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China's debt 'bomb' about to go 'bang'

Posted By F. Michael Maloof On 04/07/2013 @ 8:12 pm In Front Page,Money,Politics,U.S.,World | No Comments

Editor’s Note: The following report is excerpted from Joseph Farah’s G2 Bulletin, the premium online newsletter published by the founder of WND. Subscriptions are $99 a year or, for monthly trials, just $9.95 per month for credit card users, and provide instant access for the complete reports.

WASHINGTON – The debt “bomb” of the People’s Republic of China is about to go “bang” as the country goes through its own little-known banking crisis, coupled with overcapacity and inflation, a prominent Hong Kong economist says in a report from Joseph Farah’s G2 Bulletin.

Larry Lang said that China’s banking crisis began last year with stocks in the Bank of Communications dropping below book value.

He attributes the banking crisis to local governments around the country defaulting on their debts, from Shanghai to Sichuan and Yunnan provinces.

The banking crisis that has been going on in China out of public sight has occurred in some 16 banks where stock prices have fallen below book value, Lang said, something which hasn’t happened in other countries, underscoring its potential severity.

At the same time, Lang said, what he calls a “shadow banking system” which includes private loans, corporate credit and underground financing similarly is experiencing serious problems.

“The shadow banking system is preferred by many local businesses, real estate and manufacturers, and has some 30 trillion yuan worth of loans in the market,” he said. Thirty trillion yuan is equivalent to $4.8 trillion.

Lang said the shadow banking system soon will accumulate too much debt and it will become “another horrific financial crisis for China.”

Authorities of the Bank of China have admitted that the shadow banking system similarly offers “tremendous risks” to the PRC’s banking and financial systems.

Outside assessments similarly have warned of China’s impending financial crisis. Nomura Holdings, Inc. in a report said that the Chinese economy was showing similar signs as those that caused the West’s 2008 financial crisis.

Analysts say that one of the issues has been the large amounts of money involved in the real estate market, using local financing which in turn had come from large state-own banks.

Now land sales have dropped significantly and considerable construction has occurred on the land but the buildings remain vacant. In many instances, those loans cannot be paid back and will become bad debts.

With bank stock prices dropping dramatically, banks are quickly becoming insolvent and experiencing bankruptcy.

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