Chinese bank run?

[copyright1997reloaded]

I was in BA when Argentina unpegged the peso from the dollar. The US news showed the usual "chaos" footage.

I was sitting in a cafe when my wife called to check in on me because of the "chaos in Buenos Aires."

"Well, I'm sitting in a café across the street from one of the banks. There is a long line of people waiting to get their money out. But a waiter with white gloves just delivered an espresso on a silver platter to someone in line so I think it will be OK."

When pegged to the US dollar, Argentina was able to reduce its inflation rate to 3.4%. Since the peg was lifted, the Argentina peso has fallen from parity and is now officially worth .0079 US$, and the inflation rate is now around 73%.

Perhaps there should have been more chaos - the smart ones understood what was to come.

 

[Gremlin]

I’ll never forget the image of the man standing in front of the tanks at Tiananman square. I have a picture of my two daughters (both adopted from China) standing in the square. They were only 7 years old then and we’re less than impressed at the time lol. All they wanted was to escape the heat and go to McDonalds!

 

[ER_Hopeful]

Hah, it's a long time before Chinese people get to invade Xi JinPing's palace, and tour his residential quarters.

Sri Lanka's armed forces are not as well armed as the Chinese People's Liberation Army, and most likely nowhere as brutal.

Heck, the Chinese gummint so far only had to send thugs in white shirts, and they could easily chase the protesters away, or captured some to lock up for an example.

Have people forgotten what happened at Tiananmen Square in 1989?

The sad truth is that most younger generations have never even heard of the June 4 '89 massacre due to extreme censorship. Most older generations , including my dad and in-laws, now denounce that student protest (their line of thinking: "young people influenced by evil America/West to overthrow the CCP", "had China turned into a democracy then, we wouldn't have the economic miracle today", "Authoritarian is good because we can accomplish things fast ", etc, etc) Even though they're living in America now but still heavily influenced by CCP propaganda thru Wechat. I totally understand why the Trump administration wanted to ban that app.



People in the mainland have a very different mindset ("what is democracy good for when you have no food or drink? what do you need democracy for when you have food and drink!"). This generally does not apply to the people in Taiwan or Hong Kong though.

 

[ncbill]

I was in BA when Argentina unpegged the peso from the dollar. The US news showed the usual "chaos" footage.

I was sitting in a cafe when my wife called to check in on me because of the "chaos in Buenos Aires."

"Well, I'm sitting in a café across the street from one of the banks. There is a long line of people waiting to get their money out. But a waiter with white gloves just delivered an espresso on a silver platter to someone in line so I think it will be OK."

Sure, but that someone had probably been smart enough to keep most of their assets offshore in US dollar accounts.

Before 9/11 the USA was a great tax haven for foreigners.

 

[almost there]

"Today, the existing communist states in the world are in China, Cuba, Laos, and Vietnam. These communist states often do not claim to have achieved socialism or communism in their countries but to be building and working toward the establishment of socialism in their countries." And some people still think its a great idea...............

 

[Bdroc]

So this is an interesting -- and disconcerting -- article.

Apparently a few Chinese banks have gotten themselves in a bad spot and are refusing to allow customers to withdraw money. Led to protests and an ugly clash with the police.

Small banks but still disconcerting. Particularly as two sizeable Chinese real estate firms have now defaulted on loans.

China has many tools to paper this over and won't have concerns about moral hazard, etc but bank runs can spread like a grass fire. If you're a citizen in Beijing and you start hearing that people can't get money out of the bank and the government just literally beat them into submission, may you starting quietly withdrawing some of the money from your bank...

A Chinese debt/bank crisis would have huge global ramifications.

https://us.cnn.com/2022/07/10/china/china-henan-bank-depositors-protest-mic-intl-hnk/index.html

They can always sell a $trillion of US treasuries to recapitalization their banks.

 

[almost there]

Lets just hope they never try to collect. As we owe them $1.08 trillion...............

 

[NW-Bound]

"Today, the existing communist states in the world are in China, Cuba, Laos, and Vietnam. These communist states often do not claim to have achieved socialism or communism in their countries but to be building and working toward the establishment of socialism in their countries." And some people still think its a great idea...............

I don't know about Cuba and Laos, but China and Vietnam are absolutely no longer communist or even socialist. Instead, they adapted the worst practices of capitalism.

Businesses can do anything to make money, with no regards for the environment, or consumer safeties. Oh, they have laws, but the enforcers can be easily bribed to look the other way. Or the government officials are already invited to join the company as investors or directors.

Back on the economy in China, because the populace cannot invest their money abroad, about the only thing they can do is to buy homes to flip. And in contrast to the Western world where the home buyer or his morgagee bank only releases the money in exchange for a home ready to move in, Chinese home buyers make payments on the home as it is being built.

