I was wondering do you have any figures for the 1999 initial bonds issued by the AMCs to the banks? I cannot find a value for the Great Wall / ABC Bond.

Also, it appears to me that the PBOC / AMCs stopped issuing good data on disosal / cash disposal etc for these NPLs around 2004 / 6. It seems that Huarong, Great Wall and maybe even Orient were not even making interest payments on their bonds… Cinda seemed to be doing better at first, but the low hanging fruit / ice cream theories suggest that the whole thing went pretty badly.

Do you that the Ministry of Finance will indeed pay off the principal of the bonds when they mature this year and next (as CCB, BOC and ICBC state in their account notes)? Or will a new bond be issued to delay the problem another 10years or so?

Also may I thank you for writing with such clarity and accessible sophistication on these subjects. I am sure I am not alone in wishing for a book in the near future!

http://online.wsj.com/article/SB124148012581385199.html

What is going on here? Will this lead to another major scandal/collapse in the US financial landscape?

Sharpe_Mind, my point is not that Chinese debt at 40% (at least — it is likely to be more) is a problem today. More serious is that they dealt with the last crisis in effect by growing debt from nearly zero to above 40%, and even this understates the cost because several years of over 10% growth makes what were once large numbers much smaller.

In a brave new world of declining fiscal revenues, rising fiscal expenses, and much slower expected growth rates, another surge in NPLs might be far more difficult to deal with when the debt base is already 40% of GDP. Remember that in 1990 Japan’s debt as a share of GDP was negligible, but by the end of the decade, and largely as a consequence of cleaning up the banking system, it significantly exceeded 100% of GDP. Banking messes can be costly, and if you’re going to wade into one its best to do so with a very strong balance sheet.

Two other points I found eye-catching:

(1) loan applications were up 85% yr-yr in 1Q09.

(2) working capital loans were the most frequently applied for (70% of applications), followed by bill-discounting (16% – isn’t this a working capital loan if it’s not a carry trade as discussed?) and fixed asset investment (14%).

This breakdown is by type of application, not the amount requested or committed, so the disparity may not be as big and (to me at least) strange as it first looks, esp against unstoppable FAI growth.

Maybe someone else can synthesize these and the other anecdotes mentioned here into some meaningful conclusions. After a few tries, I don’t think I know enough to go further than:

(1) loan growth like this can only come at the expense of credit/risk management. Without digging out financials, the only place I can think of where loans grew at this pace (in this cycle) is Kazakhstan. That’s working out GREAT.

(2) a lot of people need working capital and I’d like to know what they need it for.

The most recent (CLSA) PMI maybe suggests a need to buy inventory, but if so barely. I think it would be a reach to say that there is sufficient evidence of domestic demand to call a big working capital shortage anything but negative (driven by sales/inventory/collection problems) to neutral (the demand materializes before such problems).

(3) an 85% increase in loan applications doesn’t reconcile in a sensible way with giving money to people who don’t know what to do with it.

Michael, any chance you’ll post your list of top 10 economic history books?