Yesterday, when reporting on the latest development in China’s ongoing under-the-table stealthnationalization-cum-bailout of insolvent enterprises courtesy of a proposed plan to convert bad debt into equity, we noted that while China has already managed to convert over $220 billion of Non-performing loans into equity, concerns – both ours and others’ – remained. As Liao Qiang, director of financial institutions at S&P Global Ratings in Beijing, said coercing banks to become stakeholders in companies that could not pay back loans will further weigh down profits this year. Instead of underpinning stability at banks, the efforts undermine it.
That said, while many have voiced their pessimism about China’s latest attempt to sweep trillions in NPLs under the rug, there had been no comprehensive analysis of just how big the impact on China’s banks, economy or financial system would be as a result of this latest Chinese strategy.
Until now.
In a must read note released by SocGen’s Wei Yao titled “Restructuring China Inc.” the French bank tackles just this topic (and many others). What it finds is disturbing and serves as a confirmation of all recent bearish assessments – most notably that of Kyle Bass – that China’s bad debt problem will end in tears.
Here is Yao’s summary:
This post was published at Zero Hedge on 05/23/2016.
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