And Chinese home buyers are smelling something fishy, and are stopping payments on the homes in construction, because they are thinking the homes will never get finished.

There's little protection for the consumers in these countries. And that's why these fake Communist countries are anything but. If they were true Communist, there would not be any billionaire. These countries have plenty of the latter.

See: https://www.cnn.com/2022/07/14/economy/china-property-crisis-homebuyers-bad-debt-intl-hnk/index.html

 

[copyright1997reloaded]

Lets just hope they never try to collect. As we owe them $1.08 trillion...............

Easy...just give them a federal reserve note for$1.08 trillion. What's a little monetary stimulus going to do?

 

[almost there]

Easy...just give them a federal reserve note for$1.08 trillion. What's a little monetary stimulus going to do?

You are right. The inflation today has nothing to monetary stimulus / devaluing our currency. Things will be fine any minute now. Just turn on the TV. They will think of something.

 

[MichaelB]

Lets just hope they never try to collect. As we owe them $1.08 trillion...............

They can’t. They have no other option with that money. They aren’t doing us a favor by buying US Treasury bonds, we’re doing them a favor by letting them recycle their trade surplus.

If China were to collect the maturing bonds and exchange them for Chinese currency, and allow exporters to sell their surplus currency on the open market, the Remembi would appreciate substantially and make the Chinese export economy much less competitive. It would kill Chinese employment. The global economy would be better off, and certainly the US economy would be as well. That’s why it’s not going to happen.

 

[CardsFan]

I don't know about Cuba and Laos, but China and Vietnam are absolutely no longer communist or even socialist. Instead, they adapted the worst practices of capitalism.

I would argue that China has taken the worst of all 3 (Communism, Socialism and Capitalism) and combined them into a system of government that is involved in every facet of your life.

The small office we have over there (had to me since I am FIRE) was required to have a Communist Party Committee of three. All were party members. All business dealings were reported the "higher" committee on a regular basis.

 

[NW-Bound]

It's actually Fascism.

From Merriam-Webster Dictionary:

Fascism: A political philosophy, movement, or regime (such as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition.

 

[NW-Bound]

They can’t. They have no other option with that money. They aren’t doing us a favor by buying US Treasury bonds, we’re doing them a favor by letting them recycle their trade surplus.

If China were to collect the maturing bonds and exchange them for Chinese currency, and allow exporters to sell their surplus currency on the open market, the Remembi would appreciate substantially and make the Chinese export economy much less competitive. It would kill Chinese employment. The global economy would be better off, and certainly the US economy would be as well. That’s why it’s not going to happen.

So, they are manufacturing things for us for peanuts, in exchange for keeping their people employed and busy?

Seems to me we get a better deal out of this exchange.

 

[ncbill]

I know it won’t come anywhere close to solving their country’s problems, but at least the people of Sri Lanka have a small sliver of satisfaction of running their leader out of his palace and swimming in his pool. Even if only for a moment! Hopefully they get access to fuel, food, and medicine soon.

One pf the issues there is the enormous debt that country has run up with China.

China kept rolling it over...laissez les bon temps rouler.

IMHO, China's about to get a lesson in sovereign default.

 

[copyright1997reloaded]

They can’t. They have no other option with that money. They aren’t doing us a favor by buying US Treasury bonds, we’re doing them a favor by letting them recycle their trade surplus.

If China were to collect the maturing bonds and exchange them for Chinese currency, and allow exporters to sell their surplus currency on the open market, the Remembi would appreciate substantially and make the Chinese export economy much less competitive. It would kill Chinese employment. The global economy would be better off, and certainly the US economy would be as well. That’s why it’s not going to happen.

What's stopping them from buying assets in the USA using that money. For example, plants, land, housing, etc.? Not implying the CCP or government would do this, rather citizens of that country (who just coincidentally happen to be members of the CCP).

 

[NW-Bound]

What's stopping them from buying assets in the USA using that money. For example, plants, land, housing, etc.? Not implying the CCP or government would do this, rather citizens of that country (who just coincidentally happen to be members of the CCP).

I am sure that they have, the "elite class" of China. They are smart to keep their mouth shut, while accumulating assets overseas.

They bought more than just assets too.

A couple of years ago, Al Jazeera obtained and published a list of rich people who bought citizenship of Cyprus, who was glad to issue passports in exchange for a few million US dollars. More than 500 Chinese nationals were on the list, along with those from other third-world countries such as Vietnam.

It is not unusual for rich people to migrate wherever they want. But what is unique in this case is that some of them happened to be public servants in their native country. I don't know of any country that allows a holder of a public office to have dual citizenships.

