What will the Chinese collapse look like?

China’s richest man might have been running a massive fraud

Probably like that, functional one day, a pile of rubble the next. Which is why so many of the wealthy Chinese are buying so much property in Canada, and the United States.

​More below the fold.

David Stockman is at his breathless best with even more dirt here:

Red Ponzi Update——-Gambling Like Never Before

What is most impressive is the ability of the Chinese CCP to keep pulling rabbits out of the hat! This too will end.

Stockman points out the at the Chinese banking sector does not really exist, at least as a separate entity from the CCP.

"We have been contending for quite some time that China’s so-called banking system is just an extension of the Beijing based state command and control machinery. It has virtually nothing to do with legitimate banking, and, in fact, is just a giant financial waterfall through which fiat credit is sluiced into the economy on a top down basis.  Surely, the billions that were being pumped into the Anergy ponzi—–in the face of what even a lending officer trainee could see was a stock rigging operation—–leaves no other conclusion."

This makes it easier to keep the float going, but once it finally gives out, there is nothing to stop the collapse, and so it is very likely to look like the collapse of Hanergy Thin Film Power.

What apparently happened is the owner of the stock was borrowing money against the stock value, and at the end of each day buying up a quantity of stock driving up the price. This was done over a long period of time, making the owner China's richest man, until he ran out of money to continue the kiting. Then in a few hours, the stock collapsed.

What percentage of China's stock market is this kind of stock kiting?

The dangerous Chinese debt bubble

"The question now, though, is how much the rest of China's economy has come down with Hanergy syndrome, papering over problems with debt until they can't be anymore. And the answer might be a lot more than anyone wants to admit. Although we should be careful not to get too carried away here. Hanergy is now a nothing that used debt to look like a very big something, while China's economy actually is a very big something that is using debt to look even bigger. In other words, one looks like a boondoggle and the other a bubble. But in both cases, excessive borrowing — especially from unregulated "shadow banks," such as trading firms — has made things look better today at the expense of a worse tomorrow."

Well, maybe. 

"Debt can be a dangerous thing, and it's not just Hanergy but also China itself that has a lot of it. According to the Economist magazine, China's total debt has gone from 155 percent the size of its economy in 2008 to 260 percent by the end of 2015. And that, in turn, has created three big problems. The first is that most of this money has poured into just a few sectors of the economy — in particular, steel, cement and housing. The result has been a glut that has pushed down prices so much that companies can't afford to sell at them. But they can't afford not to either, because they need some money coming in to at least pay the interest on what they owe."

This is a stunning paragraph, and it explains why the Chinese are so eggar to cut prices to near zero to sell all of the excess steel. They are up to their keisters in excess steel. This is an attempt to find a market for a salable commodity held in vast quantities.

They will not be able to do that with housing, that is fixed in place. China has about 60 million+ excess housing units, note that America has about 117 million total housing units. Right, this is a bubble.

As for cement, China over the past 4 years has produced and used more cement than America used during the 20th century. Can we just call this a bubble?

"In a normal economy, the word for this kind of situation would be "bankruptcy." But China is far from being a normal economy. The government still controls a lot of banks and companies, so it can tell them when to lend, when to borrow, and when to restructure or roll over debt all in the name of social stability rather than making money. It can also subsidize electricity or just give companies cash outright to keep them in business. That turns them into zombies — not so dead that they need to fire people, but not so alive that they can hire more — just kind of stumbling along."

Great! How many of these are there in the Chinese stock market? 

"That brings us to problem No. 2. It's hard to lend out so much money so fast without a lot of it going to people who won't be able to pay you back. In China's case, the consultancy Oxford Economics thinks this could add up to nonperforming loans equal to 14 percent of gross domestic product.

* * * 

The biggest problem, though, is that Beijing hasn't done anything about this. Well, other than make it worse. Why do I say that? Because every time the economy slows down, like it did last year, the government just opens the lending spigots up again —which you can tell by the fact that its housing market is looking bubbly again. But while this adds more debt than before, it doesn't add as much growth. Think about it like this. China already has so much debt that a lot of new loans are just going to pay for old ones instead of for new projects."

Brilliant! loads of rubbish loans, and total debt saturation! Now can we call it bankruptcy? 

"Now, if this sounds too close to being a Ponzi scheme for comfort, that's because it is. But it's been Beijing's policy for the past five or six years even though it knows better. Indeed, the government's official mouthpiece the People's Daily just warned that too much debt could lead to "systemic financial risks."

Hanergy isn't China, but Hanergy is what's wrong with China. That's an over-reliance on borrowed money, the belief that there's no problem another loan can't put off, and that you can always play another song after the music stops.

Whether you're talking about a company or an economy, that works until it doesn't."

I can't tell if that means bankruptcy or prison!? It doesn't really matter, you should not be investing in China or anything reliant on China under any circumstances. Let Hillary's son-in-law play that bet in his next hedge fund. He should be able to double his losses on that one, easy! So, American companies like Caterpillar are a danger, since the Chinese collapse will destroy a huge portion of sales (this has already happened in part, but I expect the problem to worsen). Other companies with large a large Chinese presence may also be in for a seriously bumpy ride.

Maddog has been watching this unravel for quite a while, take all reasonable precautions to keep from being damaged once this Ponzi goes, because anything which cannot go on forever will end. Herbert Stein.