ARE CHINESE BANKS A SAFE BET?
I can tell you one thing; local Chinese don’t think so. The vast majority still hides their money under the mattress and pays cash for all their purchases from a two cent bowl of rice to the $200,000 house in a swanky Shanghai suburb. Banks are for multi-national corporations, central, state and city government-owned enterprises. The rest of the populace trusts a Chinese bank about as much as I trust a can of Chinese produced pet food not containing any melamine!
Twenty years ago Japan had five of their banks in the global top ten and today China has all but replaced Japan as its top five banks market capitalizations now capture five of those top ten positions. Japan now has only one bank in the top ten. We all know what happened to Japan’s banks. Starting in the late seventies, flush with cash from booming exports, for years they had loaned money to property investors and developers. At one point highly leveraged Japanese corporations owned trophy properties in the States from Pebble Beach golf course in Northern California to the Rockefeller Center in Manhattan, N.Y. In the late eighties downtown Tokyo real estate was valued twice that per square foot as prime Manhattan or London properties. The Japanese thought “comparatively cheap” overseas real estate provided huge opportunity for investment.
Public opinion in America was aghast at how quickly the people they had nuked forty odd years earlier started winning a different type of war, using their yen and plenty of it taking over U.S.A. real estate. That was until Japan’s bubble burst and with Japan out of the market values of commercial property around the globe went into huge decline, bankrupting hundreds of Japanese companies. The Japanese Banks, suddenly awash with bad debt, simply refused to adjust their books accordingly for several years. That was until the government finally had to concede the banks assets were ridiculously overvalued and thus directed them to write off their bad loans. This resulted in most of the big banks either going broke or merging. The Japanese economy is still vastly superior to China’s, yet what amazes me is only one Japanese bank remains in the top ten.
Japan’s domestic economy from the early nineties entered into an era of deflation from which it has never recovered. In making this statement however, right now the true reserve currency for the world is the yen and until it can be seen President Obama’s stimulus package has actually started to create jobs and growth, Japan’s currency will continue be a currency of refuge and will continue to rise in value against the Euro and dollar. Not that I agreed with President Obama bailing out our banks and Wall Street, but at least our banks are now truly capitalized according to their true value.
Now to my point about Chinese banks; with a population of 1.2 billion the vast majority of whom wouldn’t let one renminbi note leave their homes or pockets unless it was to buy something, what keeps Chinese banks ticking? Lending money to state/city owned businesses and relying upon their deposits for liquidity. It is the same money going around in circles. We all know Chinese goods are sold at fire sale prices, so I don’t believe Chinese corporations are that profitable, if at all. Example; GM makes a million cars a year there and I have never read any reports from GM about the profitability of their Chinese joint venture, because this is none! To me Chinese banking is the greatest kite flying scheme the world has ever known. Bernie Madoff’s sixty $billion ponzi deal is small fry. The day will arrive when similar to Japan, the banking system will implode. If I were a Chinaman I would rather take my money to Macau and take my chances on the roulette wheel than deposit the equivalent of one dime into a Chinese bank.
You’ve read it here first. China’s stimulus package and their continuing decline in export revenues will lead to a collapse of mammoth proportions. It will be all over for the black haired (from the bottle) geriatric boys with those horn rimmed glasses who rule from Beijing! China’s economy is nothing but a house of cards and its banks will go the same way as Japan’s did. The best deal Bank of America ever made was two months ago to sell its holding in China Construction Bank before it became China “Destruction” Bank!
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