Sunday, August 07, 2016

Only In China: Companies Become Banks 
To 'Solve' Financial Difficulties
Article highlights the insanity now happening in China as there is desperation to solve several problems due to its debt to GDP ratio being north of 300% .. if you are a company & have debt problems, just become a bank .. "China needs 11.9 units of new debt to create one unit of GDP growth. At the same time, the velocity of money or the measure of how often one unit of money changes hands during a year has fallen to below 0.5, another measure of how saturated the economy is with uneconomical credit. If the velocity of money goes down, the economy needs a higher stock of money to keep the same level of activity So if companies can’t pay back loans, old banks don’t want to give out loans, and consumers don’t want to circulate the money, you can just let some companies become banks to prevent them from defaulting and maybe even issue new loans to themselves. It would not be the first time China has tried a circular financial arrangement to solve some structural issues."
LINK HERE to the article

1 comment:

Anonymous said...

China's Marshall Plan

China's ambition to revive an ancient trading route stretching from Asia to Europe could leave an economic legacy bigger than the Marshall Plan or the European Union's enlargement, according to a new analysis.

Dubbed 'One Belt, One Road,' the plan to build rail, highways and ports will embolden China's soft power status by spreading economic prosperity during a time of heightened political uncertainty in both the U.S. and EU, according to Stephen L. Jen, the chief executive officer at Eurizon SLJ Capital Ltd., who estimates a value of $1.4 trillion for the project.

It will also boost trading links and help internationalize the yuan as banks open branches along the route, according to Jen.

"This is a quintessential example of a geopolitical event that will likely be consequential for the global economy and the balance of political power in the long run," said Jen, a former International Monetary Fund economist.

Reaching from east to west, the Silk Road Economic Belt will extend to Europe through Central Asia and the Maritime Silk Road will link sea lanes to Southeast Asia, the Middle East and Africa.

While China's authorities aren't calling their Silk Road a new Marshall Plan, that's not stopping comparisons with the U.S. effort to rebuild Western Europe after World War II.

With the potential to touch on 64 countries, 4.4 billion people and around 40 percent of the global economy, Jen estimates that the One Belt One Road project will be 12 times bigger in absolute dollar terms than the Marshall Plan. China may spend as much as 9 percent of gross domestic product -- about double the U.S.'s boost to post-war Europe in those terms.
"The fact that this is a 30-40 year plan is remarkable as China is the only country with any long-term development plan, and this underscores the policy long-termism in China, in contrast to the dominance of policy short-termism in much of the West," said Jen.

And that's a win-win for soft power.

"The One Belt One Road Project could be a huge PR exercise that could win over government and public support in these countries," he said.
http://www.bloomberg.com//news/articles/2016-08-07/china-s-marshall-plan