These people use Cyprus as a steppingstone, because it is part of the EU. Holding a Cyprus passport allows them to travel and stay freely in Europe.

 

[Ready-4-ER-at-14]

Japan invested heavily here at one time buying up pricey Real Estate with their trade surpluses. Funny how that bubble burst at the worst possible time, and they liquidated with huge losses...

 

[NW-Bound]

Another crazy side issue is that China has these ID cards that everyone uses for things traveling on trains etc. that monitor everyone's location. When protests were planned for this some government official turned everyone's "Health Code" to red so that people could not travel to protest.

https://www.reuters.com/world/china...-codes-turning-red-depositors-say-2022-06-14/

Yes.

Whether the CCP may or may not be in cahoots with the scamming bankers, they absolutely do not want to see any protest in the streets, for fear that it will grow into grievances against other corruptions and abuses of power that have nothing to do with banking. So, they do what they can to shut down protesters, instead of resolving their complaints.

Surely, you don't think that the bank being protested against could mobilize thugs in white shirts to beat up and arrest the protesters, instead of the local government doing that?

The CCP also is very quick to delete any video posted on the Chinese social media, but somehow some videos get leaked out to YouTube which is not allowed access to Chinese people.

One video I happened to find was captured by a bank client who managed to get to the teller window to ask for a cash withdrawal. He was asked for a residency card before he could withdraw. He said he stayed outside the city but came to work there. It was not a requirement to open an account, and now his money was lost.

Unbelievable!

Some of the banks now issue only 300 tickets each day for people who want to come to a teller window. This is how they stop a bank run. People line up at 2-3 AM to get a ticket. Or they lock people's bank accounts. To get the account unfrozen, people have to appear in person to submit forms including a residency permit.

Unbelievable!

 

[MichaelB]

So, they are manufacturing things for us for peanuts, in exchange for keeping their people employed and busy?

Seems to me we get a better deal out of this exchange.

Well, China gets full employment and we get lower cost goods, but with some unemployment. This trade off works better for the employed…

 

[MichaelB]

What's stopping them from buying assets in the USA using that money. For example, plants, land, housing, etc.? Not implying the CCP or government would do this, rather citizens of that country (who just coincidentally happen to be members of the CCP).

That’s what happened with Japan in the 90’s. They accumulated large surpluses. Domestic demand was deliberately constrained so there was no need to invest locally, so they used that money to buy office buildings in NY, golf courses in California, copper mines in Peru, loans to emerging economies, and lots of domestic real estate. We know how that ended - badly for Japan. The economy stagnated, banks became insolvent and required Central Bank support, asset owners become insolvent and most of the assets have been disposed of.

The situation in China right now is not much different.

The only sustainable solution for China for the large trade surplus and the current banking problems (which is the thread topic) is increase the labor share of the domestic economy. They know this, and probably want to, but cannot, because their political structure and needs won’t allow it to happen.

The trade surplus is artificial, created by suppressing wages and limiting domestic demand. The large exporting countries (China, Japan, Germany, Switzerland, Taiwan, etc) could solve this by letting their currencies float freely and increasing the labor share of domestic GDP, but all are unwilling to do so. The large accumulation of $US reserves around the globe will continue unabated.

 

[Gremlin]

So, they are manufacturing things for us for peanuts, in exchange for keeping their people employed and busy?

Seems to me we get a better deal out of this exchange.

Busy, employed citizens have less time to contemplate attending protests. I’m assuming the Chinese government sees that as a big bonus for them.

 

[jazz4cash]

Looking at the constraints on depositor withdrawals and mortgage strike, it makes me wonder how this WILL NOT spread throughout the global economy. Here is one report that seems to agree with that thought.
I’m not familiar with this network but they cite bloomberg a few times.
So how do we protect ourselves from this?

 

[eytonxav]

What's stopping them from buying assets in the USA using that money. For example, plants, land, housing, etc.? Not implying the CCP or government would do this, rather citizens of that country (who just coincidentally happen to be members of the CCP).

I was under the impression CCP influenced/controlled businesses having been doing that for some time and that seems to be continuing.

 

[misanman]

It's hard for me to understand China. About 5 years ago, a Chinese man bought the house next door to us for about $700k for his son to live in while the son attended university. The son drove a Porsche. The son has been gone for a couple of years, working a job in California, but they held on to the house. A lady from the university-affiliated Chinese cultural center would come by occasionally to look after things. Now, both father and son are back (California job didn't "work out"). The son says he wants to take his father back to China but the province they are from is in "lock down" and they can't go back now. Meanwhile, they are not really maintaining the property. Not sure if this is due to cultural issues or what. All seems very strange to us.