Local Chinese Banks Failing

Background:

Small banks in China are running into trouble. Savers could lose everything - CNN

but as far as the quashing of the protests, it’s all China knows. It’s a public embarrassment to the government so it’s a threat to their rule. So they go to default mode, which is “end it by any means necessary”. They tried turning their public passports red last time they wanted to gather, and they came back again. So they went draconian.

 

China’s economy is a giant debt inflated house of cards. How long they can artificially prop it up remains to be seen

 

And the bigger problem is the US economy is heavily tied to theirs. If this spreads in China, it will have a very nasty effect on ours.

 

Could China's deflating economy set the stage for a global recession?

 

Why wouldnt it’ll be good for us? They don’t buy much from us, $164B of our $21T economy. The imports would likely get cheaper - we buy $450B from them. US investment in Chinese stocks is only $123B. By comparison 60% of the $93T US stock market is held by US citizens so that’s like $55T.

 

Wondering why this hasn't happened in Russia with all the sanctions on them. Like the protestors in China, once people are not able to get their money out, things will get more out of control.

 

Absolutely! This is from early 2020 and more centered on Covid, but outlines that scenario (even arguing that it's started and any recovery would have to be centered around China as well)

A China-Centric Global Recession?

 

In part, because our debt is tied pretty closely with them. China is second on the list holding $1.06T (or 3.5%) in US treasuries (Japan holds the top spot at 4.3%). This is actually down YoY which is a good thing. The other piece of this is the yuan is still pegged to the dollar. Like it or not, it behooves both nations to keep their economies humming.

Full disclosure: Macro-economics is not my forte. I know barely enough to be dangerous here, so I will defer more to the experts for the more intricate details.

 

I dont see why holding our debt is an issue, we are credit worthy. If we held their debt that would be an issue. Worst case scenario is they need money so they sell our debt fast which lowers the demand for newly issued debt. Just guessing. China is A+ we are AA+ today.

 

Sounds familiar

 

There would likely be several in line to pick up that debt if China were to call it in for sure. That could mitigate things. But if they did that, it would also likely increase the price of their exports since (if I understand it properly) it would devalue the dollar as well.

U.S. Trade Deficit With China and Why It's So High

 

I get that. But the local government can have the same concern as the National one. And beyond that, the National folks would have likely ok’d them getting tough.

 

China has a few local banks that are not liquid. By itself, is not a calamity tho hard on local depositors. Had these same troubled banks made volatile 'real estate/development loans' that went sideways?
Or, are these bank failures potentially systemic within the entire national banking system?

 

Those 4 rural banks basically got co-opted by a conman who used the banks as a conduit to lure money in with promises of 9-10% annual returns. He's since fled to the US, I believe, so the Chinese government will probably try to turn the anger toward the US which will almost certainly not extradite him. The amount of money involved is not that much, but there's always a question of just how widespread this type of con is in China? The regular depositors will probably be made whole, but I'm not sure about the investors who got the high return deals. Deposits are insured, investments are not.

 

The events of this year have strongly suggested that we need to divest ourselves of any business with China that we cannot easily walk away from in the case of war. If this nudges us in that direction, then so much the better.

 

There is no will to do that, either from corporate leaders sacrafacing profits or from the American public having to buy (in some cases) much more expensive merchandise.

So, while that is painfully obvious to anyone with common sense, we need to figure out a way to better co-exist with China, because that is our only realistic path forward.

 

If we know and understand that the guy was a criminal in China, a legit criminal and not some made political criminal, why would we not kick his arse out?