wait.

The difference between now and two decades ago are the economic indicators - they aren’t just going down, they are getting worse and worse each quarter over the last 2 years.

Growth has been poor, the economy saw deflation, housing prices and the stock market are losing value, youth unemployment, bank debt, etc.

It’s one thing when it’s a transient event and you start to see a recovery, but China hasn’t, even after government intervention.

Will the economy “collapse”? Who knows, and what does “collapse” mean anyways?

But are the sign suggesting severe economic problems that are likely to have a big consequence on China's future? Seems like it.

Sure, just swap the economic indicators people are concerned about. The reporting on the concern of a collapse appear nothing more than “Madlibs” except the words you can’t fill the blank in are “and this is why China’s economic model has failed”. These claims only work so often until a pattern resembling “the boy who cried wild” emerges.

In the 2000s, it was speculative banking, effects of currency manipulation, unstable growth

In the early 2010s, it was fear of a slowdown due to trade/stock/commodities

And in this decade so far, it’s property and a throwback to the 2000s.

Searching for “China long term economic problems 20XX” (replace XX with any year) has given me:

2022: COVID-19 restrictions causing impact on the property market (https://www.csis.org/analysis/chinas-slow-motion-financial-c...)

2019: A quarter of bad investment, weakening car sales, increased tariffs from the US: (https://www.nytimes.com/2019/10/17/business/china-economic-g...)

2017: More concern about slowing economic growth (https://www.cnbc.com/2017/08/10/chinas-economic-problems-are...)

2015: More slowdown (https://www.wsj.com/articles/china-economic-growth-slows-to-...)

2013: https://www.washingtonpost.com/world/chinas-economy-grows-ro...

2011: https://www.nytimes.com/2011/09/24/business/global/chinas-ec...

2006: Overproduction, deflation, property value concerns: https://www.cnn.com/2006/BUSINESS/03/12/eyeonchina.economy/i...

I struggle to see this as anything more than a multi-decades-long attempt to suggest that China couldn’t possibly eventually become the world’s largest economy.

Too late to edit, but:

"boy who cried wild" -> "boy who cried wolf"

Do the accusations of China being a currency manipulator perhaps have any bearing on this?

> The government is likely to further push for mergers among banks to solve the problem because Beijing lacks a proper mechanism for banks to leave the market.

A forced merger exactly is the mechanism by which the US FDIC removes failing banks from the system. There's a sort of auction offered over the weekend to potential acquirers, with the FDIC subsidizing the deal if necessary, and shareholders of the acquired typically wiped out.

I'd like to see a new class of company which does not allow bankruptcy, and shareholders are compelled to pay for any debts the company has to allow it to shut down or merge.

It could be used for banks, insurance companies, and various other services the government deems required.

In return for th added risk, shareholders could expect higher returns, or they could choose to insure their shares against the risk of them ending up with a negative value.

I vaguely remember some coin offering by a Russian firm where they guaranteed to buy back some amount of coins per month at a fixed rate for some years (until non are left) where a different party offered the guarantee/insurance.

How would they “expect higher returns”? And what insurance company would insure against business losses?

They couldn’t. These sorts of socially engineered corporate ideas never make any market sense.

The higher returns would stem from the lower counterparty risk associated with every contract signed by the company.

The money would have to come from somewhere - premiums for customers? Those would be higher?

And what lower counterparty risk? Now each investor is personally on the hook. Instead of walking away without their investment, now they are responsible for any loss. That’s higher risk.

And when the insurance companies fail due to heavy unforseen losses?

Then the shareholder is still liable - just like if you insure your house against fire, and a fire happens, but your insurance company goes bankrupt, and the reinsurer goes bankrupt, then it falls back to you to pay for a new house.

Obviously such a thing I don't think has ever happened in modern times, but it's what would happen if all the insurers in the chain couldn't meet their obligations - the debt falls back to the insured person.

> I'd like to see a new class of company which does not allow bankruptcy, and shareholders are compelled to pay for any debts the company has to allow it to shut down or merge.

