Monday, January 15, 2018
Thursday, December 28, 2017
The shadow banking system in China reminds leaders of the United States around 2005 — but China’s shadow banking is larger, more top-heavy, and less susceptible to centralized control. Authorities hope that reforms and arrests will prevent a sudden collapse in the future. From Reuters:
The danger is that a big default or series of loan losses could cascade through the world’s second-biggest economy, leading to a sudden halt in bank lending.
Top leaders in Beijing have acknowledged that the colossal volume of complex and potentially risky lending obscured in shadow banking compounds the threat posed by the economy’s tremendous accumulation of debt since the global financial crisis.
The full story is a long read at Reuters that may serve as a snapshot of the current state of the shadow banking system in China:
Friday, September 15, 2017
Under new regulatory guidance, all cryptocurrency exchanges in China are telling customers today how and when they will stop trading. No new customers can be registered after today, and the exchanges have five days to send a wind-down plan to authorities. Exchanges cannot simply shut down today, but must minimize financial risk for their customers. Reuters story at Forbes: China Is Shutting Down All of Beijing’s Bitcoin and Cryptocurrency Exchanges.
The move is not a complete surprise after China banned cryptocurrency-based securities, released an official finding that cryptocurrency cannot be treated as currency, and urged licensed banks not to trade in cryptocurrency. Currency controls, though not fully effective, are seen by central government economic planners an important part of national economic controls, and cryptocurrency inherently has the potential to undermine or soften currency controls. One major bitcoin exchange had already announced it was closing at the end of the month, citing tighter regulation as its reason for closing.
Bitcoin has lost some of its value in recent days as officials and analysts have expressed skepticism about the format. Bitcoin fell 5 percent after China’s announcement on cryptocurrency exchanges, though bitcoin is highly volatile by nature. A 5 percent move would represent a panic if it occurred in a national currency but is expected in bitcoin, which is not considered a store of value.
Thursday, September 14, 2017
Fuel-burning cars are a problem. Everyone knows it, and several countries have already announced plans to phase out fuel-only cars within 20 years. It was policy announcements from France and the United Kingdom that go this particular ball rolling, and the list also includes Norway and India. Japan and almost half of Europe have official policies limiting the number of fuel-burning cars in the future, and still more countries have government programs such as tax incentives to boost sales of zero-emission vehicles. Germany, the inventor of the internal combustion engine, is guiding its automakers toward a zero-emission future, although no official policy has been adopted yet.
China might be moving slower, but no one should imagine that Chinese drivers will continue to watch the country’s most expensive import go up in smoke while rest of the world switches to electric. Officials involved in the planning have told reporters that China is likely to release a plan in line with the timetable that France has announced. I believe the timetable for the phaseout of fuel-burning cars in China will be a few years faster because of the enormous risks China faces if it falls behind on such a large worldwide trend. The risks China faces if it is ahead of the curve are slight by comparison.
The pre-announcement of a phaseout is meant as a signal to both domestic and foreign manufacturers. Factories in China are on notice not to invest in any more capacity for manufacturing fuel-burning cars. Foreign manufacturers are being told to have their zero-emission options ready within a few years or risk being shut out of the China market.
The move from gasoline to electricity has picked up in the last two months now that Tesla is shipping a mass-produced electric car that blends in on the road and has not demonstrated any obvious glitches in its first few weeks. The question is no longer, “Will it really work?” or “When is it coming?” but “How fast will it go?” As drivers gain confidence in electric cars, the transition could be much faster than the timelines that national planners are drawing up. Some traditional auto manufacturers, most notably General Motors, will surely not be ready in time.
Tuesday, September 5, 2017
There has been a boom in highly speculative securities issued in the form of cryptocurrency, and securities regulators are taking note. In the last two months, the United States, Canada, and Singapore have issued regulatory guidance that cryptocurrency that represents a kind of ownership interest must meet securities regulations. Now China, noting that recent cryptocurrency offerings have seen inordinate fluctuations in value, has banned this practice as a means of funding a business venture. The story at Reuters:
Thursday, August 3, 2017
Reuters has a feature story from Spain about money laundering suspects arrested in 2012. The striking thing about the story is the scale of the smuggling of ordinary manufactured goods from China into Spain. The smuggling was large enough that a money laundering ring could dictate which national retailers could get certain categories of goods and which could not. There was — and presumably still is — enough smuggling to keep banks busy in four countries. If similar tax evasion schemes are operating in other countries, then they are large enough that they would have to be an integral part of economic planning for exports from manufacturing countries.