Learn to like China's rotten banks
2017-04-03 22:38阅读:
- Joe Zhang met with visitors from GIC
Clients: As a former central banker and a former research analyst,
how do you feel about the Chinese banks these days?
Joe: I always like the banks. I published at Economist, SCMP and
Nekkei in the past five years to argue the points. I may sound
ridiculous: they are well run. They are doing better each day
thanks to the overbearing regulator and fierce competition. But the
harsh reality is, four years into a recession, the banks are
burdened with tons of NPLs - no less than in Italy or Spain. This
is a systematic problem. The banks are a mirror to the economy and
when the economy slows like this, even well-run banks cannot escape
the hurt. We are approaching the bo
ttom and the worst is not behind us. Many banks are probably
running on empty, whatever their provisions for NPLs. Meanwhile,
most non-bank financial institutions (trust companies, micro
lenders, leasing companies, pawnshops, finance companies, P2P
operators and factoring firms) are decimated. I have small personal
stakes in five such firms and am nursing my wounds. The banks do
relatively better thank NBFIs because of endless liquidity, much
lower cost of funding and state backing.
But is a rotten banking sector scary? Are we headed to a train
crash? Absolutely not! First, liquidity flows are strong at 11-12%,
so the banks will take time to replenish their capital base, while
still paying high dividends every year. Secondly, the banks are
state-owned and the state does not hesitate to tell one good bank
to take over a failing one, and if that is still not enough, the
printing press is ready to flood the market with new equity. The
Italian and Spanish officials wish they had that flexibility.
Finally, the absence of derivatives products can minimise
contagion. After all, dealing with any bank is dealing with the
government.
Clients: Are we going to see another bail-out and recapitalisation
of the Chinese banking sector?
Joe: I do not think so. The exercise in 2000 proved to be a huge
mistake and has caused a giant credit bubble ever since. In my
view, there is no political will to repeat that exercise. It is
unnecessary any way.
Clients: Surely this 'Ponzi scheme' cannot go on forever?
Joe: Of course not. But in the past 39 years that is the path China
has travelled down. We got huge inflation and its flip side: a
currency devaluation. The crazy property price and the
overvaluation of the domestic stock market are proof. Forget about
the official CPI data. The true inflation in medical care,
education, food, transportation and so on is scary if you look back
five years, ten or twenty years. On the flip side, when I became a
rooky central banker in 1983, one US dollar sold for two yuan.
Today, 6.7 yuan. Shocking! This devaluation will go on and on.
Because of fast rising M2.
Clients: Are we in for a drastic collapse of the yuan's
value?
Joe: I do not think so. The state is still in good control of the
economy. Secondly, China still records 50-60 billion dollars of
trade surplus each month. Its factories are still fiercely
competitive. A moderate but continued depreciation is what I
expect.
Clients: What kind of Chinese stocks do you like?
Joe: I do not like anything. When you have the outlook of continued
currency depreciation, the equity market is simply not very
attractive. Any earnings growth is a wash against the currency
devaluation. You can look elsewhere for China plays such as
Glencore, Apple, etc. But anyone expecting a China credit crisis or
a currency crisis is dead wrong.