Look up Establishment companies in the Gulf Middle East then. If you've heard of stories of people being jailed for bankruptcy in the Gulf, most of the times, it is this. People set up Establishment companies because they are relatively cheaper and only need a local Arab to start up. Then when the companies end up in trouble, they get saddled with debt on an unlimited and personal liability basis, which causes them to be jailed, sometimes often with the Arab too. Usually the Arab's debts are wiped out by the government in annual amnesty programmes, but the foreigner is trapped till he pays or till the creditors write off the debt.

Not to mention, there's always an LLC option present in all of these countries but quite a few folks cheap out and then get rekt.

Right - capitalism in the the large is fine. In the small ie company by company, board member by member, control and accountability have become too divergent. That's a problem. Along the same lines I recently posted this idealized goal for our US companies: you can be regulated. And if you screw up financial fines and the like. Or you can be very lightly regulated. But if you screw up, criminal indictments, jail time, and personal liability. I'm guessing a ton of pro-capitalists who talk the talk on TV would prefer regulated entities ... that is you can't see a business man's real character unless there's skin in the game.

> a new class of company which does not allow bankruptcy, and shareholders are compelled to pay for any debts the company has to allow it to shut down or merge

You’re describing a partnership. We had far more banking crises when banks were partnerships (and before deposit insurance).

Possibly related articles on the recent issues with banks in China:

* China's banking turmoil: 40 banks vanish, Jiangxi leads collapse: https://www.msn.com/en-ie/money/other/china-s-banking-turmoi... | https://news.ycombinator.com/item?id=40944836

* Small banks in China are running into trouble. Savers could lose everything: https://www.cnn.com/2022/06/23/economy/china-bank-runs-prote...

> A major Taiwan newspaper with anti-Beijing leanings is reporting that nearly 40 banks have disappeared in recent days, merging with larger institutions, and that as many as 3,800 banks are in varying levels of trouble.

40 banks disappearing is really not much (unless you had money at that bank) given the scale the same sentence implies. Looking it up, 40 is less than 1% and these are small banks. I'd presume this isn't that big a deal.

> 40 banks disappearing is really not much

If the failures are small, previously common, and at a manageable rate that isn’t accelerating then this could be a temporary blip. If the failures are larger, previously rare, and occurring at an accelerating rate then this could be the start of a Chinese banking collapse.

Having a bunch of institutions wind up at once sounds like the results of a stress test finally came back, so they now knew exactly who needed to have their plug pulled.

This seems like it also differentiates the "financial economy" from the "real economy". The borrowers continue to pay the new owner, the depositors are made whole, and actual productive enterprises continue to tick on. The only ones punished were the investors who took a risk on bank management that wasn't doing an adequate job of managing risk. That feels like what SHOULD be happening.

Endless bailouts have distorted the risk mindset of banks, and letting them fail should help restore discipline.

> start of a Chinese banking collapse.

I don't really see how this is possible. If the government didn't want a collapse to happen, they can always print more RMB and loan it to the struggling banks on 'pay it back in 100 years' type terms and kick the can down the road till it isn't a problem anymore.

While idk about the politicality of the paper, there is absolutely an ongoing cull of banks in China. That is not political. Inferring some big doom would be. They are mostly rural and small banks. The problem being the same problem of say isps in America. None of the major banks can make an honest attempt at service because there's just no money in it. The "hope" is that these small banks are failing and the big banks buying up which will solve the dualing problems of small banks being vulnerable and big banks not having presence. But thats a pretty aspirational take.

Losing 1% of your banks in a few days is not normal.

China’s government stepped in and corrected big during the Evergrand thing, but it isn’t a big secret that China is super leveraged into junk real estate. The complete lack of transparency makes it super hard to tell what is rumors, but it wouldn’t be a huge surprise to see a major correction in China.

It is in China. They don’t have an organic drip drip of failure. It’s all closely coordinated - it would be weirder if they have one or two fail, then next week 4, then 5 the week after.

It would be a huge surprise to see a major correction.

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