Storm gathering over Chinese banks, built on “quicksand”
Jim Chanos, president and founder of the hedge fund Kynikos Associates, sounds the alarm. China’s banking system is “extremely fragile”, watch out, he says. In the meantime, he is shorting Chinese bank shares. The government tries to stop the trend by easing credit, but in so doing, it is stoking inflation.
Beijing (AsiaNews/Agencies) – Chinese banks are “extremely fragile” because the lenders don’t have enough capital to offset bad loans, said Jim Chanos, president and founder of the US$ 6 billion hedge fund Kynikos Associates Ltd. Hence, he has decided to start shorting the shares of Agricultural Bank of China.
“The Chinese banking system is built on quicksand and that’s the one thing a lot of people don’t realise,” Chanos explained. “Everybody seems to think it is a free and clear open checkbook. It’s not.”
In fact, all the signs are there. The MSCI China Financials Index of bank stocks has declined 32 per cent this year. The estate market is close to collapse. This could send shockwaves across the country.
To counter the situation, the central government has been pumping money to offset the harm done by speculators and business sharks
State-run Central Huijin Investment Ltd., an arm of China’s sovereign wealth fund, said that it started buying stock in the four biggest Chinese lenders after their shares tumbled this year.
The People’s Bank of China (PBOC) also cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point to increase their lending capacity.
However, the PBOC also said that restrictive monetary policy put in place last year would continue as long as it is necessary.
Reserve requirements are the minimum reserves banks must hold (rather than lend out) of customer deposits and notes with the central bank. Now they will drop by 0.5 per cent to 16 per cent.
“The Chinese banking system is built on quicksand and that’s the one thing a lot of people don’t realise,” Chanos explained. “Everybody seems to think it is a free and clear open checkbook. It’s not.”
In fact, all the signs are there. The MSCI China Financials Index of bank stocks has declined 32 per cent this year. The estate market is close to collapse. This could send shockwaves across the country.
To counter the situation, the central government has been pumping money to offset the harm done by speculators and business sharks
State-run Central Huijin Investment Ltd., an arm of China’s sovereign wealth fund, said that it started buying stock in the four biggest Chinese lenders after their shares tumbled this year.
The People’s Bank of China (PBOC) also cut the reserve ratio for more than 20 rural credit cooperatives nationwide by half a percentage point to increase their lending capacity.
However, the PBOC also said that restrictive monetary policy put in place last year would continue as long as it is necessary.
Reserve requirements are the minimum reserves banks must hold (rather than lend out) of customer deposits and notes with the central bank. Now they will drop by 0.5 per cent to 16 per cent.
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See also
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24/06/2020 12:38
24/06/2020 12:38
